Rock steady
Unswerving growth in loans, fee income and mobilisation of low-cost deposits propel Axis Bank to top our list of best banks once again.
Print Edition: Dec 26, 2010
Six years ago, Japanese process automation major, the KOSO Group, bought the control valves business of the ABB Group in India from a clutch of investors. The unit, located in Ambad in Jalna district of Maharashtra, was in a shambles. The small components manufacturer catering to the oil & gas and petrochemicals industry had no cash in the bank. Turnover was a meagre Rs5 crore. Customers were reluctant to stand by the unit - called Kent Introl - without the ABB brand.
What added to its woes was the sudden hostility from the banking partner. "This private sector bank was hell-bent on a personal guarantee from directors," reveals Gaurav Gupta, Managing Director at Kent Introl, who happened to be the only director based out of India.
"I would have given mine, but that was not enough," adds Gupta, who ran from one bank to another for a credit facility which the company needed urgently to restart the manufacturing unit. A visit to an Axis Bank branch in Nashik in 2005 - Axis was then known as UTI Bank - offered hope. That was also the time that the bank, headed by P.J. Nayak, was preparing to sharpen its focus on the small & medium enterprises or SME segment. The managers at Axis were quick to offer Gupta a blanket credit limit of Rs6 crore - without any personal guarantee. "The bonus was the flexibility to use Rs6 crore either as working capital or as an overdraft facility or as post-shipment credit," recalls Gupta. Another bonanza: an interest rate that was 1.5 per cent lower than what most other banks were quoting.
That loan from Axis brought Kent Introl back from the brink. Turnover crossed Rs50 crore in 2009-10, is expected to hit Rs70 crore by the end of this year, and the company is comfortably in the black. The turnaround in fortunes was noticed and, in a sharp contrast to the situation five years ago, Gupta was inundated with calls from bankers trying to peddle sundry products. But his company, which now has a requirement for a term loan of Rs15 crore, to partfinance an expansion, has little doubts on which bank's doors it will knock on. "We have grown with Axis. The bank is a good luck charm for us," says Gupta.
Like Kent Introl, there are many more small enterprises that have been able to scale up by availing of credit from Axis Bank. These include innovative ones, such as the Punebased sewer and garbage cleaning equipment manufacturer, Kam Avida Enviro Engineers. The Nashikbased United Heat Transfer that makes heat exchangers and pressure vessels used in industrial plants is another beneficiary of Axis Bank's thrust on SME lending.
Kent Introl, Kam Avida and United Heat Transfer are just three of some 12,000 SME firms that are clients of Axis Bank. These enterprises are engaged in various businesses from engineering and electricals to food processing and trading. Axis's SME portfolio, which constitutes 18-20 per cent of the lending book, is one of the bank's primary engines of growth; the others are retail and infrastructure financing.
It is such consistency of strategy that has helped India's third-largest private bank grow its profits and income by over 30 per cent on a cumulative average basis over the past five years. Point to be noted: this period of growth includes the year of 2008-09, when most banks were ravaged by the global credit crisis. In the BT-KPMG study of Best Banks in 2009-10, Axis has emerged numero uno - for the second consecutive year - ahead of such pedigreed institutions as Punjab National Bank and HDFC Bank. The bank has also been adjudged the "most consistent performer" based on its performance over the past three years.
Much of the credit for Axis Bank's showing would go to Nayak, who created a strong foundation for the 16-year-old bank until he left abruptly in May 2009. His successor, 51-yearold Shikha Sharma, who has the enviable task of maintaining the momentum, is the first to agree that the bank is on auto-pilot. "I am just trying to sharpen the focus a bit, build more capabilities, improve service and processes and fill the product gaps," says Sharma, whose previous assignment was building a life insurance business from scratch at the ICICI Group.
Axis may be on auto pilot, but she has plenty to do. Last month she took one giant step to plug one of the more glaring gaps in Axis Bank's portfolio by buying out boutique investment banking and broking firm Enam Securities in an all-stock transaction. "Equity capital markets was a missing link," says Sharma. Unlike peers like ICICI or HDFC Bank, Axis had little bandwidth to provide customers with support in areas like mergers & amalgamations, initial public offerings and equity placements. The purchase of Enam will help Axis become more universal in its operations.
Meantime, Axis is sharpening its focus on the infrastructure sector. "We are trying to capture the entire value chain in the infrastructure space," says Executive Director V. Srinivasan. The focus is on fundbased and non fund-based businesses like syndication, advisory, escrow accounts, trustee business and salary accounts.
The bank is also ramping up its international business to support Indian corporates with global ambitions. A subsidiary is being set up in the United Kingdom for this purpose. Axis Bank already has a presence in Singapore, Hong Kong, Shanghai and West Asia.
A year ago, Sharma flagged off the bank's asset management venture, in the process plugging another gap in its portfolio. The synergies with the bank are apparent here, as the mutual fund products can be sold to Axis's retail and wealth management customers.
Clearly, retail banking is where much of Sharma's attention is. She started off by segmenting the portfolio on the basis of customers rather than on product. So customers have been bracketed under mass, mass affluent and affluent. That portfolio has now been further broken up by creating three separate heads for retail liabilities: savings accounts and third party products; retail assets, forex & cards; and distribution.
Distribution, of course, involves strengthening the branch network and increasing its reach. The plan is to go deeper upcountry. "We are trying to open 70-80 branches in the rural and semi-urban areas," says S.K. Chakrabarti, Deputy Managing Director of Axis Bank. By December 2011, Axis will have smaller branches of 1,000-1,500 sq. feet in the hinterlands in Gujarat, Rajasthan, Punjab and Tamil Nadu.
These states have been chosen after analysing fertiliser consumption, loan recovery records, TV-owning households and those with cable connections. "Our thrust would be to have equal representation of branches in semi-urban and rural areas and in urban and metropolitan areas," adds Chakrabarti. Today, of Axis's 1,000-odd branches, 70 per cent are in metros and urban centres.
Sharma's endeavour is to create more growth engines and de-risk Axis's banking model. She is going for growth from businesses like SMEs and infrastructure, as well as from geographies that are urban, nonurban and international. "There are no glaring gaps left," she says with a smile. But then Sharma's next phase of leadership after plugging the gaps could well be to chase opportunities whenever they arise.
Watch this - and the banking - space.
What added to its woes was the sudden hostility from the banking partner. "This private sector bank was hell-bent on a personal guarantee from directors," reveals Gaurav Gupta, Managing Director at Kent Introl, who happened to be the only director based out of India.
"I would have given mine, but that was not enough," adds Gupta, who ran from one bank to another for a credit facility which the company needed urgently to restart the manufacturing unit. A visit to an Axis Bank branch in Nashik in 2005 - Axis was then known as UTI Bank - offered hope. That was also the time that the bank, headed by P.J. Nayak, was preparing to sharpen its focus on the small & medium enterprises or SME segment. The managers at Axis were quick to offer Gupta a blanket credit limit of Rs6 crore - without any personal guarantee. "The bonus was the flexibility to use Rs6 crore either as working capital or as an overdraft facility or as post-shipment credit," recalls Gupta. Another bonanza: an interest rate that was 1.5 per cent lower than what most other banks were quoting.
Like Kent Introl, there are many more small enterprises that have been able to scale up by availing of credit from Axis Bank. These include innovative ones, such as the Punebased sewer and garbage cleaning equipment manufacturer, Kam Avida Enviro Engineers. The Nashikbased United Heat Transfer that makes heat exchangers and pressure vessels used in industrial plants is another beneficiary of Axis Bank's thrust on SME lending.
Kent Introl, Kam Avida and United Heat Transfer are just three of some 12,000 SME firms that are clients of Axis Bank. These enterprises are engaged in various businesses from engineering and electricals to food processing and trading. Axis's SME portfolio, which constitutes 18-20 per cent of the lending book, is one of the bank's primary engines of growth; the others are retail and infrastructure financing.
It is such consistency of strategy that has helped India's third-largest private bank grow its profits and income by over 30 per cent on a cumulative average basis over the past five years. Point to be noted: this period of growth includes the year of 2008-09, when most banks were ravaged by the global credit crisis. In the BT-KPMG study of Best Banks in 2009-10, Axis has emerged numero uno - for the second consecutive year - ahead of such pedigreed institutions as Punjab National Bank and HDFC Bank. The bank has also been adjudged the "most consistent performer" based on its performance over the past three years.
Much of the credit for Axis Bank's showing would go to Nayak, who created a strong foundation for the 16-year-old bank until he left abruptly in May 2009. His successor, 51-yearold Shikha Sharma, who has the enviable task of maintaining the momentum, is the first to agree that the bank is on auto-pilot. "I am just trying to sharpen the focus a bit, build more capabilities, improve service and processes and fill the product gaps," says Sharma, whose previous assignment was building a life insurance business from scratch at the ICICI Group.
Axis may be on auto pilot, but she has plenty to do. Last month she took one giant step to plug one of the more glaring gaps in Axis Bank's portfolio by buying out boutique investment banking and broking firm Enam Securities in an all-stock transaction. "Equity capital markets was a missing link," says Sharma. Unlike peers like ICICI or HDFC Bank, Axis had little bandwidth to provide customers with support in areas like mergers & amalgamations, initial public offerings and equity placements. The purchase of Enam will help Axis become more universal in its operations.
Meantime, Axis is sharpening its focus on the infrastructure sector. "We are trying to capture the entire value chain in the infrastructure space," says Executive Director V. Srinivasan. The focus is on fundbased and non fund-based businesses like syndication, advisory, escrow accounts, trustee business and salary accounts.
The bank is also ramping up its international business to support Indian corporates with global ambitions. A subsidiary is being set up in the United Kingdom for this purpose. Axis Bank already has a presence in Singapore, Hong Kong, Shanghai and West Asia.
A year ago, Sharma flagged off the bank's asset management venture, in the process plugging another gap in its portfolio. The synergies with the bank are apparent here, as the mutual fund products can be sold to Axis's retail and wealth management customers.
Clearly, retail banking is where much of Sharma's attention is. She started off by segmenting the portfolio on the basis of customers rather than on product. So customers have been bracketed under mass, mass affluent and affluent. That portfolio has now been further broken up by creating three separate heads for retail liabilities: savings accounts and third party products; retail assets, forex & cards; and distribution.
Gaurav Gupta
These states have been chosen after analysing fertiliser consumption, loan recovery records, TV-owning households and those with cable connections. "Our thrust would be to have equal representation of branches in semi-urban and rural areas and in urban and metropolitan areas," adds Chakrabarti. Today, of Axis's 1,000-odd branches, 70 per cent are in metros and urban centres.
Sharma's endeavour is to create more growth engines and de-risk Axis's banking model. She is going for growth from businesses like SMEs and infrastructure, as well as from geographies that are urban, nonurban and international. "There are no glaring gaps left," she says with a smile. But then Sharma's next phase of leadership after plugging the gaps could well be to chase opportunities whenever they arise.
Watch this - and the banking - space.
