TOUCHING AND TRANSFORMING LIVES
As we complete our 25th year of operations I feel honouredand proud to lead the Bank - a neighbourhood bank striving to serve a billion liveseveryday in a meaningful and humane manner. Trust and customer centricity have always beenthe hallmark of the Bank's association with its customers.
The Bank has over these years stood by customers as a reliable friendin need - by not only being approachable and available at all times but also helping themto meet their needs and life aspirations. I would like to thank all my predecessors overthe years - Ms. Shikha Sharma Dr. P. J. Nayak and Mr. Supriya Gupta for their vision andcontribution towards building this great institution.
It is the same feeling of warmth and friendliness that is reflected inthe Bank's culture; and was one of the first things that struck me when I joined the Banksix months ago. I believe that our culture is one of the biggest unsung strengths of AxisBank. This has been one of the key driving forces for us to build a great institution andensure that we survive tough times.
Over the last decade the Bank has gone from strength to strength andin addition built a lot of hidden gems among its businesses. Let me spell out some ofthem. The Bank has an extremely Strong Current Account and savings account (CASA) depositsfranchise and has grown its loan book over five times in the last ten years to '494798crores. Amongst the private sector banks we currently have the third largest branchnetwork and the highest number of ATM machines in the country.
In the credit cards business where we were not present some ten yearsback we are now a strong number four player and have been growing at a much faster pacethan the industry leaders in the last five years. We have the country's third largestmerchant acquiring business. In mobile banking we feature amongst the top players interms of innovation. We are the largest issuer of foreign exchange cards in the countryand are a number three player on the UPI side of the business.
On the Wholesale Banking side we have built deep relationships acrossthe spectrum with corporates Small and Medium Enterprises (SMEs) and government clients.Our SME business has been built into an enviable franchise with extremely healthy metrics.We have one of the largest franchises amongst the private banks in dealing with thegovernment and its various arms. The Bank continues to remain at the top of the leaderboard in the Debt Capital Market segment for the last thirteen years.
Similar achievements can also be witnessed for the Bank's subsidiarieseven though we started our innings later than many of our peers. As a group we areengaged in businesses that are contiguous to banking such as nonbanking finance retailbroking asset management and institutional equities and investment banking. Axis AssetManagement Company set up in 2009 is now among the top ten mutual fund houses in India.Our broking business
Axis Direct established in 2011 currently ranks amongst the top threeplayers in terms of active client base. Axis Capital continues to remain one of the bestequity capital market franchises in the country. Axis Finance is one of the fastestgrowing Non-Banking Financial Companies (NBFCs) with some of the best returns in theindustry. Axis is the only Bank with two Fintech companies as subsidiaries one in thepayments space and the other in the digital invoice discounting space. All thesebusinesses complement the parent Bank's strategy and allow us to offer our customers acomprehensive offering under the umbrella of 'One Axis'.
However I must also acknowledge that in the recent years the Bank hasfaced some headwinds especially on the asset quality front due to corporate slippages.
The Bank's strategic bet on project lending to infrastructure sectorslike steel and power in the 2010-12 period turned out to be its Achilles' heel. There wasalso an increase in operational risks in recent years. Though we have done exceedinglywell in some segments we have not executed well on all fronts consistently. We are notyet out of the woods but we are cautiously optimistic about the future. We need to learnfrom the mistakes of the past and ensure that they are never repeated again. We realisechanging ourselves will be arduous and time consuming but we also strongly believe we areready for the battle ahead and have the team in place to overcome any odds.
Over the last six months I have spent time extensively with thevarious business units across the Bank. I have also met many of our large corporatecustomers. Based on these interactions I do believe there is lot of potential for us togrow and be among the top few players in each of our business segments and aspire forlarger market share.
I am pleased to state that we have taken some strong and positivestrides towards defining our priorities the goals that we want to accomplish and how wewill get there. We intend to get our winning mind-set back re-claim our growth momentumand get our fair share of business from our customers. We also want to strengthen our coretechnology platform and improve our execution.
To achieve these we came out with an Execution Strategy 2022 for theBank earlier this calendar year. The strategy pivots around delivery of three importantvectors - Growth Profitability and Sustainability.
At the same time we have embarked and made rapid progress on the 'OneAxis' ideology for the Bank and its subsidiaries which focusses on projecting the Bank'svarious businesses and subsidiaries together as 'One' that can offer a comprehensive suiteof products services and solutions to the customer. The focus for our subsidiaries wouldbe to attain size and scale for which we would continue to invest in them over the nextfew years.
As we embark on achieving the goals set in our 2022 vision thestrategic direction of 'One Axis' will serve as a bedrock to drive brand synergies acrossthe Bank and all its subsidiaries. We will start by delivering a consistent brand identityacross our branches subsidiaries and all our digital touchpoints. Over the next fewmonths the messaging across our products and our verticals will also align with the abovestrategic direction so that we create a force multiplier effect for the brand. Moreimportantly we are an industry built on the foundation of trust and one of the best waysto improve trust is to come across as consistent and unified in our language and approachto our customers.
We now have the entire senior management team in place to execute thestrategy and convert our aspirations into reality over the next three years. We havereoriented the organisational structure that would enable us to streamline and simplifyour functioning and bring in greater accountability productivity and efficiencies. Wehave also made considerable progress in building cost consciousness across the Bank andexpect to improve our cost efficiency over the next few years.
We have incorporated the learnings from the last credit cycle toimprove our policies and processes. We have raised the bar further for the credit filtersapplicable to new credit proposals and strengthened our early warning systems. As a Bankwe are looking to move towards a more conservative view on provisioning compliance andrisk. In retail our provisioning norms are more conservative than the RBI prescribednorms. On the wholesale side we are increasing the level of provisions we hold againstsome weak yet standard stressed assets.
Moving on to financial performance the profitability and the assetquality metrics for the Bank in fiscal year 2019 improved materially after havingwitnessed two consecutive challenging years. The Axis franchise delivered healthyoperating performance with core operating revenue growth of 21% and moderation inoperating expenses growth. The Bank continues to have a strong balance sheet with one ofthe best provision coverage and capital adequacy ratios of 77% and 15.84% respectively.Our subsidiaries had another good year as they continued to gain scale and market share intheir respective segments.
On the wholesale side of our business we have been focussing onportfolio diversification reduction in concentration to select sectors and project loansand have further increased our focus on transaction banking and working capital business.The performance of the corporate segment in fiscal 2019 improved as compared to the pastfew years with steady decline in the low rated 'BB & below' outstanding poolsignificant decline in corporate slippages and stabilisation of corporate credit linkedfees.
We have reoriented the wholesale segment. The credit underwritingfunction has been taken out from the businesses and has been made an independent function.Product specialists and business relationship responsibilities have also been segregatedto ensure sharper focus on client coverage and product groups. We follow a risk adjustedreturn philosophy in the wholesale bank and would focus on growing our midcorporate andcommercial banking book. In the commercial banking segment we are focussing on building arelationship based model with SME and current account business customers to drive growthacross both assets and liabilities.
The Bank's retail franchise continues to remain robust with a healthygrowth in loans fees and retail deposits. Axis continues to remain a strong customercentric bank and has shifted its deposit strategy to focus on getting higher CASA plusretail term deposits from earlier focus on CASA. During the year we added 347 branches totake our domestic branch distribution network to 4050 branches. For us branch bankingcontinues to be an integral part of our growth strategy. The role of branches in depositmobilisation from new customers drives the Bank's acquisition strategy across products andprovides customer service and builds trust. However the branch formats continue to getsmaller with enhanced productivity led by automation and digitisation of serviceoperations.
Our wealth management business Burgundy with assets under managementof over '132702 crores has done exceedingly well over the last few years and nowfeatures amongst the top wealth management businesses in the country.
We intend to expand the franchise and build a leadership position inthe space.
The Bank's ability to innovate and offer right product proposition toits customers has helped the retail loan book to grow over five times in the last tenyears to reach '245812 crores with a 50% share in total advances. We have achievedsignificant diversification within our retail portfolio mix with a strong risk managementarchitecture that has ensured that our asset quality in retail has been much better thanpeer average. The Bank has always been ahead of the curve in terms of building its digitalcapabilities and has made significant investments in technology and digital analytics tounderwrite manage risk outcomes and optimise costs. During the year the Bankincreasingly started offering pre-approved loans and stepped up the pace of digitallending. The contribution of digital lending in personal loans increased to 43% from 22%in the last one year.
Axis Bank continues to remain committed towards promoting a less-cashdigital economy and enjoys strong market position across most digital payments spaces inIndia. The Bank continues to engage in partnership driven innovations to provide itscustomers with a differentiated payments experience and drive the Digital India mission.During the year the Bank's Kochi1 Card became the country's first inter-modal transitcard while the Raipur Smart Card project was also initiated to offer digital paymentsolutions to the citizens of Raipur. The Bank also launched 'Axis Tap & Pay' a mobileapplication for making contactless payment at merchant terminals as well as India's firstof its kind in-home 'Smart bill pay' initiative that allows users to pay their utilitybills by scanning a QR code.
The Bank has traditionally used Savings Accounts as a product to startits relationship with customers and then build on it by cross-selling other products andservices. Though that has not changed substantially over the last ten years we areincreasingly looking beyond deposit base for customers. We are now looking to leverageother platform businesses of the Group for cross-sell opportunities.
We plan to invest significantly in setting up a Digital Bank. Our ideahere is to have a full team with all the requisite banking as well as digital expertiseand skill sets required to rethink traditional banking processes. It will start afreshend-to-end customer journeys which will be completely digital. This will however taketime to fructify and we will share our progress over the coming years.
The Bank continues to invest in enhancing employee capabilities andprovides career development opportunities to its employees. We have made sure that thecommunication on GPS strategy and vision of creating 'One Axis' is consistent within theinternal organisation as well and that everybody in the Bank knows what they have to do.The organisation structure and the KPIs have been re-aligned to ensure directaccountability greater differentiation and focus on developing relationship-basedlong-term business model instead of focussing on shorter term targets.
During the year the Bank revamped its internal job posting process toallow internal talent to take on leadership positions based on their merit irrespective ofage and tenure. The Bank also launched an internal portal to allow employees to seekcareers across departments and subsidiaries within the Axis Group.
Axis Bank has always believed that its long-term success depends on theprogress of communities and the people we serve. The Bank continues to play an active partin extending credit to the economically active but under-banked rural populationparticularly women through its retail microfinance initiative 'Axis Sahyog'. Axis BankFoundation in its 13th year of operations continues to work towards providingsustainable livelihoods and creating value for the target communities through its variousintegrated rural skill development and educational programmes.
During the year 'Axis Dil Se' - the Bank's CSR initiative inpartnership with 17000 ft Foundation 108 schools in Leh and Kargil districts of Ladakhwere adopted by 20 senior Axis Bank leaders for a period of three years - completed itssecond phase. Under this initiative the Bank installed 'Digi Labs' in schools whichenabled access to the digitised curriculum both for the students and the teachers. Alsoduring the year the Bank played an active role in providing disaster relief to over 400flood affected families in four regions in Kerala.
The Bank won the 'Excellence' certificate in Corporate SocialResponsibility category at the prestigious CII ITC Sustainability Awards 2018 and wasincluded in the prestigious FTSE4Good Emerging Index for the second consecutive year in2018 in recognition of its Environmental Social and Governance (ESG) practices.
In recent years driven in part by some unexpected negative surprisesat the Bank we have dented the trust of investors. We need to win it back. The only wayto win
it back is to have a business model which sustains and generatescredible financial outcomes quarter after quarter over a long period of time. Ouraspiration is to deliver around 18% Return On Equity (ROE) on a sustainable basis. Thereduction in credit cost to below our long-term averages portfolio choices driven by arisk-adjusted returns framework and improvement in operational efficiency would be the keydrivers for RoE improvement over the next three years. Though it seems a tall order theBank has delivered ROEs in excess of 18% few years back and hence we aspire to do it again- on a sustainable and consistent basis.
India continues to be a fast-growing economy with significantopportunities and possibilities. From the perspective of the financial industry as awhole the liquidity issues faced by some of the nonbanking financial companies andhousing finance companies over the last year can create some friction going ahead but itpresents opportunities for banks. The banking industry has seen return of credit growthand pricing power on account of shift in credit demand from NBFCs and bond markets back tobanks. Banks with a healthy capital position NBFCs with a robust parentage and financialintermediaries with significant market share are well placed to grow profitably at afaster pace than their peers in their respective industries. In this context 'One Axis'franchise with its presence across business segments is uniquely positioned to leveragethis opportunity and grow at a faster pace. Great product mix vast physical footprintcutting-edge digital capabilities robust corporate governance practices and one of themost valuable brands in India - all these combined open many possibilities for the Axisfranchise in the near future.
I believe that Axis Bank is a great franchise with great culture andgreat set of people.
If we execute well we have the potential to improve our market sharerankings without sacrificing anything whatsoever on our credit and risk managementpractices. While delivery of growth and profitability is important sustainability formsthe foundation of the Bank's strategy. We want to build sustainability in our businessperformance and operations with disciplined execution and conservatism at the core.However one thing that still concerns me is the level of control and confidence we haveon operational risk parameters. Any large bank will have a vast number of systems andprocesses and to reach the level of efficiency control and monitoring that we have inmind will take time but we are at it relentlessly everyday improving bit by bit. We alsoneed to ensure that the quality of our wholesale book improves materially over the nextfew years. We cannot afford to repeat what we went through in the last few years. Thatwould also require a change in how we think about risk and how we proactively manage it.Another area of work would be the tone from top on compliance. We cannot compromise ondoing things right and doing them right all the time even at the cost of losing business.We need to do a better job of saying no to businesses and deals.
I would like to take this opportunity to thank my colleagues forbelieving in Axis and the vision of the Bank. I am also deeply grateful to all thecustomers and shareholders for standing by us and showing their faith in us all theseyears.
MD & CEO