Economic loss would play out over 12-18 months: Amitabh Chaudhry, MD & CEO, Axis Bank

By Malini Bhupta and Shritama Bose

Slippages are set to rise in Q3 and they will ease in Q4, Axis Bank MD and CEO Amitabh Chaudhry told Malini Bhupta and Shritama Bose. The bank will be more upfront about taking losses on the retail side rather than offering restructuring for the sake of it, he added.Edited excerpts:

Nine months into the pandemic, after the initial fear, how is the build-up of stress on your loan book?
As far as stress is concerned, we have made a comprehensive disclosure of what our NPA is and what we call our potential stress book, which is BB and below book, and we have also given an estimate on the probable restructuring book as part of our Q2 commentary. We also believe slippages will increase in Q3 given the end of regulatory forbearances and assuming that abeyance in asset classification pursuant to the Supreme Court decision does not exist as at December 31, 2020. So I am saying that if you were to look at three areas going into the future, one is our BB and below book, which has stressed accounts plus high-probability restructuring accounts. We are going to be more upfront about taking losses that appear on the retail side and not do restructuring for the sake of it. I expect restructuring on the retail and SME side to be small. I expect slippage to be higher in Q3 and lower in the Q4. But, once we are done with it we can look forward rather than worrying about it. We have a large portion of the retail book as secured and I do believe that the economic loss would play out over 12-18 months.

What insights have you gleaned from the recast applications and what does it tell you about the borrowers and the economy? In October you said that there were no restructuring requests. Where does it stand now?
We had said as on the date of the call we had not received any restructuring requests and since then we have received requests from both corporate and retail borrowers. We had talked of Rs 11,500 crore of estimated restructuring, but I think the numbers will be lower than that. We are keeping our fingers crossed as we still have 23 days left. Retail restructuring will be limited compared to the size of our book, with no discernible difference between secured and unsecured. On the wholesale side, we will support proposals where the business is viable. In some cases we will need to work with a consortium.

Where do you see credit growth after the spike during the festive season?
The trend in credit growth seems to be improving. Our secured disbursements are now near pre-Covid levels. We are evaluating the unsecured business and hence disbursements have improved, but they have not reached the pre-Covid levels yet. On the wholesale and commercial banking side, we are capitalising on opportunities to lend to industry leaders and segments that provide us risk calibrated growth. On the retail growth, the festive season was better than expected. Post Diwali is a cooling down period, but we expect business to pick up in December. However, I would caution that sustainability needs to be seen as pent-up demand and higher savings due to moratorium may have boosted demand. Initial signals are all positive, but two or three months don’t make a trend.

What is your view on interest rates?
It is a bit difficult to say we have seen the bottom of the interest rate cycle. We need to watch the inflation trajectory to see whether the MPC gets room to cut more, if the economic conditions so require. A lot also depends upon speed of recovery and spread of economic activity. Obviously, policy levels will have to be normalised if economic activity levels normalise faster than anticipated. Whether rate cuts will happen, there’s a question mark, but I am sure MPC would like the flexibility. I expect rates to remain stable for the next two quarters.

The RBI has just taken action against one of your rival banks for repeated service outages which inconvenienced customers. What does it mean for banks?
The RBI is making it amply clear that for them customer experience is paramount. As the government and the regulator push for more and more digitisation of the economy and transactions, they do not want customers to go through the pain of bad experience because that could keep them away from embracing what the government is trying to do. And why should customers go through a bad experience? Secondly, they are also saying that they want the banks to upfront all the investments before they launch new things because they cannot time it to perfection. The third is that they are willing to be extremely tough.