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Business Standard

A new template for success

Axis Bank has built a formidable capital market business and has a strong balance sheet

Business Standard 

A new template for success
(From left): Rashesh Shah, Chairman & CEO, Edelweiss Group; Anil Singhvi, Chairman, Ican Investment Advisors; Rakesh Mohan, former Deputy Governor, RBI (Chairman of the Jury); M D Mallya, former Chairman, Bank of Baroda; and Saurabh Mukherjea, CEO (Institutional Equities), Ambit Capital

With weak economic growth and the burden of stressed assets, the banking sector was adversely impacted in 2014-15. Public sector banks bore the brunt, hurt by rising non-performing assets and dropping profitability. As a result, not a single public sector bank made it to the short list for the prestigious Business Standard Banker of the Year, 2014-15.

For the screening, three filters were used: banks’ total asset size must be at least Rs 50,000 crore; net profit growth of five per cent in 2014-15 over the previous year; and a positive net profit CAGR over the previous two financial years. Only the private sector banks passed the test.

A five-member BS Jury met at Hotel Sofitel Mumbai in the tony business district of Bandra-Kurla Complex on a Monday morning.

The jury was headed by the former deputy governor of the Reserve Bank of India (RBI) and former executive director of the International Monetary Fund, Dr Rakesh Mohan. He set the agenda by stating that while excessive risk-taking was bad, no risk-taking wasn’t a good sign either. To select the BS Banker of the Year, he said, a balance had to be found even as the bank should have carved out a niche for itself and maintained key financial parameters.

The other members of the jury were Rashesh Shah, chairman & CEO, Edelweiss Group; Anil Singhvi, chairman, Ican Investment Advisors; M D Mallya, former chairman, Bank of Baroda; and Saurabh Mukherjea, CEO (Institutional Equities), Ambit Capital.

The jury members opined that it wasn’t only tangible information that should be taken into consideration; intangibles like leadership quality, contribution to nation-building, and preserving and enhancing what was already good should also be considered in deciding the winner.

The jury went through all the critical parameters, such as asset and liability growth, efficiency ratios like return on assets and return on equity, margin, non-performing assets and provisions, market capitalisation, fee income, cost-to-income ratio and business per employee. In addition, non-financial parameters like financial inclusion initiatives, nation-building through developing markets or carving out segments, corporate governance, customer complaints, and innovative use of technology initiatives were also looked at.

After an hour-long discussion, the jury zoomed in on two candidates. It was not an easy choice. The two candidates were almost evenly matched, prompting the jury to examine the ‘intangibles’.

Finally, the jury members selected Axis Bank CEO and MD Shikha Sharma.

The jury found the bank’s contribution in capital market formation to be enormous. Within a year and a half of taking over the top job at Axis Bank, Sharma acquired Enam Securities. The jury observed that after the acquisition, Axis has turned it into an investment banking powerhouse. The bank regularly features in the top slots in league tables, and the jury gave credit to Sharma for the bank becoming an active institution in capital markets. The jury said banks simply cannot give loans to fund all functions of corporates, and Axis Bank seems to have stolen a march by showing a new template for the new economy.

The jury also acknowledged the asset-liability correction that Sharma undertook since taking over in 2009.

“Shikha Sharma took over the bank in somewhat stressed circumstances and she has led the bank through these difficulties and has indeed made a difference in the performance of the bank. We felt that the kind of risks that she has taken were also very prudent, but perhaps somewhat higher than other banks,” said the jury chief Mohan.

The bank’s net non-performing asset ratio was 1.34 per cent as on March 2015, much lower than the 4.4 per cent for the banking sector as a whole. Net profit in 2015-16 rose 18.3 per cent to Rs 7,358 crore, operating profit was up 24 per cent at Rs 3,582 crore, while net interest income grew 19 per cent to Rs 14,224 crore. Advances grew 22 per cent and deposits were up 15 per cent during the year, both higher than the industry. The share of low-cost current account savings account (CASA) deposits remained stable at 45 per cent, a high ratio.

The jury said Sharma had done a remarkable job both internally and externally. After P J Nayak left Axis Bank, many senior members followed suit. Those were trying times but Sharma stabilised Axis Bank and focused on key areas, bringing down NPAs, building investment banking capabilities and contributed strongly in developing the capital markets segment.

Indian companies are no longer solely dependent on banks for their financing needs, as they can now access the debt and equity markets for funds. Much of the credit for this development should go to banks, even as it cost the lenders low credit growth. No wonder that the prestigious Business Standard Banker of the Year, 2014-15 award was conferred on Shikha Sharma for her outstanding contribution in developing India’s equity and debt capital markets as well as leading India’s third-largest private sector bank at a time when asset quality deterioration is eating away the capital of banks. At the end of 2014-15, Axis Bank had managed to keep its asset quality quite stable even though the economic environment remained difficult.

First Published: Wed, January 06 2016. 21:48 IST