What is Axis Bank?

Axis Bank, previously called UTI Bank, was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the Specified Undertaking of the Unit Trust of India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance Corporation Ltd., National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United Insurance Company Ltd. UTI-I holds a special position in the Indian capital markets and has promoted many leading financial institutions in the country.P J Nayak is its Chairman and Managing Director.

As on the year ended March 31, 2006 the Bank had a networth of Rs. 2872.19 crores with the public holding (other than promoters) at 56.65%. Net Profit for the year was up 44.98% to Rs 485.08 crores.

Branch network

First branch of Axis Bank, then known as UTI Bank, was inaugurated at Ahmedabad by Dr. Manmohan Singh, the then Finance Minister, Government of India. At the end of March 2007, Axis Bank had 508 branches and 2341 ATMs covering 332 cities of India. All branches of the bank are linked via a core banking solution on a real-time basis. It was the first bank in India to adopt Finacle as a core banking software. The bank continuously leverages information technology to provide value-added products and services as well as multiple-delivery channels to customers allowing them easy, real-time and on-line access for all types of transactions in a cost-effective manner. The ATM network as of now (2007), is the third largest in India. The bank opened its first overseas branch in Singapore in April 2006. In March 2007, it opened a full licence bank branch in Hong Kong

Resilient fundamentals

Axis Bank stands apart from its private sector competitors — ICICI Bank and HDFC Bank — in one crucial respect. While the other two banks have envisaged retail banking as a key area of strategic emphasis — with the share of the retail business (both on the funding and asset sides) growing strongly year after year— the share of retail business, particularly retail assets, has actually come down quite sharply in the case of Axis Bank.

The numbers here are quite interesting. For ICICI Bank, retail loans now (as of June 2007) account for as much as 70 per cent of the bank’s total loan book of Rs 2,00,000 crore. For HDFC Bank, retail assets are around 57 per cent (Rs 28,000 crore) of the total loans as of March 2007.

In the case of Axis Bank, retail loans have declined from 30 per cent of the total loan book of Rs 25,800 crore in June 2006 to around 23 per cent of loan book of Rs.41,280 crore (as of June 2007). Even over a longer period, while the overall asset growth for Axis Bank has been quite high and has matched that of the other banks, retail exposures grew at a slower pace.

If the sharp decline in the retail asset book in the past year in the case of Axis Bank is part of a deliberate business strategy, this could have significant implications (not necessarily negative) for the overall future profitability of the business.

Despite the relatively slower growth of the retail book over a period of time and the outright decline seen in the past year, the bank’s fundamentals are quite resilient. With the high level of mid-corporate and wholesale corporate lending the bank has been doing, one would have expected the net interest margins to have been under greater pressure. The bank, though, appears to have insulated such pressures. Interest margins, while they have declined from the 3.15 per cent seen in 2003-04, are still hovering close to the 3 per cent mark. (The comparable margins for ICICI Bank and HDFC Bank are around 2.60 per cent and 4 per cent respectively. The margins for ICICI Bank are lower despite its much larger share of the higher margin retail business, since funding costs also are higher).

Risk and earnings perspective

Such strong emphasis and focus on wholesale corporate lending also does not appear to have had any deleterious impact on the overall asset quality. The bank’s non-performing loans are even now, after five years of extremely rapid asset build-up, below 1 per cent of its total loans.

From a medium-term perspective, it appears that Axis Bank could be charting out a niche for itself in the private bank space. It appears to be following a business strategy quite different from the high-volume and commodity-style approach of ICICI Bank and HDFC Bank. That strategy also has its pluses in terms of the relatively higher margins in some segments of the retail business and the in-built credit risk diversification (and mitigation) achieved through a widely dispersed retail credit portfolio. But, as indicated above, Axis Bank has been to able to maintain the quality of its loan portfolio despite the concentrated nature of wholesale corporate lending.

The key to the bank’s continued strength will be maintaining all the above metrics of performance — strong business growth on both the asset and liability sides, rigorous credit appraisals and monitoring, the ability to leverage on the wide and expanding branch network and a steady build-up of the retail banking franchise.

See also

• Indian banking

External links

• Axis Bank website
• Axis Bank Atm's,Branches,Products
• Axis Bank details on the NSE Site

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