MANAGEMENT'S DISCUSSION AND ANALYSIS
Fiscal 2012-13 saw Gross Domestic Product (GDP) growth falling to 5.0% from 6.2% in theprevious year. Persisting high inflation, macro-economic imbalances, including fiscal andcurrent account deficits resulted in a tight monetary policy stance for much part of theyear. Investment dropped sharply due to high interest rates and project implementationbottlenecks resulting in the growth slowdown. A decline in the country's exports - theresult of declining domestic competitiveness and a slowing global economy, together withhigh imports has led to deterioration in the Current Account Deficit (CAD). Reducedcapital inflows also led to a sharp depreciation of the Rupee.
Subsidies rose to 2.6% in fiscal 2012-13 from 1.4% of GDP in the previous year, withboth the fiscal deficit and inflation remaining at elevated levels. As part of the processof reforms and with a view to restoring investor confidence, the government has taken anumber of measures since September 2012 including the partial de-regulation of dieselprices, capping of subsidies of LPG and liberalisation of FDI in multi-brand retail andaviation. The government has made fiscal discipline a key objective and the deficit forfiscal 2013-14 has been budgeted at 4.8% of GDP, lower than 5.2% declared for the previousyear.
Credit growth fell to less than 15% and in the absence of fresh investments andmonetary policy easing in fiscal 2013-14 may slow down further. Deposit growth in thebanking sector, which remains the primary channel of financial intermediation, alsowitnessed a slowdown in fiscal 2012-13. Aggregate deposits outstanding were Rs 67.51 laccrores as on 22nd March 2013 growing 14.3% year-on-year while non-food bankcredit grew 14% to Rs 51.66 lac crores.
Prospects for Fiscal 2013-14
Moderate global economic recovery and measures to revive domestic growth are likely toimprove economic conditions and sentiment in India in fiscal 2013-14. Core inflation islikely to decline gradually and remain range-bound thereafter. India's Current AccountDeficit (CAD) is likely to reduce gradually as a result of the measures initiated by thegovernment and the RBI. Improvement in exports will act as a further impetus to domesticgrowth. The steps taken to revive investment, including monetary policy easing andliquidity infusion and progressive infrastructure de-bottlenecking is likely to increasecapacity expansion. Recent measures by the government, including actions by the CabinetCommittee on Investments (CCI) and prospective award of road contracts is likely to boostthe projects being implemented. As a result, GDP may potentially rise to around 6% infiscal 2013-14.
With households re-allocating their savings from physical to financial assets and withimprovement in financial performance by corporates, higher foreign capital inflows as wellas better cash management by the government, it is hoped that there will be an increase infinancial savings that would support deposit growth and improve systemic liquidity. Forfiscal 2013-14, we expect deposit growth to be 14-15% and non-food bank credit to bearound 15-16%. The challenging conditions have enabled Indian corporates to become morecompetitive and efficient that will help them benefit from a cyclical upturn.
OVERVIEW OF FINANCIAL AND BUSINESS PERFORMANCE
In a year in which the banking sector in the country has faced increasing strain, fromtight liquidity conditions, hardening interest rates, slowdown in capital expenditure,rising delinquencies and high incidence of assets being restructured, the Bank hasreported a strong performance, sustained by its fundamental strengths - a soundinfrastructure in the form of a well laid-out retail franchise and a large number ofcorporate relationships.
The Bank has registered robust growth in both business and revenues. The total assetsof the Bank as on 31st March 2013 were Rs 340,561 crores, increasing 19.23%over the year, with the total deposits of the Bank rising 14.77% to Rs 252,614 crores andthe total advances rising 16.03% to Rs 196,966 crores as on 31st March 2013.During the year, the total income of the Bank increased 23.05% to Rs 33,734 crores, whileoperating revenue increased 20.68% to Rs 16,217 crores. The net profit rose 22.09% to Rs5,179 crores from Rs 4,242 crores in the previous year.
The Bank continued to create shareholder value, as a result of which the dilutedearnings per share for the year increased to Rs 118.85 from Rs 102.20 last year, while thebook value per share increased to Rs 707.50 from Rs 551.99 last year.
The Bank has consistently provided superior returns to its shareholders by usingcapital efficiently in supporting business growth. The capital management framework isdriven by the objective of ensuring an appropriate mix of business, with optimalallocation of capital.
Investor interest in the Bank continued to be strong, from both domestic and foreigninstitutional entities. In order to strengthen its core capital base, the Bank raisedequity capital aggregating Rs 5,537.47 crores during the year through a QualifiedInstitutional Placement and a preferential allotment of shares to its promoters. The Bankalso raised Tier II Capital of Rs 2,500 crores in the form of sub-ordinated bonds(unsecured redeemable non-convertible debentures) to augment the overall capital base.
The Bank has implemented the Revised Framework of the International Convergence ofCapital Measurement and Capital Standards in 2008. In terms of RBI guidelines on Basel II,the capital charge for credit and market risk for the financial year ended 31stMarch 2013 is required to be maintained at the higher levels as required under Basel II or80% of the minimum capital requirement computed under Basel I. In terms of regulatoryguidelines on Basel II, the Bank has computed capital charge for operational risk underthe Basic Indicator Approach and the capital charge for credit risk under the StandardisedApproach. As on 31st March 2013, the Bank's Capital Adequacy Ratio (CAR) underBasel II was 17.00% against 13.66% on 31st March 2012 and the minimumregulatory requirement of 9%. Of this, the Tier I Capital Adequacy Ratio was 12.23%, whilethe Tier II Capital Adequacy Ratio was 4.77%. The following table sets forth the capital,risk-weighted assets and capital adequacy ratios computed as on 31st March 2013and 31st March 2012 in accordance with the applicable RBI guidelines underBasel II.
| || ||(Rs in crores) |
|AS ON 31st MARCH ||2013 ||2012 |
|Tier I Capital - Shareholders' Funds ||31,596.80 ||21,886.11 |
|Tier II Capital ||12,334.32 ||9,758.84 |
|Out of which || || |
|- Bonds qualifying as Tier II capital ||10,036.66 ||7,737.52 |
|- Upper Tier II capital ||1,446.53 ||1,374.74 |
|- Other eligible for Tier II capital ||851.13 ||646.58 |
|Total Capital qualifying for computation of Capital Adequacy Ratio ||43,931.12 ||31,644.95 |
|Total Risk-Weighted Assets and Contingencies ||258,355.49 ||231,711.39 |
|Total Capital Adequacy Ratio (CAR) ||17.00% ||13.66% |
|Out of above || || |
|- Tier I Capital ||12.23% ||9.45% |
|- Tier II Capital ||4.77% ||4.21% |
During the year, the RBI issued guidelines on implementation of Basel III capitalregulation in India. These guidelines are to be implemented beginning 1st April2013 in a phased manner and will stand fully implemented as on 31st March 2018.These guidelines cover the new capital regulations and the liquidity risk managementframework. The Bank has taken appropriate steps to ensure adoption of these guidelineswithin the timeframe stipulated by RBI. The liquidity guidelines have been integrated intothe asset liability management framework of the Bank through suitable amendments in orderto ensure adherence to RBI guidelines on monitoring and management of liquidity includingliquidity ratios.
An overview of various business segments along with the performance during 2012-13 andtheir future strategies is presented below.
The Bank aims to increase its share in the financial services sector by continuing tobuild a strong retail franchise. The segment continues to be one of the key drivers of theBank's growth strategy, encompassing a wide range of products delivered through multiplechannels to customers. The Bank offers a complete suite of products across deposits,loans, investment solutions, payments and cards and is committed to developing long-termrelationships with its customers by providing high-quality services.
The Bank pursues an effective customer segmentation strategy, the success of which isreflected in the fact that Savings Bank deposits grew at a Compounded Annual Growth Rate(CAGR) of 26.13% over the last five years. During the year, Savings Bank deposits grew23.44% to Rs 63,778 crores from Rs 51,668 crores last year. On a daily average basis,Savings Bank deposits grew 20.26% to Rs 52,243 crores. The
Bank has also maintained its approach in increasing the proportion of Retail TermDeposits. On the 31st March 2013, retail term deposits grew 24.37% year-on-yearto Rs 59,531 crores, constituting 42.37% of total term deposits, compared to 37.20% lastyear.
Likewise, the Bank continued to focus on increasing its share of retail loans in totaladvances. The retail loans of the Bank grew 43.62% to Rs 53,960 crores as on 31stMarch 2013 from Rs 37,570 crores last year. Retail loans constituted 27.40% of the Bank'stotal advances as on 31st March 2013, compared to 22.13% last year of whichsecured loans accounted for 87%. The distribution of specific portfolios within the Retailloan segment as on 31st March 2013 was as follows: home loans - 65%, loansagainst property - 7%, auto loans - 14%, personal loans and credit cards - 9%.
The Bank sources retail loans through 120 Asset Sales Centres operating out of 96cities with standardised appraisal and oversight mechanisms. Retail loans are alsooriginated from 1,183 branches through which one-third of incremental retail loans arecurrently sourced. The cards business is an integral part of the Bank's retail strategywith ever-increasing numbers of transactions moving to the electronic mode. The Bank isone of the largest debit card issuers in the country, with a base oRs. 142.9 lacs, whichrose from 124.99 lacs at the end of last year. With more than a million cards in force,the Bank is now the sixth largest credit card issuer in the country. The Bank has alsoemerged as one of the largest acquirers in the country with an installed base of 2.16 lacpoint-of-sale terminals. During the year, the Bank also launched mobile POS.
To Indians living and working overseas, the Bank offers a complete suite of banking andinvestment products under its NRI Services. The Bank has 49 branches authorised to issuePortfolio Investment Scheme (PIS) permissions to NRIs/PIOs who wish to trade in the Indiansecondary markets through registered stock brokers on recognised stock exchanges. Tosupport the business, the Bank has launched a 24x7 integrated helpdesk for NRI customerswith the facility of toll-free numbers from key geographies. As on 31st March2013, the Bank's aggregate NRI deposits (Savings + Term Deposits) stood at Rs 13,104crores against Rs 8,624 crores last year. The Bank also offers products in the area ofretail forex and remittances, including travel currency cards, inward and outward wiretransfers, travellers cheques and foreign currency notes, remittance facilities throughonline portals as well as through collaboration with correspondent banks, exchange housesand money transfer operators. The Bank continued to have a market leadership position inTravel Currency Cards with 11 currency options other than INR being offered. The Bank isplanning to introduce two new currency options New Zealand Dollar (NZD) and Thai Baht(THB). Additionally, the Bank also launched a multi-currency card specifically aimed atcorporates and business travellers. The aggregate load value on Travel Currency Cardscrossed USD 3 billion during the year.
'Axis Bank Privee', a business vertical offers private banking solutions to meet thepersonalised investment needs of high net worth individuals as well as the corporateadvisory needs of families in business. Axis Bank Privee brings solutions offered byvarious business groups (retail and corporate) within the Bank and various group entitiesunder one integrated platform.
The Bank also distributes third party products such as mutual funds, Bancassuranceproducts (life and general insurance), online trading and gold coins through its branches.The Bank is one of the leading banking distributors of mutual funds in India anddistributes mutual fund products of all major asset management companies. These productsare sold through the Bank's branch distribution network based on client requirements. TheBank also distributes life insurance products of Max Life Insurance Company and during theyear, it sold more than 1.86 lac policies with a premium mobilisation of Rs 790.62 crores.During the year, the Bank entered into an arrangement with Tata AIG General InsuranceCompany Limited to distribute general insurance products. The Bank offers online tradingservices to its customers in collaboration with Axis Capital Ltd. (a 100% subsidiary ofthe Bank) under the name Axis Direct, an enhanced and simplified Online Trading platformwhich is now available to NRI customers. During the year, 148,390 online trading accountswere opened, taking the total number online trading accounts to 297,069 as on 31stMarch 2013. The Bank also sold gold and silver bars to retail and corporate customersunder the brand 'Mohur' through its branches.
During the year, the Bank added 325 branches spread across 279 centres. The Bank added1,321 ATMs during the year to reach a network size oRs. 1 1,245 as on 31stMarch 2013 compared to 9,924 ATMs last year. The Bank has deployed 550 Automated DepositMachines (for cash deposits into customer accounts) and has extended this facility 24X7 incertain branches which have integrated self-service lobbies. Besides the ATM network,internet banking, mobile banking and phone banking have developed as important alternatechannels of the Bank.
In the backdrop of a subdued macro-economic environment, capital expenditure bycorporates remained lacklustre during the year. Loans for working capital and the drawdownon committed sanctions in existing projects under implementation contributed to the growthin corporate credit during the year. The corporate credit portfolio of the Bank comprisingadvances to large and mid-corporates (including infrastructure) grew 7.89% to Rs 98,239crores from Rs 91,053 crores last year. This includes advances at overseas branchesamounting to Rs 29,972 crores (equivalent to USD 5.52 billion) comprising mainly theportfolio of Indian corporates and their subsidiaries as also trade finance. The advancesat overseas branches accounted for 15.22% of total advances. The Bank's infrastructurebusiness includes project and bid advisory services, project lending, debt syndication,project structuring and due diligence, securitisation and structured finance.
The Bank has introduced a relationship model, focusing on cross-selling a wide range ofproducts to corporates. Fee-based business through loan syndication, trade finance andtreasury business continued to grow. The Bank's sectoral approach to credit continued toachieve greater efficiency with increased attention on identifying sector-specificopportunities. Portfolio composition is being continuously monitored by tracking industry,group and company-specific exposure limits. The internal and external rating of the creditfacilities of customers is undertaken and monitored on ongoing basis with the entirelending portfolio of the Bank being internally rated.
The mid-corporate group continues to be an important business franchise of the Bankwith an asset book of Rs 20,010 crores as on 31st March 2013, registering agrowth oRs. 15.23% over last year. In view of the macro economic scenario, exposure wasconfined to industries with a positive outlook only after evaluation of relevant creditrisk factors with the objective of booking better-rated exposures.
The Bank has an integrated Treasury, which covers both domestic and global markets andfunds the balance sheet across geographies. It plays an important role in the sovereigndebt markets and participates in primary auctions of RBI. It also actively participates inthe secondary government securities and corporate debt market. Over the last few years,the Bank has emerged as one of the leading banks providing foreign exchange and tradefinance services. Through its various verticals, the Treasury serves customers acrossvarious industries, segments and regions. The foreign exchange and money market groupunder Treasury is an active participant in the inter-bank/financial institutions space. Italso maintains proprietary positions to generate trading income for the Bank. An activeBalance Sheet Management group within Treasury takes care of asset-liability mismatchesand interest rate sensitivities of the Bank's portfolio. The interest rates andderivatives group provides derivative solutions to customers for its balance sheet andcurrency exposures. The Global Financial Institutions Division (GFID) group in Treasury isresponsible for fostering business relationships with financial institutions acrossgeographies and undertakes foreign currency fund raising.
The Bank continued to be a dominant player in placement and syndication of Rupeedenominated debt. During the year, the Bank arranged debt aggregating to Rs 145,461 croresand retained its top position in arranging Rupee denominated debt for the fifthconsecutive calendar year as per Bloomberg and also as per PRIME Database for the ninemonths ended December 2012. During the calendar year 2012, the Bank won the Best DomesticBond House in India by The Asset Triple A Country Awards by Asset Magazine, India BondHouse by the IFR Asia, and Deal Maker of the year by Business World Magazine.
Business Banking offers transactional banking services, leveraging upon the Bank'snetwork and technology. Its initiatives focus on procurement of low-cost funds by offeringa range of current account products and cash management solutions across all businesssegments covering corporates, institutions, central and state government ministries andundertakings as well as small and retail business customers. Product offerings of thisbusiness segment aim at providing customised transactional banking solutions to fulfilcustomer's business requirement. Cross-sell of transactional banking products, productinnovation and a customer-centric approach have succeeded in growing current accountbalances and realisation of transaction banking fees.
As on 31st March 2013, balances in current accounts increased by 21.55% andstood at Rs 48,322 crores compared to Rs 39,754 crores last year. On a daily averagebasis, current accounts balances grew by 4.73% to Rs 28,698 crores compared to Rs 27,403crores last year.
In the cash management services (CMS) business, the Bank focuses on offering customisedservice to its customer to cater to specific corporate requirements and improve theexisting product line to offer enhanced features to customers. The Bank is also focusingon host-to-host integration for both collections and payments, such as IT integrationbetween corporates and the Bank for seamless transactions and information flow. The Bankprovides comprehensive structured MIS reports on a periodic basis, for better accountingand reporting. CMS continued to constitute an important source of fee income andcontributed significantly to generate low cost funds. The Bank is one of the top CMSproviders in the country with the number of locations covered under CMS increased to 890from 801 last year. The number of CMS clients has grown to 15,818 from 11,548 last year.
The Bank has been acting as an agency bank for transacting government business tovarious central government ministries, departments, state governments and unionterritories. The Bank accepts income and other direct taxes through 406 authorisedbranches at 225 locations and central excise and service taxes though 56 authorisedbranches at 14 locations including e-payments. The Bank also handles the disbursement ofcivil pension through all its branches and defence pension through 151 authorisedbranches. In addition, the Bank provides collection and payment services to four centralgovernment ministries/departments and 13 state governments and union territories. The Bankis associated with 11 state governments towards undertaking Electronic Benefit Transfer(EBT) projects for disbursement of government benefits (wages under MGNREGS and SocialSecurity Pension (SSP)) through direct credit to beneficiary bank accounts under smartcard based IT enabled financial inclusion model. The total government business throughputduring the year was Rs 92,680 crores.
The Bank is a SEBI-registered custodian and offers custodial services to both domesticand offshore customers. As on 31st March 2013, the Bank held assets worthapproximately Rs 12,511 crores under its custody, registering a growth of 6% over lastyear.
The Bank's investment banking business comprises equity capital markets, mergers andacquisitions and private equity syndication. The Bank is a SEBI registered Category-1Merchant Banker and has been active in advising Indian corporates in raising equitythrough Pre-IPOs, IPOs/FPOs, QIPs, Rights issue etc. The Bank has built strongrelationships with Indian companies, becoming an effective bridge between such corporatesand FIIs, DIIs and domestic retail investors. During the year, the Bank closed 2 IPOs ofnon-convertible debentures aggregating over Rs 800 crores and managed buyback of sharestransaction aggregating Rs 50 crores. The private equity advisory team handles mandates onbehalf of SME and mid-corporate clients for helping them to raise equity.
Pursuant to the receipt of necessary approvals from various regulatory authorities, thedemerger of certain financial services business undertaken by Enam Securities Private Ltd.(ESPL) to the Bank's wholly owned subsidiary Axis Capital Ltd. (formerly Axis Securitiesand Sales Ltd.) has been concluded on 20th October 2012 and thus the InvestmentBanking business of the Bank is now being carried out from Axis Capital Ltd.
LENDING TO SMALL AND MEDIUM ENTERPRISES
The Small and Medium Enterprises (SME) business has been identified as one of thegrowth areas for the Bank. The business approach towards this segment, which is expectedto contribute significantly to economic growth in future, is based upon buildingrelationships and nurturing the entrepreneurial talent. The Bank extends working capital,project finance as well as trade finance facilities to SMEs. The relationship-basedapproach enables the Bank to deliver value through the entire life cycle of SMEs, creatingenormous goodwill and stickiness. It also provides cross-sell opportunities and helps theBank fulfils its priority sector obligations. The Bank has segmented its SME business inthree groups: Medium Enterprises (MEG), Small Enterprises (SEG) and Supply Chain Finance(SCF). The Bank has set up 32 SME Centres and 9 SME Cells across the country to servicecustomers effectively to cover 870 branches. The Bank has implemented a Loan OriginationSystem (LOS) for SEG and SCF business segments to track applications, automate creditprocess and improve turn-around time. During the year, advances to SME increased by 25.75%to Rs 29,922 crores from Rs 23,795 crores last year and constituted 15.19% of the Bank'stotal advances as compared to 14.02% at the end of last year. The Bank has continued toimprove its risk management capabilities in the SME business.
Micro and Small Enterprises (MSE) constitute an important segment of SME business.During the year, the Bank launched two new products 'Micro Power' for providing finance toenterprises which are Micro enterprises as per the MSMED Act, 2006 and 'Service Power' forproviding finance to enterprises which are either a Micro or Small Enterprise as per theMSMED Act, 2006. Apart from the financial products and services offered to this segment,the Bank has initiated an awards program 'Business Gaurav Awards', to recognise topperforming MSMEs. The second edition of the Business Gaurav SME Awards was held inNovember 2012. The awards received an enthusiastic response with over 7,200 businessentities nominating themselves for the awards. 34 winners were felicitated across 14sectors. The awards also saw release of the publication - 'Leading SMEs of India 2012'.
The Bank has identified agricultural lending as an area of potential growth and offersa diverse range of lending solutions to the farming clientele and other stakeholders inthe agriculture value chain. Activity and geography specific products and product variantswere introduced to effectively reach out to the various value-chain participants and tomeet their credit requirements. In order to provide a strategic focus to agriculturallending, the Bank has adopted a cluster-centric approach for agricultural lending in areaswhere the Bank believes agriculture is intensive and where a potential market exists. Thebusiness architecture for agriculture business is decentralised with Agriculture BusinessCentres (ABCs) at various locations across the country spearheading the business. Toincrease the focus on unbanked and under banked areas, 3 new ABCs were formed during theyear at Guwahati (Assam), Bhubaneswar (Odisha) and Patna (Bihar). The branches andagriculture clusters follow a hub-and-spoke model with branches being the sole touch pointfor farmers. As of 31st March 2013, the agriculture business is operatedthrough 759 branches attached to 93 agricultural clusters, which are controlled by 20ABCs. To achieve the objectives of increasing the business reach, consistent growth ofportfolio and maintaining quality of assets, business, credit, operations and collectionsfunctions in this business are handled independently.
Apart from lending to farmers, the Bank also actively participates in awarenesscampaigns and forming farmer's clubs in many of its upcountry branches in co-ordinationwith National Bank for Agriculture and Rural Development (NABARD). The Bank allies withreputed corporates in agro based industries to provide value to the farmers. The Bank willcontinue to increase its reach in rural and semi-urban areas by increasing the number ofagriculture clusters and ABCs as per requirement and bring more and more branches underagriculture lending.
The Bank also supports the weaker sections of society through its lending to MicroFinance Institutions (MFIs). To improve credit delivery to the target customers throughsmart use of technology, the Bank in the current year has started Axis Sahyog, a socialcollateral lending initiative wherein economically active weaker section individuals areprovided with micro loans for agriculture and micro enterprises. Biometric enabled ITarchitecture is used for enrolment and for authorising transactions. Presently, AxisSahyog has been implemented in two states : Bihar and Madhya Pradesh. The Bank also usesthe services of institutional Business Correspondents for sourcing and servicing microloans in a southern state. The Bank pioneered first ever listing of Multi OriginatorSecuritisation (MOSEC) transaction of microloans in the country. This initiative will go along way in developing an alternate source of funding for the microfinance sector.
As on 31st March 2013, the Bank's outstanding loans in the agriculturalsector was Rs 14,845 crores, constituting 7.54% of the Bank's total advances.
The Bank regards financial inclusion not merely as a corporate social responsibilityinitiative but as an integral component of its rural strategy. The financial inclusioninitiatives of the Bank are aimed at enabling customers in rural markets to use formalbanking channels for their banking needs such as savings, payments, credit and insurance.Apart from savings, payments are the major requirement of such customers due to migrationof workforce. The Bank offers no-frills accounts, tailor-made fixed deposits and recurringdeposit products to meet the savings requirements of customers. As on 31stMarch 2013, the Bank had opened 61.61 lac no-frills accounts covering 42,338 villages.
The Bank has been in the forefront of several innovations in this space. It has tied-upwith leading telecom companies to provide savings and remittance facilities using themobile phone and their distribution outlets in key domestic payment corridors. The Bank isalso a leading player in the remittance market, enabling migrant workers in urban areasremit money to their families in the hinterland. The Bank endeavours to meet the entireset of financial needs of its customers, including micro-lending, 'Chhota-deposits' andmicro-insurance (under life and general insurance categories).
The Bank also actively participates in electronic/direct benefit transfer for disbursalof benefits under various government schemes using smart cards and biometricauthentication technology. The Bank has made significant investments in technology, and isintegrated with the Aadhar platform through NPCI to enable transfer of Aadhar based socialwelfare benefits.
The Bank has launched several programmes to deliver micro-loans to rural customersthrough its business correspondents in Tamil Nadu, Bihar and Madhya Pradesh. It has alsotied up with leading corporates to deliver credit to their end consumers through theirrural supply chain partners.
The international operations of the Bank have generally catered to Indian corporateswho have expanded their business overseas. The overseas network of the Bank currentlyspans the major financial hubs in Asia. The Bank now has a foreign network of fourbranches at Singapore, Hong Kong, DIFC-Dubai and Colombo (Sri Lanka), and threerepresentative offices at Shanghai, Dubai and Abu Dhabi, besides strategic alliances withbanks and exchange houses in the Gulf Co-operation Council (GCC) countries. While branchesat Singapore, Hong Kong, DIFC-Dubai and Colombo enable the Bank to partner with Indiancorporates doing business globally and primarily offer corporate banking, trade finance,treasury and risk management solutions, the Bank also offers retail liability productsfrom its branches at Hong Kong and Colombo. The representative offices and strategicalliances with banks and exchange houses in the GCC countries cater to the large Indiandiaspora and promote the Bank's NRI products. With management of liquidity being a majorchallenge in the present global markets, the Bank consciously restrained its asset growthat the overseas centres to report an asset size of USD 6.84 billion as at 31stMarch 2013 vis-a-vis USD 6.35 billion as at 31st March 2012. Further,interactions are also in progress with China Banking Regulatory Commission (CBRC) forupgrade of the Shanghai Representative Office into a branch.
The objective of risk management is to balance the trade-off between risk and returnand ensure optimum risk-adjusted return on capital. It entails independent identification,measurement and management of risks across the various businesses of the Bank. Risk ismanaged through a framework of policies and principles approved by the Board of Directorssupported by an independent risk function which ensures that the Bank operates within itsrisk appetite. The risk management function in the Bank strives to proactively anticipatevulnerabilities at the transaction as well as at the portfolio level, through quantitativeor qualitative examination of the embedded risks. The Bank continues to focus on refiningand improving its risk measurement systems not only to ensure compliance with regulatoryrequirements, but also to ensure better risk-adjusted return and optimal capitalutilization, keeping in view business objectives.
The overall risk appetite of the Bank is defined by its Board of Directors. Further,the Individual Capital Adequacy Assessment Process (ICAAP) of the Bank assesses all thesignificant risks associated with various businesses. The independent risk managementstructure within the Bank is responsible for managing the credit, market, liquidity,operational and group risks. The risk management processes are guided by well-definedpolicies appropriate for the various risk categories viz. credit risk, market risk,operational risk, liquidity risk, counterparty risk, country risk and group risksupplemented by periodic validations of the methods used and monitoring through thesub-committees of the Board. The Risk Management Committee (RMC), which is a sub-committeeof the Board, approves policies related to risk and reviews various aspects of riskarising from the businesses undertaken by the Bank. The Committee of Directors and theAudit Committee of the Board supervises certain functions and operations of the Bank,which ultimately enhances the risk and control governance framework within the Bank.Various senior management credit and investment committees, Credit Risk ManagementCommittee (CRMC), Asset-Liability Committee (ALCO), and Operational Risk ManagementCommittee (ORMC) operate within the broad policy framework of the Bank.
Credit risk is the risk of financial loss if a client, issuer of securities that theBank holds or any other counterparty fails to meet its contractual obligations. Creditrisk arises from all transactions that give rise to actual, contingent or potential claimsagainst any counterparty, borrower or obligor. The goal of credit risk management is tomaximise the Bank's risk-adjusted rate of return on capital by maintaining a healthy assetportfolio and managing the credit risk inherent in individual exposures as well at theportfolio level. The emphasis is placed, both on evaluation and containment of risk at theindividual exposures and analysis of the portfolio behaviour.
The Bank has structured and standardised credit approval processes including awell-established procedure of comprehensive credit appraisal. Every extension of creditfacility or material change to a credit facility to any counterparty requires creditapproval at the appropriate authority level. Internal risk rating remains the foundationof the credit assessment process which provides standardisation and objectivity to theprocess. All sanctioning processes including the delegation of powers are linked to theratings and the sizes of the exposure. The monitoring frequency applicable to the exposurealso depends on the rating of the exposure. Individual borrower exposure ceilings linkedto the internal rating and sector specific caps are laid down in the Credit Policy toavoid concentration risk. For the retail portfolio including small businesses and smallagriculture borrowers, the Bank uses different product-specific scorecards. Both creditand market risk expertise are combined to manage risks arising out of traded creditproducts such as bonds and market related off-balance sheet transactions. Model validationis carried out periodically by objectively assessing its discriminatory power, calibrationaccuracy and stability of ratings both by the Risk Department as well as independently bya Validation Committee.
The Bank continuously monitors portfolio concentrations by segment, borrower, groups,industry and geography, where applicable. Portfolio level delinquency matrices are trackedat frequent intervals with focus on detection of early warning signals of stress.
Key sectors are analysed in detail to suggest strategies for business, considering bothrisks and opportunities. Such analysis is reviewed by the Credit Risk Management Committeeto arrive at the appropriate industry ceilings as well as define the origination andaccount management strategy for the sector. The Risk Management Committee of the Boardperiodically reviews the impact of the stress scenarios resulting from various scenarioslike increased provisioning requirements, rating downgrades, or drop in the asset valuesin case of secured exposures, on the portfolio. The portfolio level risk analytics provideinsight into the capital allocation required to absorb unexpected losses at a definedconfidence level.
The market risk management framework of the Bank aims at maximising the risk-adjustedrate of return by providing inputs regarding the extent of market risk exposures, theperformance of portfolios vis-a-vis the risk exposure and comparable benchmarks. Marketrisk is the risk of losses in 'on and off-balance sheet' positions arising from themovements in market price as well as the volatilities of those changes, which may impactthe Bank's earnings and capital. The risk may pertain to interest rate related instruments(interest rate risk), equities (equity price risk) and foreign exchange rate risk(currency risk). Market Risk for the Bank emanates from its trading and investmentactivities, which are undertaken both for the customers and on a proprietary basis. TheBank adopts a comprehensive approach to market risk management for its banking book aswell as trading book for both its domestic and overseas operations. The market riskmanagement framework of the Bank provides necessary inputs regarding the extent of marketrisk exposures, the performance of portfolios vis-a-vis the risk exposure and comparablebenchmarks which assists in maximising the risk-adjusted rate of return of the Bank'strading and investment portfolio.
Market risk management is guided by well laid policies, guidelines, processes andsystems for the identification, measurement, monitoring and reporting of exposures againstvarious risk limits set in accordance with the risk appetite of the Bank. TreasuryMid-Office independently monitors the Bank's investment and trading portfolio in terms ofrisk limits stipulated in the Market Risk Management Policy and reports deviations, ifany, to the appropriate authorities as laid down in the policy. The procedures for themeasurement of various types of market risks by the Treasury Mid-Office arewell-documented. The Bank utilises both statistical as well as non-statistical measuresfor the market risk management of its trading and investment portfolios. The statisticalmeasures include Value at Risk (VaR), stress tests, back tests and scenario analysis whileposition limits, marked-to-market (MTM), stop-loss limits, alarm limits, gaps andsensitivities (duration, PVBP, option greeks) are used as non-statistical measures ofmarket risk management.
Historical simulation and its variants are used to compute VaR for the tradingportfolio which is calculated at a 99% confidence level for a one-day holding period overa time horizon of 250 days. VaR models for different portfolios are back-tested on anongoing basis and the results are used to maintain and improve the efficacy of the model.VaR measurements are supplemented with a series of stress tests and sensitivity analysisas per a well laid stress testing framework.
The Bank's Asset Liability Management Policy lays down a broad framework for liquidityrisk management to ensure that the Bank is in a position to meet its daily liquidityobligations as well as to withstand a period of liquidity stress from, bank-wide factors,market-wide factors or a combination of them.
The liquidity profile of the Bank is analysed on a static as well as on a dynamic basisby using the gap analysis technique supplemented by monitoring of key liquidity ratios andconduct of liquidity stress tests periodically. The liquidity position is monitored forboth domestic as well as overseas operations. The Bank has laid down liquidity riskpolicies for its overseas branches in line with host country regulations and theasset-liability management framework as stipulated for domestic operations. Periodicalliquidity positions and liquidity stress results of overseas branches are reviewed by theBank's ALCO along with domestic positions.
Operational risks may emanate from inadequate and/or missing controls in internalprocesses, people, and systems or from external events or a combination of all the four.The Bank has in place an Operational Risk Management (ORM) policy to manage theoperational risk in an effective, efficient and proactive manner. The policy aims atassessing and measuring the magnitude of risks, monitoring and mitigating them throughwell-defined framework and governance structure.
The Risk Management Committee (RMC) of the Board at the apex level is the policy makingbody. The RMC is supported by the Operational Risk Management Committee (ORMC),responsible for the implementation of the Operational Risk framework of the Bank and themanagement of operational risks across the Bank. A sub-committee of the ORMC, Sub-ORMC hasbeen constituted to assist the ORMC in discharging its functions by deliberating theoperational risk issues in detail and escalating the critical issues to ORMC.
All new products and processes are subjected to rigorous risk evaluation by the Bank'sProduct Management Committee and Change Management Committee. Similarly, outsourcingarrangements are examined and approved by the Bank's Outsourcing Committee. The ITSecurity Committee of the Bank provides directions for mitigating operational risk in theinformation systems. The Bank is in the process of setting up a comprehensive OperationalRisk Measurement System (ORMS) through the implementation of a software solution.
Recognising its responsibility to ensure continuity of service to its large customerbase, the Bank has in placed a well-defined Business Continuity Framework. Theeffectiveness of the approved Business Continuity Plan (BCP) framework is testedselectively to ensure readiness to meet various contingency scenarios. The learning fromthe BCP exercises are used as inputs to further refine the framework.
Over the past few years, the Bank has carried out separation of the production anddistribution functions, with centralised transaction processing and customer databasesbecoming increasingly centralised and product sales and customer handling (thedistribution technology) primarily carried out at the branches. The business processre-engineering has enabled reduction of transaction costs besides ensuring smoothness inoperations and increasing productivity. To bring about greater precision in the managementof operations, processes were constantly refined during the year on a continual basis fromthe perspective of implementation of best practices, risk identification and containment.Operational instructions were issued on a continual basis and efforts are made tointroduce risk-free working at branches.
Retail Banking Operations
Retail Banking Operations (RBO) provides seamless service to retail customers whileensuring secure and compliant systems for risk containment and regulatory compliance. Theoversight function in the Bank has been further strengthened through centralisedmonitoring of the working of the branches in respect of KYC, AML, other regulatorycompliances, cash management, clearing operations and internal housekeeping resulting inbetter compliance and higher operational efficiencies. During the year, the Bank continuedto move more operations to centralised hubs thereby reducing operational activities atbranches. The Bank has also invested in de-duplication in customer acquisition, therebyimproving online monitoring. An automated system to identify existing customer base,highlight exceptions and manage activity flow has now been successfully implemented.Increased emphasis has been laid out on service quality covering the entire operationsarea. The Bank has also implemented a robust system of identification and remedy ofcustomer-service deficiencies through root cause analysis and trend of customer requestsand escalated complaints. During the year, the Bank has set up a 24x7 dedicated contactcentre for NRI customers, as well as a dedicated contact centre for retail assetcustomers. The Bank's existing liabilities contact centre offers services in 11 languages.
Wholesale Banking Operations
Wholesale Banking Operations (WBO) function is responsible for providing best in classservice to non-retail customers of the Bank through four verticals: Corporate BankingOperations, Treasury Operations, Trade and Forex Operations and Centralised Collection andPayment Hub.
The Corporate Banking Operations (CBO) ensures delivery, control, monitoring andadministration of credit facilities of large corporates, mid corporates, SME and corporateagriculture segments. It also processes domestic trade finance, channel finance and microfinance transactions. CBO operates through Corporate Banking Branches (CBBs)/CreditManagement Centres (CMCs) located at 8 major centres, 56 Mini-Credit Management Centres(MCMCs) at Tier II cities, and Corporate Credit Operations Hub (CCOH) at Hyderabad andGurgaon. Treasury Operations involves the settlement and accounting of treasury-relatedtransactions and operates the centralised electronic payment hubs for RTGS and NEFT. TheTrade and Forex Operations (TFO) handles remittances and trade finance transactionprocessing on behalf of distribution channels dealing in trade finance and foreignexchange through 200 'B' category branches and state-of-the-art centralised knowledgeprocessing centres located at Mumbai and Hyderabad. TFO is also responsible for ensuringcompliance of regulatory and internal guidelines in respect of foreign exchangetransactions of the Bank. The Centralised Collections and Payment Hub (CCPH) handlespayments and collections, and operates through 2 units located at Mumbai and Hyderabad.Further, in order to extend operational support and customer hand-holding at the locallevel, 11 Transaction Banking Centres (TBCs) have been set-up during the year, which aremanned by skilled resources, thereby ensuring efficient service delivery coupled withcontrol over operations.
The Bank's payment service is one of the key differentiating services for all customersegments. In order to enhance speed, scalability and straight through processing bytechnological advancement, the Bank has launched a plan of introducing an EnterprisePayment Hub (EPH) to handle all types of payment services through a centralised andchannel agnostic processing engine. This will enhance customer experience across allcustomer segments and take care of growing volumes, minimise manual processing, reduceoperational risk and avoid duplication in infrastructure.
Technology is one of the key enablers for business and for delivering customisedfinancial solutions. The Bank continued to focus on introducing innovative bankingservices through investments in scalable, robust and function-rich technology platforms toenable delivery of efficient and seamless services across multiple channels for customerconvenience and cost reduction. The Bank has also focused on improving the governanceprocess in IT. During the year, the Bank has received certification of ISO 27001:2005 byBSI (ANAB accredited) for complying with the standards of Information Security ManagementSystem for its data centres located in Navi Mumbai and Bengaluru. The Bank has alsosuccessfully completed migration of its data centre to a co-hosted location during theyear. The new premises offer a category IV data center that complies with the highestbenchmarking standards applicable to data centres promising built-in redundancy ofinfrastructure. A robust Project Management framework is used to ensure that investmentsin IT are based on good gate-keeping principles and result in appropriate payback in valueterms.
The Bank has made significant progress in implementing the recommendations of the RBIWorking Group issued in April 2011 on Information Security, Electronic Banking, TechnologyRisk Management and Cyber Frauds. The Bank is committed to implementing therecommendations on the various subject areas indicated in the guidelines. The broadmeasures taken in respect of the various areas included conducting a detailed gap analysisto implement the controls/suggestions contained in the guidelines, examining eachrecommendation closely and taking decisions either to acquire a solution or implementprocedural controls. The Bank has put in place the appropriate organisational framework asrecommended in the guidelines. Several information security solutions have either beenimplemented or finalised for implementation to protect customer data, prevent externalattacks as well as strengthening internal controls. Policies and procedures of the Bankhave also been reviewed and suitably modified. The progress in each area of therecommendations has been closely monitored by the top management and the status ofimplementation has been reported to the Board and RBI at regular intervals.
The Bank continued to vigorously pursue its commitment in adhering to the higheststandards of compliance. The compliance function in the Bank plays a pivotal role inensuring that the overall business of the Bank is conducted in accordance with regulatoryprescriptions. The Compliance function facilitates improvement in the compliance culturein the Bank through various enablers like dissemination of regulatory changes andspreading compliance knowledge through training, newsletters and other means ofcommunication and direct interaction. To ensure that all the businesses of the Bank areaware of compliance requirements, the compliance function is involved in vetting of newproducts and processes, evaluating adequacy of internal controls and examining systemiccorrection required, based on its analysis and interpretation of the regulatory doctrineand the deviations observed during compliance monitoring and testing programmes. Thisfunction also ensures that internal policies address the regulatory requirements, besidesvetting processes for their robustness and regulatory compliances.
For more focused management of compliance risk, the Bank is in an advanced stage ofimplementing an Enterprise-wide Governance Risk and Compliance Framework, an online tool,which would address operational, compliance and financial reporting risks and help inbringing efficiency in processes and improvement in compliance levels. Significant aspectsof the Bank's compliance culture are the Whistleblower Policy and zero tolerance forfraud, corruption and financial irregularities.
The Bank's internal audit function performs an independent and objective evaluation ofthe adequacy and efficiency of internal controls on an ongoing basis to ensure thatoperating units adhere to compliance requirements and internal guidelines. The InternalAudit function undertakes a comprehensive risk-based audit of all operating units. AnAudit Plan is drawn up on the basis of a risk-profiling of auditee units. Accordingly, theBank undertakes internal audit of the operating units at a frequency synchronised to therisk profile of each unit in line with the spirit of guidelines relating to Risk-BasedInternal Audit (RBIA). The scope of risk-based internal audit, besides examining theadequacy and effectiveness of internal control systems and external compliance, alsoevaluates the risk residing at the auditee units. The RBIA approach has been thoughtfullystructured taking into account RBI guidelines and international best practices. Tocomplement the Internal Audit function, the Bank has put in place a strong ConcurrentAudit system.
To ensure independence of the Audit function and in line with the best corporategovernance practices, the Internal Audit department functions independently under thesupervision of the Audit Committee of the Board, which reviews performance of the internalaudit department and effectiveness of controls laid down by the Bank and compliance withregulatory guidelines.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
As an integral part of society, the Bank is aware of its corporate socialresponsibilities and has been engaged in community and social investments. For thispurpose, the Bank has set up a Trust - the Axis Bank Foundation (ABF) to channel itsphilanthropic initiatives. The Foundation has committed itself to participate in varioussocially relevant endeavours with a special focus on providing sustainable livelihoods,poverty alleviation, education of the underprivileged, healthcare etc. The Bank hasdecided to contribute upto one percent of its net profit annually to the Foundation underits CSR initiatives. The Foundation is constantly engaged in identifying the right targetgroup and ensuring that support reaches the ultimate beneficiary. Presently, theFoundation is running 40 programs across 163 districts in 19 states, targeting 7,27,059beneficiaries.
The Foundation has been providing support to various initiatives in education,targeting underprivileged children. Presently, 23 programs are running in the field ofeducation covering 33 districts in 13 states promoting supplementary education, educationfor the mentally/physically challenged, hearing impaired, visually challenged etc. Duringthe year, the Foundation has disbursed Rs 6.23 crores for various education programs. TheFoundation also works for providing highway trauma care and rural medical relief. TheFoundation has been working with Lifeline Foundation since 2007 for supporting the highwayrescue projects in the states of Maharashtra, Kerala, Gujarat and Rajasthan. It hasprovided aid to around 7,500 critical accident victims and more than 15,000 minor accidentvictims. The Foundation aims to provide one million livelihoods to the underprivileged insome of the most backward regions of the country by 2017, 50% of the beneficiaries beingwomen. The Foundation has so far partnered with 17 NGOs to provide sustainable livelihoodsand has launched projects in partnership with these NGOs in the states of West Bengal,Odisha, Tamil Nadu, Maharashtra, Jharkhand, Chhattisgarh, Bihar, Uttar Pradesh and MadhyaPradesh. These programs aim at alleviating poverty and help in providing sustainablelivelihood options. Presently, 17 programs are running in the field of livelihood covering136 districts in 17 states. During the year, an amount of Rs 31.09 crores was disbursedtowards various livelihood programs.
The Foundation is also actively involved in implementing several initiatives in GreenBanking. In line with the Bank's initiative in Green Banking with the theme of 'Reduce,Reuse and Recycle', the Foundation has initiated the process of collecting all the drywaste, generated in the Corporate Office and seventeen offices of the Bank in Mumbai andrecycle it into notebooks, notepads and envelopes. This initiative was launched in August2011, has helped recycle around 87,206 kilograms since inception. The Foundation also hasan Officer Engagement Program, which encourages officers of the Bank to get involved invarious volunteering activities. The Bank launched an employee payroll program titled'Axis Cares'. As on 31st March 2013, 7,524 officers of the Bank have enrolledfor Axis Cares with a monthly collection of Rs 14.64 lacs. The funds collected under thisinitiative are utilised for the programs of the Foundation and the details of utilisationare shared with the officers every month. Under the aegis of 'Basket of Hope', theFoundation organises collection drives for clothes, books and toys for distribution to theneedy. The Foundation has also launched a new initiative titled 'Gift of Life'. During theyear, 27 blood donation drives have been organised across the country, through which 1,934units of blood has been collected. Exhibitions of various NGOs are held at the CorporateOffice and other offices of the Bank, to provide a platform to these NGOs for exhibitingtheir products and popularise their work. Conducting the exhibitions has also promotedvolunteering among our officers with NGO partners. During the financial year, 56 suchexhibitions have been organised which has helped these NGOs to generate sales over Rs14.40 lacs.
The Human Resources (HR) function is instrumental in creating and developing humancapital in alignment with the Bank's vision. Talent Management with particular focus ongrooming future leaders, learning and development and employee engagement have been thekey focus areas in the Bank's HR objectives.
The Bank has built a learning infrastructure to ensure availability of skilled andempowered workforce. The Learning Maps aligned to the overall development plan ofemployees are designed to facilitate learning process across all levels through a blendedlearning approach of classroom programmes, external programmes, certification programmesas well as e-learning modules. The Bank also creates alternate talent pipelines byentering into arrangements with Training and Education Institutes and continues tomaintain a strong employer brand in the financial services sector especially on thecampuses of the premier business schools of the country. Apart from having a strongpresence in the talent market, the Bank also believes in maintaining a strong imageinternally by keeping its workforce engaged at all levels.
To inculcate and live its motto of 'One Bank, One Axis' and foster a spirit ofconnectedness, the Bank hosts several employee engagement programmes and channels toconnect its thinly-spread employee population across a widely dispersed geographicalnetwork. Through these platforms, employees can share their unique
experiences, facilitate best practice sharing, cast their opinion and feedback aboutthe Bank's products and services. The Bank also offers avenues for several employee healthand wellness initiatives throughout our network.
The Bank has been conducting its annual Employee Engagement Study to capture, analyseand draw action plans to enhance the engagement quotient. A third-party framework,benchmarked as one of the best, is used for administering and analysing the results of thestudy, with focus on measuring and improving employee engagement quotient. Taking concretesteps based on the study findings helps in building a stronger and more engaged workforce.
The Bank seeks regular feedback from employees on the policies and practices to ensurethat it is in consonance with employee empowerment. Incidentally, the focus areas for theBank's performance management system are Ownership, Continuous Process and Humane Touch,which are driven by strengthening the culture of performance feedback (both formal andinformal). In addition to performance, the personal development plan of an employeeincludes a feedback on behavioural competencies for growth.
Axis Leadership Practices (ALPs) are defined for employees at different levels of thehierarchy to promote desired behaviour and to facilitate an objective assessment. The ALPsform a framework for all the people processes in the Bank. These are an integral part ofprocesses like Talent Acquisition, Performance Management System, Promotion, TalentAppreciation, Leadership Development and Feedback. The Bank has partnered with the best inclass leadership trainers of the country to provide key position holders and unit headsthe fundamentals of managing self and team leadership though a series of 'InspiredLeadership' workshops. The Bank has also launched an in-house multi-rater feedback tool'ALP Compass', based on the Axis Leadership Practices.
The strength of the workforce was 37,901 at the end of the year as compared to 31,738last year. A young workforce with an average age of 29 years and the Bank's policy ofbeing an equal opportunity employer continues to significantly contribute towardsemergence of the Axis Bank brand. The Bank inspires everyone to excel and contribute to,irrespective of gender, race or age, and this echoes in all HR initiatives undertaken. TheBank is also a socially responsible employer. Apart from housing its own NGO 'Axis BankFoundation', the Bank has partnered with Teach for India for promoting the noble objectiveof providing education to underprivileged children.
The Bank continues to strive towards realisation of its vision of being the preferredfinancial service provider excelling in customer delivery through insight, empoweredemployees and smart use of technology.