Liquidity mispricing is evident in the corporate loan market, says Axis’ Rajiv Anand

Bombay : Intense competition among banks to grab a slice of the corporate lending pie has led to some mispricing of liquidity, said Rajiv Anand, deputy chief executive of Axis Bank.

In the three months to June, the private sector lender witnessed a 5% year-on-year (YOY) contraction in net corporate lending to 2.16 trillion. This segment represents 31% of the bank’s overall loan portfolio as of June 30. Its loans to small and medium businesses and retail borrowers were up 27% and 25%, respectively, from the same period last year.

“On the lending side right now, particularly at the short end of the curve, we think the competition to some extent is mispricing, not risk but liquidity. We don’t see those kinds of issues in our targeted segments at this stage,” Anand told reporters on the bank’s first-quarter financial performance conference call.

Anand said the bank is seeing strong growth in its targeted segments of small business banking, SME and mid-sized businesses, among others, and the environment is quite conducive for business growth.

“Having said that, what I’ve always said is that especially on the business side, it’s very important for us to grow profitably. Whenever and wherever we find an opportunity for profitable growth, we will definitely do so,” Anand said.

Some of Axis Bank’s peers reported strong growth in their corporate advances in the June quarter. Other big banks, especially state-owned ones, expected good traction from the corporate sector, led by a growth spurt in infrastructure assets. For the banking system, lending to industries – micro, small, medium and large – stood at 31.6 trillion as of May 20, up 8.7% from the same period last year, RBI data showed. The regulator has yet to release data on the sectoral deployment of loans in June.

“We are major lenders and indeed we are major bankers to Indian companies. If you look at the market share we have gained in various lines of business on the corporate side, it’s not like we don’t do business with the big companies,” Anand said.

On Monday, the bank announced a near doubling of its net profit for the June quarter to 4,125 crores, thanks to higher net interest income and lower provisions than the same period last year. Earnings were above a Bloomberg consensus estimate of 3,658 crores.

“We continue to move forward with clarity and intention in a quarter where external signals were mixed; system credit growth has accelerated with double-digit credit growth over the past four months; consumption continued to increase; working capital demand is strong and, together with refinancing needs, is driving credit growth,” said Amitabh Chaudhry, Managing Director of Axis Bank.

On the deal to purchase Citibank’s consumer portfolio in India, Chaudhry said the bank has filed an application with the Competition Commission of India (CCI) and expects approval to be granted to the over the next six to eight weeks. The bank, he said, expects to complete the transaction by the fourth quarter of FY23. On March 30, Axis Bank announced that it had agreed to buy Citibank’s consumer business in India for 12,325 crore ($1.6 billion) in cash, in addition to paying another 1,200 crores to Citi to ease the transition.

On Monday, while management declined to give specific loan growth targets, it said the bank would continue to grow faster than the market. “We don’t really provide advice or insight on our position. Overall, we have always maintained that we are going to grow faster than the industry average and I guess it would be fair to keep that in mind in our continued commentary,” said Puneet Sharma, Chief Financial Officer of Axis Bank.

Axis Bank’s net advances grew 14% year-on-year for 7.01 trillion and deposits increased 13% year-on-year to 8.03 trillion as of June 30.

Axis Bank shares on BSE closed at 728.2 on Monday, down 0.38% from the previous close.

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Priscilla C. Carnegie