Indias macroeconomic fundamentals have continued to improve. This positions uswell among the leading emerging economies. Progress has primarily been driven bycontinuation in government policy initiatives and benefits of a sustained regime of lowcommodity prices leading to improvement in the current account deficit lower infiationand robust foreign exchange reserves.
The retail segment continues to show steady progress. However corporate investmentsremain slow as capacity utilisation continues to be modest balance sheets are stretchedand global growth environment remains uncertain. This has impacted bank balance sheets inthe form of deterioration in asset quality. During the year the RBI undertook acomprehensive Asset Quality Review across all banks for appropriate recognition andresolution of stress in the system.
Our strategy of diversifying the business mix and sustained focus on deepening ourlow-cost deposit franchise has helped us deliver steady performance during the year. TheBanks retail businesses grew steadily and there was healthy growth in both retaildeposits and loans supported by an expanding network that remains critical to our retailfranchise. Our investments in the most relevant technologies the right talent and aboveall a customer-centric approach have helped us to successfully deliver on our strategyover the years.
The Bank delivered a core operating profit growth of 21% and a net profit growth of 12%during the year. Despite asset quality challenges and higher provisioning requirements wehave continued to deliver a healthy RoA of 1.72% and RoE of 17.49%. The Banks bookvalue has steadily increased by a CAGR of 16% over the last three years.
The Bank is well capitalised and our current Tier-I ratio is higher than what it wasthree years ago i.e. after when we raised capital in early part of Calendar Year 2013.During this period all our capital needs in terms of growth risk movements in theenvironment and regulatory changes have been met through our internal accruals andefficient capital allocation strategies.
As a part of the RBIs Asset Quality Review a list of accounts for Axis Bank wasidentified by the RBI as potentially at risk from an industry perspective and was sharedwith us. The Bank recognised the necessary impairment and the resultant provisioningimpact of the asset reclassification as per the RBIs assessment in the third quarterof the fiscal year. The Bank has witnessed higher stress over the last couple of yearsemanating from the corporate banking segment. Gross NPA has increased from 1.34% as on 31March 2015 to 1.67% as on end March 2016; and Net NPA Level increased from 0.44% to0.70%.
The Bank is cognisant of the challenges faced by the sector and expects a turnaround inthe asset quality situation to be gradual. The genesis for most of the asset qualityissues lies in a combination of factors like slower economic growth certain projectspecific issues and a global commodity slowdown. These factors have also impacted thestress levels in the Bank. In the interest of transparency we have shared a watch list ofaccounts which is likely to be the key source of future stress coming from the corporateloan book over the next two years. The Bank would like to maintain its provision coveragearound current levels and also build up contingent provision buffers at every opportunity.
The Banks business model over the years has had infrastructure lending andproject financing as important components. During this cycle these exposures have seensignificant distress and contribute to the watch list. However the Bank has over the lastfew years successfully diversified its loan book with Retail and SME contributing almost55% of total loans. It has further improved its risk management and credit monitoringframeworks. An enterprise wide risk governance and risk appetite framework has beenimplemented which now ensures much more granular portfolio level risk management withinthe Bank. We have also been incrementally focusing more on higher rated corporate businessover the past few years. We expect that the measures adopted by the Bank coupled witheconomic recovery and the proposed government mechanisms for asset resolution includingthe Bankruptcy Code will go a long way in arresting the asset quality challenges and alsohelp in providing resolutions over the medium term.
Our aim is to be a full service bank offering the entire gamut of banking products andservices to our retail as well as the small medium and large corporate customers. Thepayment space remains a key area of interest for us; and we continue our sustained focuson government business cash management and on our strong transaction bankingcapabilities. Within this it has been our endeavour to constantly redefine our overallcustomer experience by introducing new products and services; and tweaking existingprocesses to provide customers with an easy seamless and omni-channel interface. Westrongly believe in doing things that customers truly care for and doing it in thesimplest possible way.
Indias financial sector landscape is evolving rapidly. Customers are increasinglyweaving their digital and physical worlds together with transactions being conductedseamlessly using multiple channels. At our Bank too we continue to see strong momentumtowards the adoption of digital channels by our customers. The transaction volumes on ouraward winning mobile application (Axis Mobile) have gone up almost four times compared tothat of last year outpacing every other channel by a wide margin.
Electronic channels now contribute 87% of all customer induced transactions in ourretail base. However we believe that branches will continue to play a key role incustomer acquisition providing localised services to our customers and we shall continueto build and nurture this franchise. We have opened 315 new branches this fiscal year andwill continue to make adequate investments in our branch network infrastructure goingforward.
Although banks have been extending their network to reach out to new geographies andcustomers the penetration of household banking services remains low in the country. Theemergence of a new class of banks - Small and Payment Banks will help accelerate financialinclusion by making the last-mile access more cost-effective and expanding the reach ofbanking to the unbanked.
With the advent of new players two macro themes will evolve over time. Customers whoare currently not a part of the formal financial architecture will get included; andsecondly as consumers realise the convenience of using technology-enabled alternatebanking channels the economy will see a gradual reduction in cash intensity. Both thesefactors will have a positive impact on the financial sector as a whole.
The new banks will start finding niches for themselves to operate in this increasinglycompetitive environment. On the other hand the incumbent banks will also find immenseopportunities to leverage on the brand value network technology and capabilities thatthey have built over the years to launch new products and services to their existing andprospective customers and increase activity levels in customer accounts through big dataanalytics and cross sell.
I believe India is on the cusp of an explosion in entrepreneurship. Supported by agrowing entrepreneurship culture a proactive government and rising availability offinancing young entrepreneurs are unleashing a wave of start-up ideas. Learning how toserve these businesses and offering a full product suite present a huge opportunity forbanks both old and new. In this regard we have created a new business vertical (the NewEconomy Group) within our Corporate Banking that aims to foster relationships withe-commerce companies and start-ups through a relationship-driven comprehensive coveragemodel. There is a whole new ecosystem that is being built on the backbone of technologyinnovation and enterprise. We are engaging with many of these new companies with ourinvestment banking solutions banking products meeting their transaction banking needsand serving their customers. In some markets we are partnering with these new companiesto fund their suppliers. We hope to be a prominent financial services provider in this newand evolving environment. A good example is Trade Receivables financing. Axis Bank is oneof the three entities which have been chosen to implement the Trade ReceivablesDiscounting System (TReDS) platform for facilitating cash fiows for SMEs.
This year the fury of nature was witnessed with devastating consequences be it theearthquake in Nepal or the fioods in Chennai. The Axis Family and Axis Bank Foundation inco-ordination with their NGO partners immediately rallied behind the affected people inwhatever way they could. Around 8000 Chennai fiood victims were provided food clothesand immediate first aid. We are happy to have played a role in alleviating their hardship.
The rise in number of extreme weather events that we are witnessing across the countryfurther substantiates the fact that climate change has become a harsh reality. As aresponsible Bank we acknowledge our role in supporting economic growth as well as inensuring environmental sustainability. During the last few years we have embarked onmultiple initiatives to help reduce our direct environmental impact and we will continueto explore more of such avenues. We remain committed to our sustainability framework andwill actively promote the integration of environmental sustainability and communitydevelopment in all our operational policies and lending decisions.
No organisational objective can be achieved without the spirit of perfect teamwork andstrong collaboration of its employees. The various awards that the Bank was bestowed uponthis fiscal year were testaments of the wholehearted commitment of our 50000+ employeesspread across the country. I am happy to share that Axis Bank is one of the two Indianbanks to have featured in the Top 75 safest banks in the world by The Bankermagazine. The Certificate of Recognition for Excellence in Corporate Governance by theInstitute of Company Secretaries of India is another significant achievement for us as aninstitution.
Our efforts to constantly innovate and invest in new technologies for the futurereceived further encouragement by winning the Best Bank Award for Digital BankingAnalytics and Big Data among large banks awarded by the Institute for Development andResearch in Banking Technology (established by the RBI).
Fiscal year 2016 has been a good year for all our subsidiaries as witnessed by healthygrowth in revenue and earnings of 38% and 29% respectively. Axis Capital continues to beone of the leading investment banks in India. Axis Asset Management Company (AMC) gainedmarket share during the year and is now ranked 11th in assets under management amongparticipants in the mutual funds industry. The AMC and Retail Brokerage businesses arealso contributing towards the Banks Retail Franchise building strategy by creatingvalue for Axis Family customers.
With a growing entrepreneurship culture supportive proactive Government and growingavailability of financing India the worlds largest democracy is poised for robusteconomic development. We remain confident of the Banks ability to leverage itsstrong retail and corporate franchises; and take advantage of the opportunities that mayemerge as the economy gains momentum. Meanwhile we will continue to build ourinfrastructure invest in technology and human capital to support our business growth.
I wish to take this opportunity to thank all our stakeholders past and present forsupporting us; and reiterate our commitment to delivering value to all our stakeholders.
Managing Director & CEO