Money & Banking

Axis Bank is likely to acquire a PSB if the ‘right one comes about at the right price’

K Ram Kumar / Surabhi Mumbai | Updated on February 25, 2019 Published on February 25, 2019

Amitabh Chaudhry, Managing Director and CEO, Axis Bank

ICICI Bank and HDFC Bank have grown through a ‘string of pearls’ acquisition strategy in the last two decades. However, Axis Bank, which started operations around the same time (in 1994) as these two banks, has preferred to grow organically. Now the bank, under the leadership of newly-appointed MD and CEO Amitabh Chaudhry, may shed its reticence towards the inorganic way of growing business. Chaudhry, who took the helm on January 1, 2019, feels the bank can improve its ranking in the private sector banking space. The bank will not shy away from acquiring a public sector bank (PSB), provided it comes across a right match at the right price, and can get its arms around some of the asset issues in a clear way.

In an interaction with BusinessLine, Chaudhry observed that there are some spaces, including consumer durables and two-wheeler financing, where the bank does not have a presence, and will look to fill these gaps. Mindful of the RBI recently imposing monetary penalties, including on his bank, the Axis Bank honcho said the board and management do not want to see even a rupee as fine because it indicates something has gone wrong. He underscored that the bank is serious about complying with the RBI’s rules and regulations. Excerpts:

What are your thoughts on growth via the inorganic route?

We never acquired banks, we acquired some other companies (Enam Securities and FreeCharge). Today, acquiring a banking institution could be for two reasons: one is you are going for the liability side (and liability side is something that all banks are struggling with), or for the assets.

Paying a huge value for acquiring assets is always a question mark because the question we ask, given the size of our balance sheet today, is can we create that? Assuming you acquire a bank with an asset size of say, ₹50,000 crore, which you can create within a year, without too much of a push. Is it really worth paying a lot of money to acquire an asset pool, unless the asset pool is in a space where we don’t have a presence and that will jump-start our whole operations. Otherwise, it doesn’t make sense.

From a priority perspective, at least from a bank’s view point, I think a liability franchise makes more sense. Now the problem with it is that the bank does not exist without an asset. So, invariably, these banks will have an asset, which, invariably, will have a problem, that’s why they are for sale. So, the liability franchise comes with a different set of problems.

So, when you go for asset, you may get a decent asset pool, maybe no liability. So, you can go for an NBFC or something like that, but then you pay a lot of value.

On the liability side, you get a lot of liability, which is fine, but you have a lot of employees, a lot of asset issues to solve. So, you have to again ask the question, is it worth the pain? It’s not an easy acquisition, but are we willing to look at it. Yes, we are.

So, what is the road ahead on this front?

The FM (Finance Minister) has talked about consolidation – we need only 7-8 large banks, as there are too many banks. I think, from the government’s perspective, will they be willing to look at allowing some of us to go and get a government bank? I have no idea on that thought process.

In some cases, the RBI and the government have done that, but it’s not going to be easy. I think, the first step the government will do is continue to merge banks (like Vijaya Bank and Dena Bank are getting merged with Bank of Baroda). Let’s see. We are hoping, but it’s not going to be an easy acquisition...If the right one comes about at the right price, and we can get our arms around some of their asset issues in a clear way, we should be willing to look at it.

Axis has been the third-largest private sector lender for a long time? What is your dream?

I did not come here and appear for the interview to remain No 3. Let me put it that way.

My ambition was not to take this job and move into retirement...Axis Bank is a great franchise, a great platform, great set of people, great culture. We can do something with it and take it to some level.

This means we would like to improve our ranking. Now, where we can get to depends on how well we can execute it.

Does the platform and the talent pool have the capability to take it to a different level? Yes, but it will depend on how, as an organisation and management, we execute it. We will try our hardest, our plans have some ambition in it.

Are there any gaps in your business that you need to fill?

There are some spaces in banking where we don’t have a presence. For example, we are not catering to the mutual fund, the broking space to the extent we should, or to the PE (private equity).

So, there is this whole segment that has very different requirements – PE, MF, brokers, FIIs (foreign institutional investors) – in terms of what their banking requirements are.

So, we need to see how we can fill that space. There are also other segments where we don’t have a presence. For example, we are not present in consumer durable financing or two-wheeler financing. As a large bank, we are present in most of the spaces.

How concerned are you about the RBI cracking the whip on banks?

The board and management do not like to see even a rupee as fine because it indicates something wrong has happened. We should be able to demonstrate, as an institution, to ourselves and the RBI, that we are fully complying or are in the process of complying with it.

The impression I get is that it is more about them getting the impression from our actions that we are serious about compliance.

The reason why this cracking of whip has happened is because they feel the level of seriousness has to go up a couple of notches…if we start listening and they start getting the feeling that we are serious about it and we are working on it, some of the pressure will come off. That is my view.

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Published on February 25, 2019
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