Axis Bank expects costs to stay high on digital foray

Mumbai: Axis Bank expects operating costs to remain elevated as it invests in digital platforms to get more value than volumes from customers. The bank believes that there could be pressure in the mortgage portfolio if the interest rate increases more than the expected 125 basis points, says Nomura.

One basis point is 0.01%.

“While acknowledging rising competition, (Axis Bank) believes that its retail liability franchisee will be more focused on value rather than volume,” Nomura said in a report. “The focus is more on acquiring a higher wallet share of customers than just acquiring more customers. Management expects to continue to deliver loan growth which is 4-6% higher than the system, and in the near-term may have a smaller contribution from corporate loans.”

Nomura, which hosted the management team, said that key areas of focus for the banks for asset growth will be retail, Bharat Banking, mid- corporates, MNCs and commercial businesses.

While the Axis Bank team expects operating costs to remain elevated in the near term owing to investments in digital banking, technology and building a retail franchise, it does not expect asset quality issues in the corporate segment owing to higher rates.

“The ECLGS portfolio in commercial banking is being monitored but it is too small to be a bother,” the brokerage house said. “In retail, mortgages may witness some pressure if rate hikes exceed the 120-125bps currently expected. Management indicated that customer attrition at Citibank was lower than estimated as of December 2021.”

The bank opened around 900-1,000 branches in the last 18-24 months and will continue to invest in the same. The Axis Bank team said it expects to gain a market share of 400-600 bps in incremental credit growth of the industry.

The bank also does not expect asset quality issues in the rising interest rate scenario. On the wholesale front, the bank believes that the quality of customers and the cash flow it generates will help face the higher interest rate pressures.

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