Axis Bank sets ROE target of 18% on sustainable basis

Private sector lender Axis Bank has set a target of achieving 18 per cent Return on Equity (ROE) on sustainable basis as cost of funds is on decline.

The ROE of the bank stood at 8.09 per cent at the end of March 2019.

"Our aspiration is to deliver around 18 per cent Return On Equity (ROE) on a sustainable basis. The reduction in credit cost to below our long-term averages, portfolio choices driven by a risk-adjusted returns framework and improvement in operational efficiency would be the key drivers for RoE improvement over the next three years," Axis Bank CEO Amitabh Chaudhry said in the annual report.

Though it seems a tall order, the lender has delivered ROEs in excess of 18 per cent few years back and hence the bank aspire to do it again - on a sustainable and consistent basis.

"In recent years, driven in part by some unexpected negative surprises at the Bank, we have dented the trust of investors. We need to win it back. The only way to win it back is to have a business model, which sustains and generates credible financial outcomes quarter after quarter over a long period of time," it said.

From the perspective of the financial industry as a whole, the liquidity issues faced by some of the non-banking financial companies and housing finance companies over the last year can create some friction going ahead, but it presents opportunities for banks, it added.

The banking industry has seen return of credit growth and pricing power on account of shift in credit demand from NBFCs and bond markets back to banks, the lender said, adding banks with a healthy capital position, NBFCs with a robust parentage and financial intermediaries with significant market share are well placed to grow profitably, at a faster pace than their peers in their respective industries.

In this context, it said, 'One Axis' franchise with its presence across business segments is uniquely positioned to leverage this opportunity and grow at a faster pace. Great product mix, vast physical footprint, cutting-edge digital capabilities, robust corporate governance practices and one of the most valuable brands in India - all these combined open many possibilities for the Axis franchise in the near future.