The point is that if the beautiful bride is not putting up her hand for marriage, then you can have a lot of suitors, but there won’t be a marriage
Speculations about many private banks looking to buy stake or merge with Axis Bank to benefit from its strong retail franchise are rife, but its chief executive Shikha Sharma tells Saloni Shukla and MC Govardhana Rangan in an interview that the bank can grow for years and keep delivering returns to shareholders as a standalone entity. Edited excerpts:
Q- We are hearing about Axis being a beautiful bride. Is Axis in play?
A- Why should Axis be in play? We have not been approached by anyone, so I don’t know where all these stories are coming from. There is absolutely no truth to this.
Q- You have been an investment banker yourself, and you know there’s always a possibility of people who are thinking along these lines…
A- Yes, but that doesn’t mean there’s anything happening right now, because something will happen only if there’s a real conversation or a formal proposal, and there is absolutely nothing of this sort going on. We haven’t been approached by anybody, and frankly for Axis at this point of time, there is so much to do.
We have always believed in the India story. I have now been with the bank for almost eight years. It has always been a strong franchise, and in the past eight years, we have only grown and strengthened that franchise. So, in the retail business, our market share on the deposit side has gone up from 2.5% to about 5%; in the retail assets, we have a 6% market share; in cards, we are 10%; and in mobile banking, we are 13%.
Q- So, you can grow on your own without benefits of merger?
A- Whenever we talk internally, we think we are in a sweet spot because when you have 1-2% market share, you don’t have relevance. When you get to 12-15% market share, you become big and finding growth faster than the industry becomes a bit tougher. So, at this point of time, doing anything inorganic would be a distraction for the bank. We are well capitalised, so we don’t have a shortage of capital, we have got the people and the process capability, and merger at this point of time therefore will be a complete distraction.
Q- You listed your strong business, franchise and distribution capabilities. Has that itself made you an attractive proposition for those who don’t have it?
A- That’s always nice to hear. It’s good to feel like a beautiful bride that everybody is aspiring for, but the point is that if the beautiful bride is not putting up her hand for marriage, then you can have a lot of suitors but there won’t be a marriage.
Q- If you have to wear your investment banker hat again, would you consider an inorganic growth proposal?
A- That’s a speculative question because there’s no such thing on the horizon, and, as I said, at this point of time, our clear focus is to grow and go after the opportunities that are important to the economy. The mergers work well if you are doing it for a synergy-value perspective. If you do it for a transaction value, most mergers do not pay off. In all, our chosen businesses, we have built capability so there aren’t any gaps. We think that scale for the sake of scale to take out costs is not the thesis that is right for us at this point of time.
Q- But what is the bank board’s opinion on the merger speculation?
A- We have a very active and a very professional board, so we have open conversations about everything and they know that nothing is happening.We are not a promoter-owned company, we cannot do a conversation without engaging with our board.The fact that there is no engagement with the board means that there’s no thought of this sort. We just had our strategy meeting in October and the board is pretty happy with the long-term vision we are pursuing.
Q- Are you open to another term in 2018?
A- That’s a decision the board of Axis Bank has to take and my job as the CEO is to make sure that there is alignment on the long-term goals of the bank and ensure that we have execution capabilities to deliver that. I take pride in building institutions which thrive after I have moved on. When the ICICI Prudential listing happened, I was very happy to see that the baby I had loved seven years ago was doing so well.
And we have a bunch of talent inside Axis Bank. So, everything I am saying about the growth story is certainly not dependent on me.I have never wanted to be a larger-than-life CEO. I take pride in making sure that I make stronger the institution that I am involved with and that we build a strong team capability and the rest is for the board to decide.
Q- Coming to your strategy, did the infrastructure focus backfire?
A- Of the calls that we took, infrastructure was not the right one because the sector has not worked out the way most corporate lenders had imag ined, and we have had some hiccups that has resulted in asset-quality issues. We know there are a few sectors that are compounding the issues around asset quality.
I think we have learnt our lessons from there, we changed our risk practices in 2012. So for a few years, we have been recognising that there is stress building in a sector and are being careful about it.
Q- On the asset quality front, were you wrong in giving the guidance on your watch-list because it did not play out the way you had wanted to?
A– When we gave the guidance on the watch-list, we did try and give our best estimate at that point of time on what we thought the future held. But something is in the environment, and it has not panned out the way we had assumed.We had thought that resolution in some of these sectors will happen fast, but the JLF mechanism has been less than effective for a variety of reasons. While the government has been doing its best to bring reforms to these sectors, the pace has been somewhat slower than we had anticipated.
So, did we go wrong on giving guidance? That is a very difficult question and with hindsight you can always say “humko yeh nahi karna chahiye tha, woh nahi karna chahiye tha“ (we could always have done things differently).
Where we were coming from, we were trying to be transparent and honest and say that we will give to the market what is our best estimate, and if things change the moment we see it, we will come back and tell the market what we’re seeing has changed, so that is what we tried to do. Going forward, one of the things that we learn is that in such a volatile world to give a guidance is fine, but we should give a range rather than a number.
Q- Surely, the joint lenders forum mechanism has not worked out. What went wrong there?
A- This is something that Arundhati (SBI chairman) and others have been talking about. The issue is how do you take a decision and how do the bankers, especially those from the state-owned banks, feel confident about taking a decision where you need to take some kind of a haircut.I think they are trying to look at mechanisms which will allow bankers to be more confident about taking a decision.
Also, some of the schemes that were brought in for resolution have probably been too restrictive. If you put a box in today’s fastchanging world, operating within the box sometimes becomes very difficult and you need little bit of flexibility.
Q- So, what is needed now? Bankers have also been armed with the insolvency and bankruptcy code?
A- You have two kinds of situations. You have a situation where you have companies going through stress and it needs some hand-holding support and it will revive. But you also have a situation where a company is going through deep stress and the only wayout is the bankruptcy code, and throw out the management, get a new team, try to do whatever recovery you can from the physical assets.
So, the bankruptcy code will probably help on that, but to the extent that you want to resolve and turn around assets which are having temporary problems, I do think we need the JLF mechanism to become more effective. And that is where bankers are working together to see how we can do that and where we need some support on policy from the Reserve Bank of India.
Q- RBI Deputy Governor Viral Acharya has come up with a new idea about two asset management companies a talks about the bad bank. Are we really compounding the issue by coming up with these exotic solutions?
A- I think the intent is that you need to resolve and recover. But we have to get to the core of where the problem is coming from, and if the core of the problem is coming from the fact that banks are finding it difficult to come together and take a decision and feel comfortable taking a decision and not be questioned on it few years later, we have got to solve that problem.
The vehicles are nice to have, but it won’t solve the problem. So, how do we put up processes which allow bankers to take a decision and feel confident about that decision? And if there are any dispensations required, how can we have a quick method of getting those dispensations?