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In 2010, when she decided to take over Enam in a Rs 1,400-crore deal at a time when the stock markets were not doing particularly well, Shikha Sharma was under fire from analysts for the high valuation. The deal went through many changes and regulatory hurdles and very few were willing to listen to her when she said Axis Bank needed to fix the gaps in its business mix.
The journey that the 55-year-old managing director and chief executive officer of India's third-largest bank has covered is evident from the fact that the same critics are now praising her for her correct strategic call of creating a one-stop shop, courtesy Axis Capital and Axis Securities.
The market is warming up to Sharma's one-stop shop model. In the past one year, the Axis Bank stock has gained over 40 per cent, outperforming the BSE Bankex which went up 12 per cent.
According to the Bloomberg debt market league table for FY15, Axis Bank topped the list with a 17.7 per cent market share and handled 313 issues, beating its closest competitor by a wide margin. On the equity side, the bank has managed to get into the top 10 list, though that kind of success is still elusive on the debt side.
But the Enam acquisition has been just one part of Sharma's strategy. Under the Vision 2015 document that the bank management adopted soon after she took over six years ago, Axis went in for a huge shift in focus from its positioning of a "corporate bank" to one which gave equal focus to the retail business. There was a reason for this change: The bank's relative high focus on infrastructure loans made it vulnerable to the aftershocks of a slowdown in the economy and high inflation.
As a conscious decision, the share of corporate advances has been brought down from 51 per cent to 45 per cent.
Axis Bank grew its retail book, but not at cost of profitability. Over the past six years, Sharma has managed to grow the bank with an average 24 per cent growth in net profit between FY10 and FY15. In the same period, return on equity grew at an average of 18.89 per cent. The balance sheet in the same period more than trebled from Rs 1,47,722.05 crore at the end of March 31, 2009, to Rs 4,61,932 crore at the end of March 31, 2015.
"The bank has significantly de-risked the balance sheet over the last few years. The focus has been on low-risk retail loans, which we believe is a good strategy in the current weak macro environment. Low-cost deposits have remained stable despite competition," said Seshadri K Sen and Dhiren C Shah, of JPMorgan in a research report.
Sharma was of course lucky to take over a portfolio which wasn't saddled with bad loans and instead had been growing at a rapid pace. At the end of March 2009, the lender had a balance sheet size of Rs 1.47 lakh crore and net profit of Rs 1,815 crore. Gross NPA (non-performing assets) was at 0.96 per cent and net NPA was at 0.35 per cent at the end of FY09.
She has managed to maintain the legacy by ensuring that the bad loans in the book are contained at 0.44 per cent, much lesser than some of the other private banks. For instance, ICICI Bank's net NPA stood at 1.61 per cent at the end of FY15. In the March quarter, provisions for bad loans at Axis were at 40.49 per cent to Rs 709.82 crore compared to 88.4 per cent to Rs 1,344.73 crore of ICICI Bank.
What makes the NPA management creditable is that this has been achieved despite 12 per cent exposure to the infrastructure sector in FY09 which has now been brought down to 7.88 per cent.
The next leg of growth for Axis Bank focuses on leveraging technology and making banking simple.
With the key metrics in place, analysts believe that Axis Bank will continue to grow at a robust pace, faster than competition. "With improvement in the economic environment, the bank is well positioned to grow by at least a few percentage points higher than the average industry growth rate and we expect Axis Bank to deliver a CAGR (compounded annual growth rate) of 21 per cent in earnings for FY2015-17E," said Vaibhav Agrawal of Angel Broking.
