Axis Bank’s derisking efforts yielding results: Credit Suisse

Maintain ‘outperform’ on Axis Bank with a target of R680 per share. Management believes that corporate loan demand is unlikely to come back in a hurry and the recent pick-up for the bank has been driven by takeover and re-financing. The bank has gained market share taking advantage of the opportunities in the segment and management believes that opportunities for market share gains remain over the next few quarters. Loan growth will also be therefore more balanced across both corporate and retail segments. However, it would continue to focus on high rated corporate with 80% of incremental disbursement to A-rated and above companies. On the retail side the bank is now more comfortable and would gradually increase the share of non-mortgage segments like personal loans, cards, CV/CE etc. This should help sustain 20%+ CAGR in loan growth.

Spreads continue to be stable and there is no immediate pressure on the spreads as competitive intensity in the corporate segment is low and liquidity is adequate. Cost income would remain broadly stable as management is looking to continue investing in franchise expansion (250-300 branches during the year) and technology.

Management remains comfortable with its full-year guidance on problem asset addition (R6500 crore) and credit cost (80 bps, specific).

Corporate book is being de-risked with 80% of incremental disbursement to A-rated and above corporate. Delinquency in both its retail and SME book continue to be low. Over the medium term, as the benefits of mix shift to retail starts to reflect, the bank may see a meaningful moderation in credit costs from the current 93 bps (9M15) levels.

Axis Bank