Axis Bank CEO Amitabh Chaudhary On India's Banking Growth & Big Trends | Sonia Shenoy Sumit podcast

Please understand that there are a large number of banks which are much bigger in size than us. There are a large number of banks which are based in, for example, the US or China, where the advancement in AI has been, you know, obviously way ahead of the rest of the world, and they have been investing in AI for some time, and the kind of budgets they have are much larger than us. So for me to sit here and say, 'Oh, we are keeping pace with some of the largest banks,' I think it'll be quite unfair to say. Are we catching up? Yes. We can do some of the things they're doing at a price which is much, much cheaper than what they're able to do. I think in the next 6 to 12 months, you will see us not catching up with them, but definitely the gap between us and them will be quite low. You hear some of these banks talk about huge amounts of investments, you hear some of these banks talk about huge amounts of savings they are seeing and revenue enhancements they are seeing. I don't know how much of it is true. I don't know whether it is coming through or not. I don't know whether it is double counted or not. We are also investing in AI in a big way. Right now, the results of AI are definitely positive but nowhere close to what we anticipated when we started. We are realizing that it's a hard journey. You might get certain savings and certain benefits up front, and then you have to keep working on the margin to ensure that the full benefit comes through, and full benefit does take time. It is not as if you're buying something off the shelf and just implementing it here and suddenly the whole thing starts working wonderfully. You have your own technology stack. You have your own, you know, India has so many languages. India's own tonality. People talk differently. You have English here. People will test you all the time. In many cases, Indian customers don't want to talk to, for example, on the call center side, to AI. They don't want to deal with it. So there is a lot of work to be done. Can I confidently say that in the Indian banking system we are at the cutting edge? Yes, I can confidently say that. And the reason I can confidently say that is because if you go and talk to some of these global players who are seen as AI majors from an Indian perspective, they will definitely take the name of Axis Bank, which seems to be doing a lot in the area of AI. It is an important mode we can create. So for us as the third largest private bank, it is very, very important that we be ahead of the curve in terms of investing in some of these areas, which we will do.

You know, when the deposit rates were constrained in the market, it was very clear that we had to decide what the waterfall had to be because if we grow by, let's say, 15%, then I have to look at all the businesses I have and try to grow the areas where the return on capital or return on wherever I assign those deposits will be the maximum. And then we were also hit with the retail cycle, where very clearly on the unsecured side, you saw losses creep up quite rapidly in the system. In that scenario, it made sense for us to definitely reduce the growth of the unsecured side and grow more on what we call the CBG or the mid-corporate to the small businesses, and focus more on the wholesale side because it is important because wholesale is not just about lending; wholesale you can create a much more wholesome relationship through trade finance, through FX, through corporate salary accounts, and so on and so forth. So we had, when we were deposit constrained, we had stopped lending on some of the secured side because the return on capital was lower. Then the retail cycle hit; unsecured also was an area where we had to tighten our credit standards. If we wanted to grow, wholesale was the best place to grow. If you look at our last couple of quarters, the disbursement growth on retail is back. As the retail cycle has settled down, the losses have started coming down. We have not suddenly opened up our underwriting standards, but now the customers are coming back, and we are able to obviously provide them those loans. We are also quite confident that there was, in case of at least Axis, the share of wholesale was much more than what was necessary. So we had to grow our retail up to a certain size, and that's why if you are deposit constrained, growing mortgage at low spreads did not make sense. Now we have reached a bit of equilibrium. You will see wholesale growth to be higher than retail growth in terms of AUM or in terms of balances for some more quarters because you might grow the retail assets, you might disburse much more on the retail asset side, but for it to reflect in the overall assets will take some time because you have a leaking bucket in terms of prepayments and repayments, etc. So I do very strongly believe that the growth on the retail side will come back, and then over a period of time, both wholesale and retail will start growing at similar rates. You might see some asset classes growing at a slightly faster pace and some at a slower pace, but both have to grow. We are a very large wholesale player. If we find the right opportunities with the right return on capital, we will grow that. Is it at the sacrifice of profitability? At the end of the day, all this does not make sense if you're not making money. So obviously we have to do it in our overall scheme of things where we look at where we deploy these deposits, where we deploy the capital, and we are deploying it in the medium to long term in the right areas. In the short run, you might see wholesale growing faster, in the short run you might see that the asset size on the retail side is growing at a certain pace, but overall in the middle to long term, you will see equilibrium in terms of our wholesale and retail sizing and the pace at which we're growing various asset classes.

So, yes, I mean, there will be some impact on margins. I can't take that away because obviously the lending margins you make on the wholesale side of the business are lower than what you make typically on a retail side. But as I said, it's temporary. Over a period of time, we do expect the disbursement growth in retail has already picked up and quite healthily. So I do expect it to come back. We have been telling the market that our long-term net interest margin number is 3.8 from a through cycle perspective. We are lower than that, but we are quite confident we'll get to the 3.8% over the next 12 to 18 months or so. Now, please also understand and appreciate that one of the reasons why net interest margin has been hurt for all the banks is that the interest rates have been cut at a certain rate that has not been reflected in terms of the deposit rates or the cost of funds. So on one side, your yield has gone down, but on the other side, your cost of funds has not moved at the same pace, and as a result, the net interest margin for almost every bank has gotten squeezed. We are in the same boat. Yes, in our case, maybe it has gotten enhanced a little bit because our wholesale side has grown slightly faster than the retail side, but it will all normalize over a period of time. And growing and becoming more relevant in the wholesale side, I do believe because so many banks have vacated the space or they're only lending and not providing all the other services, it is a great strategic opportunity for us because we can become an even bigger player on the wholesale side in terms of not just the loans but the overall services which you provide to our corporate clients, and that is reflected in the surveys that you're doing with our clients where we are rated very highly, our ratings are only going up. I mean, I go to many corporate clients and they are saying that you are the first banker we turn to, and it will pay for us in the long run in more ways than one.