Private sector lender Axis Bank is focused on creating a fully digital bank with no need for human assistance through its mobile application (app) “Axis Open”, the bank’s management told analysts during a conference call Thursday.
The rationale for focusing on building a digital bank is higher yields and better fee income. According to a report by CLSA, loans generated through the mobile app garner up to 150 basis points (bps) higher yields than conventional loans extended through physical branch means. Non-core banking cross sale products, too, generate about 50 bps higher fees as compared to the physical segment due to lower negotiation power of customers, reduced costs and more personalised offerings.
Axis Open currently has over 13 million monthly users, and has originated loans and deposits to the tune of over Rs 10,000 crore each till date. The management said bank is trying to build high engagement features and give hyper-personalised offers to customers on the app to further improve customer adoption.
“Currently 23% of all personal loans are being sourced digitally and 17-18% of other loans come via this channel. The credit quality is on par with the physical segment since the launch of the offering two to three years ago,” CLSA said, adding that the focus is also on building partnerships in order to leverage upcoming growth avenues.
Separately, the lender is using Cloud and generative AI to offer differentiated service to partners at scale and is focused on building in-house products to gain competitive advantage. The lender has over 3,000 data points on more than 40 million customers to generate insights, give personalised offers and improve customer engagement and is also utilising alternate data to improve underwriting process.
Foreign brokerage Jefferies added that the management has reiterated its focus on retail deposits. Between March 2022 and September this year, the bank’s lendable deposits have grown at 34%, whereas non-lendable wholesale deposits fell by 17%. The bank’s premium of interest rates on term deposits versus large-bank peers has also been reduced, Jefferies said.
“While slower deposit growth for the system is a challenge, Axis aims to grow deposits faster with branch expansion, ramp-up of wealth management clients & corporate salary A/C, and customised products for various types of depositors. Interestingly, 1 in 3 richest families bank with Axis Bank with the Burgundy platform,” the brokerage said.
It added that improvement in deposit franchise and visibility of healthy deposit growth is key to loan growth. As of September end, Axis Bank’s overall loan book stood at Rs 8.97 trillion, up 23% year-on-year (YoY) and 5% quarter-on-quarter (QoQ). Overall deposits, meanwhile, grew 18% YoY and 1% QoQ to Rs 9.55 trillion as on September 30.
Further, while the bank’s management did not provide guidance on impact of the Reserve Bank of India’s (RBI) circular on higher risk weights for unsecured consumer credit loans, it is confident of sustaining an 18% ROE (return on equity), and reiterated that it does not need to raise fresh equity even after the RBI’s new norms. The bank’s capital adequacy ratio stood at 17.84% during July-September, of which common-equity tier-I (CET-1) ratio accounted for 14.56%.
According to Motilal Oswal, Axis Bank is also focusing much higher on growing its rural and semi-urban business through “Bharat banking branches”. Currently, the lender has 2,372 such branches spread across 700 districts.
“The bank is witnessing a strong 36% growth in MFI, 32% in Gold, 57% in Bharat enterprise, while disbursals grew strong at 27% in retail assets. 90%+ of the portfolio is PSL (priority sector lending) accretive, which should help the bank achieve its PSL compliance and reduce the RIDF burden on the bank,” the brokerage said. Axis Bank management said over the next three to four years, the bank is targeting substantial growth in PSL loans, while aspiring to achieve a 2X expansion compared to the industry average in this segment.
Lastly, CLSA said that Axis Bank’s integration with Citi Bank India’s consumer credit portfolio has progressed well, with employee attrition being lower as compared to what it was previously for the same cohort. The bank’s wealth management franchise has now become the third largest in the country with an overall assts under management (AUM) of Rs 4.5 trillion as of September end.
The lender is increasing wallet share by introducing newer products that fulfil the different needs of customer and its cards franchise is growing steadily with more than 1 million new issuances for past several quarters.