Business Segment
Performance
Dear Shareholders,
The fiscal year 2022 was yet another extraordinary year for Corporate India as it displayed extreme resilience through the challenging times. The year witnessed record deleveraging by corporates on the back of buoyant equity markets and upturn in commodity cycle.
With corporate balance sheets in a comfortable state and credit risk environment being benign, the industry loan growth continued to improve sequentially through the year. Banking sector loan growth in mid-corporates and SME segment was strong while pricing pressure remained higher in large corporates as the latter utilised the low interest rate environment and buoyant equity markets to mobilise funds from non-banking sources.
In this context, our strategic focus has been to deliver relationship RAROC focused growth leveraging ‘One Axis’ while driving higher growth in our chosen business segments. Over the last three years, we have firmly laid the building blocks for driving our strategy by strengthening the organisation structure and processes. We have initiated multiple transformation projects across our coverage and product focused segments towards building high performing, resilient and continuously improving businesses. We have also inculcated a positive culture and embedded rigour and rhythm in our operations towards delivering execution excellence and getting our fair share of business from customers.
As a result of these efforts, we added close to 1,100 new credit relationships in the Corporate segment during the year, up nearly 40% y-o-y. In line with our focus on looking at the customer relationship opportunity on a RAROC basis, we also deepened our product penetration across our focused coverage segments.
Ability to deliver ‘One Axis’ has been a key area of distinctiveness for the Bank
I am proud to state that today we are amongst the best and most comprehensive Wholesale Banking franchise for our customers. Our ability to deliver ‘One Axis’ by bringing in the strengths of the subsidiaries and all business segments of the Bank, has been a key area of distinctiveness for the Bank. During the year, we engaged with the customer across their capital structure with an aim of not just lending balance sheet but also ensured that we capture multiple non-credit revenue streams to become their ‘transaction bank of choice’.
Today, we provide one-stop holistic solutions for meeting the needs of our corporate clients across all financial services. From, traditional banking products like loans, working capital, transaction banking services, debt capital markets to investment banking and asset management solutions, and retail banking products like Burgundy wealth management, salary and trusteeship services, forex and commercial credit cards.
Our synergised efforts across the coverage segments and subsidiaries towards serving customers also got us multiple external recognitions. At the start of the year, the Bank was recognised as # 1 on the Greenwich quality index for both Large Corporate banking and Middle Market banking. The Bank also stood # 1 on the Greenwich Service Excellence rankings for aspects like the ease of doing business, and knowledge of transaction banking needs. We were also awarded IFR Asia’s Asian Bank of The Year and India Bond House Award, for our breadth of coverage and depth of expertise in the Asian investment banking space.
Continue to deliver higher growth in our focus segments like Commercial Banking Group and Mid-Corporate
The concerted efforts have also started reflecting in the strong growth performance in our focused segments like Mid-Corporate, MNC and CBG that grew by 45%, 49% and 26% respectively as compared to previous year. The higher growth has led to share of Mid-Corporate and CBG in overall wholesale advances increasing by over 750 bps in last two years, thereby bringing in a greater level of granularity to the overall portfolio.
The SME segment remains strategic priority for us as we build a strong & quality relationship led commercial banking franchise. Over the last few years, we have significantly strengthened the leadership team, our operational processes, risk and collections framework, while improving customer engagement and productivity aided by technology driven transformation projects. Our strategy to accelerate new customer acquisition, be able to offer many more products to our existing customers and leverage data and technology continues to play out well. During the year, our New to Bank business book grew 53%, and nearly 20% of the premium Burgundy Private and Burgundy accounts were sourced through CBG segment. The SME book continues to remain largely secured, granular and very well diversified across different industry segments. The asset quality and risk metrics in this segment have held up very well with net slippages of `193 crores in fiscal 2022, very low share of ECGLS and negligible restructuring of 0.02%. We remain bullish on our ability to push the pedal on growth in this segment.
Within our Mid-Corporate segment, which is our other focus segment, we continue to invest in strengthening our team structure and expand geographical footprint in close coordination with our branch banking channel and subsidiaries to source new business. The focus has also been in deepening existing ETB relationships to increase contribution from higher yielding assets. We also remain focused on the MNC and New Economy segment where we see vast available opportunity given the rapid increase in “unicorns” and their growing banking needs.
We continue to maintain our strong positioning among the leading private sector banks handling the Government Businesses across the country. We have transitioned our Government Business approach from being deposit-centric to more solution-centric, delivering and deploying holistic customer-specific solutions for payments, collections and liquidity management. During the year, we added a new and improved FDMS (Fund Disbursal Management System) solution to execute bulk transactions with minimal intervention. We also integrated Bharat Bill Pay System (BBPS) for various Municipal Corporations and government agencies as an online collection method and introduced customised solutions for the government’s Public Financial Management System (PFMS) initiative. Through Single Nodal Accounts (SNAs), we have been the front runner in implementing the government’s initiative of ensuring operational efficiencies and optimal utilisation of funds for public expenditure through our best-in-class product suite and implementation TAT.
Made strong progress towards becoming the transaction bank of choice for our corporate clients
We have invested significantly in people and technology on the Wholesale Banking Products side in the last three years. The focus has been on simplification of processes and products while driving innovation and growth across RAROC accretive products such as Current Account (CA), Cash Management Solutions (CMS), forex and trade. During the year, we made strong progress towards becoming the transaction bank of choice for our corporate clients. We won several complex cash management mandates, and gained market share in trade and forex business. Our market share in foreign LC issuances increased by 130 bps y-o-y to 10.6%. Also we continued to have strong positioning in GST and NEFT payments with market share of over 8% and close to 10%, respectively. We continue to remain one of the leading banks in Bharat Bill Payment ecosystem contributing to the highest number of new biller additions to this platform. As a result, the share of non-credit granular fees in overall corporate and commercial banking fee mix increased from 77% in fiscal 2021 to 81% in fiscal 2022.
During the year, we introduced a new service architecture as we focused on providing end-to-end digital solutions to our clients. We became the first Indian bank to execute an entirely paperless Import transaction with host-to-host connectivity. We were also the first Indian private bank to arrange Secured Overnight Financing Rate (SOFR) linked trade financing deal, and also executed the first Blockchain enabled domestic trade that involved the process of Letter of Credit advising as well as digital presentation of underlying trade documents.
We have also made significant progress in our project ‘Neo’ towards building a world class Digital Corporate Bank. One of our primary focus areas has been to seek market leadership and increase customer wallet share by offering a comprehensive market leading API proposition to clients. We are also building a simplified mobile native platform that will cater to rapidly emerging banking and beyond banking needs of corporates and MSMEs customers through our in-house digital journeys and collaborative partnerships. The first journeys in beta phase have gone live during the fourth quarter of this year and we remain committed to build banking of the future framework for corporates.
We have maintained our leadership position on the Bloomberg League Table as the top arranger of rupee bonds over the last 15 years. During the year, the Bank also won the ‘Best DCM House in India’ Award at the Finance Asia’s Country Awards.
During the year, our overseas corporate loan book grew 42% y-o-y primarily driven by our GIFT City branch exposures as we continued our focus on serving Indian corporates with global operations through our consolidated overseas branch operations in Dubai, Singapore and GIFT City, India. Our overseas book continues to be dominated by high rated Indian conglomerates and public sector undertaking entities. We have the largest International Financial Services Centre Banking Unit (IBU) in Gujarat International Finance Tech-city with asset book of close to $5 billion. We also have the highest share of NonDeliverable Forwards (NDFs) trading volumes among all IBUs.
Strengthened governance, risk culture and balance sheet in last 3 years, reflecting in lower stressed assets
We continue to maintain rigour around risk management and have now expanded ESG risk coverage in credit appraisal under our ESG Policy for Lending that has been in place since fiscal 2016. We are also incrementally scaling down exposure to carbon-intensive sectors in our wholesale lending portfolio. As part of our efforts to drive positive climate action and achieving the Sustainable Development Goals, we have committed to incremental financing of `30,000 crores under Wholesale Banking to sectors with positive social and environmental outcomes by fiscal 2026.
Over the last three years, we have strengthened our governance and risk culture with respect to coverage and credit underwriting, products and processes. Our stress book of BB and below rated accounts has moderated from 1.32% of gross customer assets in fiscal 2019 to 0.75% in fiscal 2022 with 100% of restructured corporate book classified as BB and below. Over 92% of our incremental sanctions in fiscal 2022 and over 88% of loans outstanding as of March 2022 were to corporates rated A- and above.
At the same time, we have continued to take prudent actions around asset quality and provisioning. The asset quality metrics continue to improve with net NPAs in Corporate and SME segments reducing by 31 bps y-o-y and 47 bps y-o-y to 1% and 0.56% respectively. Our strong balance sheet position with additional provisions of 1.77% on standard assets, places us well to counter the unlikely risks in the current uncertain environment.
Remain well placed to further gain market share and build a sustainable and profitable Wholesale Bank
Having said that, I do believe that the economic conditions are now consistent with an increase in private sector capex. The capacity utilisation in select core sectors have started rising. Further, the sharp post pandemic recovery in service oriented and new age companies is likely to aid higher growth across our focused segments. I do expect the reduced stress levels and benign credit risk environment to support higher credit offtake in fiscal 2023. Banks are already seeing demand for funds, with credit growth improving sequentially through the year. The rising interest rate environment will further help to improve pricing in the large corporate segment and shift the credit demand back from non-bank funding sources.
Within the banking system, there has been considerable shift of corporate banking business with the private sector banks gaining over 13% market share from PSU banks in the last five years. Further, private banks with higher portion of their book linked to externally benchmarked rates would benefit from rise in market interest rates in response to actions by the RBI and other global central banks towards monetary policy normalisation. In such an environment, large private banks including Axis Bank, with their superior customer servicing capabilities, innovative product offerings and digital prowess will continue to grow faster than the industry.
I am confident that our distinctive ability to offer ‘One Axis’ along with our RAROC focussed approach towards driving growth would help us gain market share and build a sustainable and profitable Wholesale Bank.
Warm Regards,
Rajiv Anand
Deputy Managing Director
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