There is no stress in retail loan book, still cautious: Axis Bank CEO

Axis Bank reported good numbers in the second quarter of FY20 even though the bank had a net loss of Rs 112 crore in the period. Managing Director and Chief Executive Officer Amitabh Chaudhry tells Abhijit Lele and Nidhi Rai the only stress is the commercial vehicle side. Edited excerpts: 

Standard & Poor’s has come up with a report saying that the contagion (of loan default) has increased in the financial sector and it might spill over to the real estate sector. How far has this happened?

Real estate is suffering because of uncompleted projects worth $40 billion and 85 per cent of those are in Mumbai and the National Capital Region. 

Banks have become circumspect about lending to real estate and NBFCs. The NBFC crisis started as a liquidity problem but it is clearly on the asset side. I no longer want to know your liquidity. I want to know your asset quality. 

If you look at DHFL, you look at the size of bad books and each time some statement comes out, it is worse than before. So bad news will not come out in one go. Now if you talk about the financial system, there are some companies struggling. The Reserve Bank of India governor has stated the regulator is watching the top 50 NBFCs and “we will make sure that they don’t create any problem in the system”. I don’t know how it is managing that.  Altico was expected but Punjab and Maharashtra Cooperative Bank was not. Everyone in the system is volatile. Who will save them I have no idea.

From the forensic point of view, have you hired anyone for vetting some of these accounts?

The forensic auditor is hired by the consortium. You cannot hire a forensic expert on your own if you are not a single lender and now the consortium is powerful enough. There were ways of doing business in the past. So when you do forensics in their companies, you do find fund diversion. And in a lot of cases, the banker is calling them wilful defaulters and agencies are coming after them.

You said retail lending was growing well despite the downturn. What explains the fact that people don’t have jobs?

We are focused on Axis Bank customers and salaried employees. Companies have not shut down, maybe in the informal sector people have lost jobs. More than 90 per cent of our book is existing credit card customers and 80 per cent of the personal loan side is existing customers and most of them are salaried customers.

The quality of the book remains strong. The only stress we see is the commercial vehicle side. If the ecosystem is affected, you can’t escape it. There is a slowdown because customers have become careful about buying things.

Where do we see the pick-up happening?

For Axis Bank, growth is not a problem because our market share is very small and our guidance is that we will grow at 6 per cent. But yes, if talk about the economy, IL&FS and DHFL are good examples and the problem is that bad news takes lot of time to come. Are we sure that we know everything about DHFL to take a final call? We still wonder, so it will take time. The government’s hands are full and the measures it has announced will take time to seep through. The biggest announcement was the corporate tax cuts but companies have to go back to their projects, do assessments, and look at their viability. Ease of doing business is still something we need to think about. 

How the state governments will react to it will determine how some of these projects will materialise. What I am more worried about is that there are so many agencies of the state and central governments to stop you in the tracks.

Can we say private banks are stepping into the breach left by NBFCs?

NBFCs were lending to a certain kind of borrowers and we are talking about mid-level and small NBFCs. They had higher interest rates and a different style of underwriting and we had lower rates and another style of underwriting. But saying that banks are ready to go into that in this kind of an environment is stretching things a bit too far. I don’t think the fact that NBFCs have stopped lending or slowed lending has given the banks an opportunity to do so. NBFCs play a very important role and they need to find more capital. 

In the six months you have been here, what are the big changes you have seen in the credit markets?

The credit markets were tightening when I came here. IL&FS had happened and DHLF had happened. I think more than that, I see the promoters are giving up more. The number of promoters getting caught up in actions of the past has gone up significantly. The National Company Law Tribunal process has slowed. In these times the government has to be more vigilant and make sure that some of these issues get removed. Let’s understand that the whole system, not only the banks, has come under pressure.