Investor concern over asset quality seems to have glossed over significant strides made by Axis Bank towards fortifying its retail liabilities franchise. Read across, saving statistics suggest that the bank has garnered a higher absolute SA in FY12 (INR108bn) over HDFC Bank (INR106bn)/ICICI Bank (INR92bn), despite branch strength being 40-50% lower. Also Axis sits at the top of the table in comparison across productivity ratios; SA and CASA per branch. Street’s concerns over the drop in daily average CASA of 7% over the last two years are unfounded as there is no let up in SA momentum. The drop is largely due to the CA moderation, an industry phenomenon. Another vindication of the improving liability franchise is the rising share of retail TDs. We believe that as the build up on retail assets and liabilities sustain momentum, the valuation gap with retail heavy banks like HDFC, Kotak, IIB should narrow.
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Key highlights:
· Saving accretion: Given the backdrop of the unfavorable environment – elevated deposit rates coupled with competition from small private sector banks post the deregulation, Axis Bank has got its retail machinery going, growing its SA balances higher at 27% as compared to HDFC Bank’s 17%. Even on absolute basis, Axis Bank has garnered SA at INR108bn vis-à-vis HDFC(INR106bn) and ICICI Bank (INR92bn).
· Per branch productivity ratios: Axis Bank has continued to hold the pole position in CASA per branch: INR560mn as against INR470mn and INR 400 mn for HDFC Bank and ICICI Bank respectively. Even on SA per branch, it occupies the top slot.
· Retail TD: A relatively higher dependence on wholesale funds has been a key negative for Axis Bank, leading to volatility in margins. However, a slower balance sheet growth compared to historical trends coupled with efforts to penetrate retail deposits has led to share of retail TD up from 25% in FY08 to 40% in Q1FY13.
· Average CASA – daily: A drop in daily average CASA balances by 7% over the last two years has created concern among investors whether the bank is losing ground. We believe that these concerns are unfounded as the core Saving franchise of the Axis Bank has remained quite steady, moving from 24.8% to 23% - a fall of 180bps whereas a larger drop has been seen in CA balances which have come off from 18% to 13%, an industry wide phenomenon nonetheless.
Regards,
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