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SHIKHA SHARMA CEO, AXIS BANK
‘Indians
Trained to Work in Chaos’
We
are fundamentally risk-takers and new Tatas, Birlas and Ambanis will emerge
to take the India Story forward, says Axis Bank chief, adding that the
level of entrepreneurship is more than she has ever seen
Shikha Sharma, the chief executive officer at Axis
Bank, dared to do what not many private banks were willing to — lend to
infrastructure and acquired an investment banking business. In an interview
with MC Govardhana Rangan and Shilpy Sinha, she says the best may be yet to
come for Axis and the nation desperately needs decisions. Edited excerpts:
The government, at least on paper, showed it met the fiscal deficit
target and cut the current account deficit. Is it a battle won?
I think the great thing is there has been focus and prudence in
managing fiscal deficit and managing the current account deficit. If you
look at where India was in June-July and where we are now, I think we are
in a different place. We have seen systematic focus on fiscal and current
account deficit and actually being able to do that. This is very
impressive. The other thing is there wasn’t any big populist measure, which
is a worry in an election year. I think the reduction in excise duty is
also a good thing, with growth languishing, you need to do whatever you can
to get growth going in the system.
Are not some questioning the quality?
If you look at the way Delhi and Mumbai have co-ordinated to bring back
confidence in the market that is a big achievement. We can quarrel about
the quality of how it has happened, but if you don’t survive the short
term, you don’t live for the long-term.
This government is history. What is the agenda for the incoming one?
You have to stay on the path of fiscal prudence, whether you go to 4.1%
or 4.2% or 4.3%. The new government will weigh the pros and cons of
achieving that one number. Given the state of our reserves, keeping current
account deficit down is important. Above this, the most important thing is
to get growth back. We will have to make sure that CCI and PMO stay
focused, so that all approvals happen.
How do you get investments back on track?
The other issue is to get risk appetite back. We have to get to the
core of the issue. Why risk appetite is not there in the system? Everybody
says India is a great opportunity, big country but why is there no
appetite? Because our decision-making is in a state of flux — we have gone
back and forth on a lot of decisions and that scares people. There is whole
issue of uncertainty coming with lack of policy clarity, and
implementation. There is a question of cost of capital, if the equity
capital market is not doing well and cost of debt is high then you have
uncertainty on the investment side and have high cost of funding on the
borrowing side.
But where are the entrepreneurs?
Entrepreneurs who have built India over the last 50 years are all here.
I was talking to one of them who was saying Indians have the maximum risk
appetite, we have been trained to work in chaos, we are fundamentally risk
takers.
Most are so leveraged that hardly anyone is talking about new projects?
New entrepreneurs will always emerge. The initial building of India was
done by Tata, Birla and Ambani. And now you have the GVK, GMR, Jaypee and
Adani who built infrastructure. Now you have young entrepreneurs who will
do entrepreneurship of small business. The level of entrepreneurship is
more than I have ever seen. If you look at servicebased, real world
businesses like Flipkart, Makemytrip, Bigbaskets — where have you seen so
many businesses cropping up like this?
Services businesses do not require huge capital investments. Who would
fund those massive projects that the country desperately needs?
There is no shortage of money. You have people like Ajay Piramal, Azim
Premji, Mukesh Ambani, and these people are sitting on pools of money,
which they deploy directly or through funding businesses that are coming
up. The issue is how do you build confidence in the investee, giving policy
stability. The level of uncertainty is too high. It will take time for risk
appetite for large projects to come back.
Many present lower interest rates as the panacea for economic ills? Will
lowering repo rates get funding costs down?
You have the policy rate. But the cost is not dependent on how much we
borrow from repo. There is very little borrowing that happens at repo rate.
Most of the borrowings are done at term deposits — either retail or bulk
deposit, or interbank markets where rates are much more dependent on
liquidity in the system. So liquidity is a better benchmark than repo rate
for cost of funds as far as banks are concerned. The ability to pass on the
cost is dependent on demand for credit. In a situation where there is lot
of demand for credit but there isn’t enough supply of money, then you will
pass on the rate increase very quickly. Transmission happens through
liquidity management.
After the new restructuring norms of the RBI which provide for overthrow
of incapable management, is the change happening at the ground level?
The issue is that you need to have clear articulation of the cause of
the problem. If the cause was not the promoter but a genuine issue that
came up, then change of management won’t solve the problem. Where the
problem is coming from the management, you need to change it. There,
sometimes, we get stuck in the legal system and we need fast clearance
courts to work towards proceeding of change of management. We have DRT
(debt recovery tribunals) but all of them are not staffed and
decision-making process becomes longer.
So will the absence of capacity to handle legal issues be a hurdle?
The fact that there has been a focus on saying, go after (defaulters)
and work out the solution, and that banks should work together — I think
that is positive. We have to make sure we have capacity. From a design
perspective, to identify the problem early and start acting on it early is
a good design. Where the problem is not solvable, we need to go to DRT.
There’s some piece of work needs to be done.
Are not banks also responsible for letting the issue fester by
restructuring loans that do not deserve it?
In some cases we have burnt ourselves. Suppose there is a port or an
airport and it is financed with loan maturity of seven years, it will need
refinanncing after seven years. There is a legitimate case to refinance or
reschedule it. We call it restructured and impaired asset. But it is a
project that should have been financed with a longer-tenor loan because we
don’t have longer-tenor finance. It needs refinancing probably five times
during the tenor of the project. The new guidelines provide for refinancing
of viable projects which is a good thing. However, it says half of the
lending has to come from new lenders that could be some constraint for
large projects.
Among private banks, you were active in lending to infrastructure. Did
that prove a wrong call?
Having done that for a while, doing some portion of book is okay. Banks
like ours have a national footprint. We will have to be consistent with
what the country needs. If the country needs infrastructure as one of the
investment items, I think it is perfectly legitimate for banks to lend. The
problem is because this is the first time, we have seen at PPP (public private
partnership) model, and there has been back and forth on it. It would be
resolved in the next round as people would have learnt their lessons. The
second constraint to financing infrastructure is looking at ALM (Asset
Liability Management).
Is that the reason that you are shifting more towards ‘the safe’ segment
— retail?
If you look at the history of Axis Bank, Dr Nayak built a very strong
retail franchise and strong corporate bank franchise based on debt capital
markets. If you look at key differentiating things about the bank, it was
the strong liability franchise, strong corporate franchise, debt capital
market and reasonable presence in the government payment space. As we grow
larger, we are looking at two things — one is to build long-term franchise
around the customer, who is the customer we are serving and what are the
needs.
The second?
Second is risk management and stability. We have a strong liability
franchise and those customers need more than just a savings bank account.
They need credit, wealth management products and credit card products. If
you look at Axis Bank five years from now, attempts will be to be a
full-service bank.
Who is your successor?
My current term gets over in 2015. I turn 60 in 2018. The board will
have to decide when the bank needs new CEO. And RBI will have to approve. I
am not the person in control of it.
You bought Enam. Has that played out the way you wished?
To be honest, not entirely. People integration has gone off well.
Market has completely gone to sleep. It is a market-oriented business and
there aren’t lot of transactions happening. Revenues have, therefore, been
weaker than what we would have hoped for. But, even when we bought it, we
bought it knowing that you can’t build this business in less than 10 years.
So, as long as markets come back we will see the benefit of the
transaction.
govardhana.rangan
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