We hosted Axis Bank in meetings with investors. Key take-aways: Impact on retail loan growth: Mortgages, CVs & cars — slowdown likely over the next three months; retail fees will also be weak, as new sales slow, resulting in even weaker overall fees; demonetisation may not impact NIMs/asset quality, but the overall weak outlook for both continues; on asset quality, corporate stress remains though slippages have peaked, but credit costs will remain high; huge pick-up in deposit market share, digital offering bodes well for future; and overall, demonetisation will be positive and should benefit Axis, as it gains faster market share from the formal & informal sectors.
Apart from demonetisation, key discussions centred on asset quality. Demonetisation won’t impact asset quality as Axis’ direct exposure to the informal sector is negligible. The second order impact needs to be watched, but for now, it is not seeing any incremental worsening of retail/corporate asset quality. On corporate, the trends remain the same and, as guided earlier, slippages have peaked, but credit costs will remain high in H2 (mgmt expects 300bps for FY17), as the bank intends to improve the coverage ratio to ~70%.
Against a near 4% deposit market share, Axis is getting incremental deposit share which is sharply higher. We believe that, given its linkages with SMEs/corporate and business banking, incremental market share would be around 7% and current accounts will form a larger proportion.