Fiscal 2014 saw a combination of various external and internal events that kept marketsturbulent, interest rates high and investor confidence low, resulting in shrinkinginvestment and GDP growth. Due to apprehensions of an impending 'taper' of the US FederalReserve's Quantitative Easing programme, emerging markets, including India, experiencedforeign investment outflows and currency volatility. India's macroeconomic imbalances atthe beginning of the year exposed it to this volatility as well, forcing stringent policyresponses. However, improving fundamentals have gradually restored some stability in themarkets.
Indian economic growth had slowed rapidly from 8.9% in 2010-11 to an officiallyestimated 4.9% in fiscal 2014, caused in large part by structural factors impedinginvestment activity. Decline in financial savings, sluggish growth in fixed capitalformation over successive quarters, persistence of high inflation and low businessconfidence contributed to the decline in potential growth, particularly in the absence ofadequate structural policy measures.
Inflation had emerged as the central concern during the year and in combination withthe current account and fiscal deficits, had forced Reserve Bank of India (RBI) to raiseits policy Repo rate by 75 basis points. While most of the slowdown was due to a steepdrop in investment, a cut in the Government's spending in order to contain the fiscaldeficit at less than the budgeted 4.8% of GDP also contributed to a slowdown inconsumption. For fiscal 2014, fiscal deficit has been revised down to 4.6% of GDP.
The biggest turnaround was in the Current Account Deficit, which had shrunk from $88billion in fiscal 2013 to $31 billion in the first 3 quarters of fiscal 2014. For fiscal2014, the current account deficit is expected to be ~2% of GDP. With large capital inflowsvia Foreign Currency Non-Resident (FCNR-B) deposits and bank capital, the Rupee hasstabilised at around 60-62/USD and has been one of the best performing emerging marketcurrencies over the past few months.
The Repo rate increases have pushed up the floor for rates and despite liquidityinfusion by RBI, short term interest rates have remained high. One of the consequences ofthe slowdown and high inflation has been a contraction of financial savings of households,with a preference for investment in assets like gold and real estate. This has, in turn,affected deposit accretion with banks. The exceptional liquidity tightening measures ofRBI leading to higher rates had resulted in a temporary spike in credit growth in favourof banks compared to credit substitutes in the money market, but this had graduallynormalised. On the resources front, strong NRI inflows through the FCNR(B) deposits routehave helped improve deposit growth. For the fiscal 2014, deposit growth in the system was14.6%, while credit growth was 14.3%.
Prospects for Fiscal 2015
While the medium term prospects point towards an improving growth scenario, given theimproved macroeconomic fundamentals it is likely that there will only be a modest economicrecovery in fiscal 2015. Globally, many emerging markets still look vulnerable andperiodic flights to safe haven US Government securities could result in portfolio fundoutflows. Although markets appear to have factored in a steady taper trajectory withrelative stability, expectations of rising interest rates in the US in 2015 could resultin a resumption of volatility.
Inflation remained the key determinant for calibrating monetary and fiscal policies,including setting of policy interest rates. Headline CPI inflation is likely to meet theRBI glide path to 8% by January 2015. A consolidation of the fiscal environment mightprovide additional space for modest monetary policy stimulus. Interest rates across theyield curve are likely to move down from current levels. The extent of this drop will alsobe determined by the US Federal Reserve stance in increasing interest rates in 2015.
Both the gradual expected downward shift in inflation and moderating fiscal stressmight allow RBI to ease its tight monetary policy stance later in the year, although thisis contingent upon future inflation expectations. Measures to remove bottlenecks by theGovernment will also bring capex on track. Expected global recovery will help exports,adding to the growth revival. In fiscal 2015, RBI expects GDP growth to pick up and be inthe range of 5-6%.
Financial savings are likely to improve with economic recovery and moderatinginflation. This will push up bank deposits in fiscal 2015. We expect deposit growth in therange of 14-15% and credit growth between 15-16%.
OVERVIEW OF FINANCIAL AND BUSINESS PERFORMANCE
During 2013-14, the operating environment for the banking system continued to bechallenging with persistent high inflation, muted growth, slowdown in credit off-take,concerns regarding growing non-performing assets and a high incidence of assets beingrestructured. Despite these challenges, the Bank's strategy to build its business uponstrong customer franchises, while adopting a prudent approach, had resulted in deliveringstrong results. The underlying performance of the business remained strong with revenuegrowth remaining well ahead of cost growth. The Bank reported a net profit of Rs.6,217.67crores for the year ended 31st March 2014, registering a growth of 20.05% overthe net profit of Rs.5,179.43 crores last year. The healthy growth in earnings was drivenby contribution from all segments. The Bank continued to focus on the quality of growthand displayed strong growth in key balance sheet parameters for the year ended 31stMarch 2014. The total assets increased by 12.53% to Rs.383,245 crores, total depositsincreased by 11.22% to Rs.280,945 crores while total advances increased by 16.81% toRs.230,067 crores.
During the year, the Bank continued to expand its network, with increased focus on thesemi-urban and rural areas. Both the Retail and SME segments continued to benefit fromthis network expansion and have justifiably remained the key growth drivers for the Bankduring the year. The Bank remains committed to a customer-centric approach in dealing withits clientele aided by dependable technology and simple processes. A well distributedbranch banking channel complemented by a robust alternate distribution channel have helpedthe Bank to deliver a wide range of products and services to its customers across thecountry and overseas.
The Bank continued to enhance shareholder value by delivering healthy financial returnratios in difficult economic conditions. Basic Earnings Per Share (EPS) was Rs.132.56compared to Rs.119.67 last year, while the Diluted Earnings Per Share was Rs.132.23compared to Rs.118.85 last year. Return on Equity (RoE) was 18.23% compared to 20.51% lastyear, impacted mainly due to the equity capital raising in the last quarter of 2012-13.However, Return on Assets (RoA) was 1.78% compared to 1.70% last year. The Net InterestMargin (NIM) for the year was 3.81% compared to 3.53% last year. The asset qualityremained stable with ratio of Gross NPAs to gross customer assets at 1.22% compared to1.06% last year and Net NPA ratio (Net NPAs as percentage of net customer assets) was0.40% compared to 0.32% last year.
The Bank strives for continual enhancement of shareholder value by efficiently usingcapital in order to maximise return on equity. Aiming to achieve this objective, the Bankendeavours to develop an asset structure that will be sensitive to the importance ofincreasing the proportion of low risk weighted assets. The Bank's capital managementframework helps ensure an appropriate composition of capital and an optimal mix ofbusinesses.
RBI has issued Guidelines based on the Basel III reforms on capital regulation to theextent applicable to banks operating in India. These guidelines require among otherthings, higher levels of Tier I capital and common equity, capital conservation buffers,higher deductions from common equity and Tier I capital for investments in subsidiariesand changes in the structure of nonequity instruments eligible for inclusion under Tier Icapital. The Basel III capital regulation has been implemented from 1st April2013 in India in a phased manner and is to be fully implemented as on 31stMarch 2019. This will also align full implementation of Basel III in India closer to theinternationally agreed date of 1st January 2019.
Accordingly, the Bank has computed Capital Adequacy Ratio (CAR) as on 31stMarch 2014 in terms of regulatory guidelines on Basel III, wherein the capital charge foroperational risk is computed under the Basic Indicator Approach and the capital charge forcredit and market risk is computed under the Standardised Approach. As on 31stMarch 2014, the Bank's CAR under Basel III was 16.07% (against the minimum regulatoryrequirement of 9%). Of this, the Common Equity Tier I (CET I) CAR was 12.62% (againstminimum regulatory requirement of 5%) and Tier I CAR was 12.62% (against minimumregulatory requirement of 6.5%). As on 31st March 2014, the Bank's Tier II CARwas 3.45%. The capital adequacy ratio of the Bank computed under Basel II norms as on 31stMarch 2013 was 17.00% with tier I CAR of 12.23% and tier II CAR of 4.77%
The following table sets forth the capital, risk-weighted assets and capital adequacyratios computed as on 31st March 2014 (under Basel III) and 31stMarch 2013 (under Basel II).
(Rs. in crores)
|AS ON 31st MARCH ||2014 ||2013 |
| ||(under Basel III) ||(under Basel II) |
|Tier I Capital ||35,805.48 ||31,596.80 |
|Tier II Capital ||9,790.55 ||12,334.32 |
|Out of which || || |
|- Tier II capital Instruments ||8,802.04 ||11,483.19 |
|- Other eligible for Tier II capital ||988.51 ||851.13 |
|Total Capital qualifying for computation of Capital Adequacy Ratio ||45,596.03 ||43,931.12 |
|Total Risk-Weighted Assets and Contingencies ||283,807.26 ||258,355.49 |
|Total Capital Adequacy Ratio ||16.07% ||17.00% |
|Out of above || || |
|- Common Equity Tier I capital ratio ||12.62% ||12.23% |
|- Tier I capital ratio ||12.62% ||12.23% |
|- Tier II capital ratio ||3.45% ||4.77% |
An overview of various business segments along-with their performance during financial2013-14 and future strategies is presented below.
The Retail Banking segment is one of the key drivers of the Bank's growth strategy,encompassing a wide range of products delivered through multiple channels to itscustomers. The Bank today offers a complete suite of products across deposits, loans,investment solutions, payments and cards to its customers. The Bank is committed todeveloping long-term relationships with its customers by providing high-quality servicesand products through regular customer engagement in an easy and convenient manner. Duringthe year, the Bank engaged in 'Lakshya', a retail banking transformation initiative, whichis currently live in more than 1,100 branches, comprising around 80% of the Bank'slow-cost deposit business. Various initiatives under the Lakshya program have helpedincrease sales productivity and operational efficiency while at the same time focusing onincreasing customer satisfaction and improving employee work life balance.
The Bank has over the years built its retail deposit franchise by pursuing a veryrobust and effective customer segmentation strategy. During the year, the Bank continuedto focus on increasing its retail deposits base, particularly demand deposits. SavingsBank deposits have grown at a Compounded Annual Growth Rate (CAGR) of 24.67% over the lastfive years. During the year, Savings Bank deposits grew by 21.95% to Rs.77,776 crores fromRs.63,778 crores last year. On a daily average basis, Savings Bank deposits grew by 19.11%to Rs.62,225 crores. As on 31st March 2014, the Bank had 133 lac savingsaccount customers. With an objective to widen the retail deposit base, the Bank alsocontinued its focus on increasing share of retail term deposits. As on 31stMarch 2014, retail term deposits grew 37.29% YoY to Rs.84,233 crores. However, excludingthe FCNR(B) deposits raised to avail the concessional swap facility provided by RBI,domestic retail term deposits grew 20.87%, constituting 56.01% of domestic term deposits.As on 31st March 2014, CASA and retail term deposits constituted 75% of totaldeposits compared to 69% a year ago. The domestic CASA and retail term depositsconstituted 78% of total domestic deposits.
The Bank continued its focus on increasing share of retail loans to total advances. Theretail assets portfolio of the Bank has increased to Rs.74,491 crores as on 31stMarch 2014 from Rs.53,960 crores last year, thereby registering a growth of 38.05%. As on31st March 2014, retail loans constituted 32% of total advances as compared to27% a year ago. Excluding loans against FCNR(B) deposits, the share of core retail loanswas 31%. Secured loan products accounted for 86% of domestic retail loans, with home loansand loan against property accounting for 72% of the book, of which, home loan accountedfor 63%. Auto loans accounted for 12%. Personal loans and credit cards were 10%, whilenon-schematic loans comprising loans against deposits, other securities etc. accounted for4%. The Bank has further increased its geographical reach for sourcing retail loans. TheBank sources retail loans through 132 Asset Sales Centres. Retail loans are alsooriginated from 1,716 branches. The Bank focused on increasing its retail loans by crossselling to internal customers. More than a third of the incremental retail loans are nowsourced through branches and existing liability customers contribute almost two third ofthis incremental business. The credit quality of retail loans remained steady.
The cards business is an integral part of the Bank's retail strategy withever-increasing number of transactions moving to the electronic mode. The Bank is one ofthe largest debit card issuers in the country, with a base of 133.2 lac. The Bank had 13.8lac credit cards in force as of 31st March 2014 which made it the 5thlargest credit card issuer in the country. The Bank is also one of the largest acquirersof point-of-sale terminals in the country with an installed base of 2.48 lac.
The Bank offers a complete suite of banking and investment products under its NRIServices for Indians living and working overseas. As on 31st March 2014, theBank's aggregate NRI deposits (Savings + Term Deposits) stood at Rs.27,959 croresregistering a growth of 113%. One of the reasons for this sharp growth was mobilisation ofFCNR(B) Deposits in the light of various liberalised measures announced by RBI, which alsoincluded the concessional swap window for banks. The Bank has mobilised FCNR(B) Depositsamounting to USD 1.58 billion under this window. The Bank has 49 branches authorised toissue Portfolio Investment Scheme (PIS) permissions to NRI/PIO who want to trade in theIndian secondary markets through a registered stock broker on a recognised exchange. TheBank has a strong focus on customer service and provides a 24x7 integrated helpdesk forNRI customers with the facility of toll-free numbers from key geographies.
The products offered in the area of retail forex and remittances include travelcurrency cards, inward and outward wire transfers, traveller's cheques, foreign currencynotes and remittance facilities through online portals as well as through collaborationwith correspondent banks, exchange houses and money transfer operators. The Bank continuedto have a market leadership position in Travel Currency Cards with 11 currency optionsother than INR. Additionally, the Bank offers a Multicurrency Forex Card, aimed atfrequent travellers to multiple countries. The aggregate load value on travel currencycards crossed USD 4 billion during the year. The volumes of retail remittances rose by 44%during the year and the Bank processed outward remittances of USD 1.02 billion and inwardremittances of USD 5.63 billion.
'Axis Bank Privee', offers private banking solutions to meet the personalisedinvestment needs of high net worth individuals as well as the corporate advisory needs offamilies in business. Axis Bank Privee brings solutions offered by various business groups(retail and corporate) within the Bank and various group entities under one integratedplatform.
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 distributes life insurance products of Max Life Insurance Company. During the year,more than 2.4 lac lives were insured, with a collection of Rs.1,052 crores towards annualpremiums. In general insurance, the Bank has a tie up with Tata AIG (AmericanInternational Group) and during the year sold more than 3.2 lac policies and collectedRs.163 crores of premium. The Bank has consciously shifted its focus on health relatedproducts and has also created an additional avenue for selling general insurance productsby launching outbound tele sales. The Bank offers online trading services to its customersin collaboration with Axis Securities Ltd. (a 100% subsidiary of the Bank) under the nameAxis Direct, an enhanced and simplified online trading platform, which is now alsoavailable to NRI customers. During the year, the Bank opened more than 1.2 lac onlinetrading accounts.
During the year, the Bank has introduced electronic know-your-customer (e-KYC)facility. Axis Bank has been the first Bank to introduce the e-KYC facility whichfacilitates Aadhaar-registered individuals to step into a branch and open an account,merely by providing his/her unique identification number and through biometricidentification simplifying the KYC process and thereby providing a seamless customerexperience.
In April 2013, the Bank launched India's first bank-wide customer loyalty program 'eDGELoyalty Rewards'. 'eDGE Loyalty' rewards is designed to reward customers for everyrelationship they have with the Bank across savings accounts, cards and electronic channeltransactions, providing multiple opportunities for the customer to earn rewards.
The Bank's organically built branch network over the last twenty years has helped it tostrategically carve out one of the best pan India branch distribution networks. In thelast few years, a higher share of branches have been added to semi-urban and rural areas,which comprise 52% of total branches as of 31st March 2014. During the year,the Bank added 455 branches of which 298 were rural unbanked branches. The geographicalreach of the Bank extended to 29 states and 5 Union Territories, covering 1,636 centresand 535 districts. The Bank also added 1,677 ATMs during the year to reach a network sizeof 12,922 as on 31st March 2014 compared to 1 1,245 ATMs last year. The Bankhas deployed 615 Automated Deposit Machines (for cash deposits into customer accounts) andhas extended this 24x7 facility in certain branches, which have integrated self-servicelobbies. Besides the ATM network, internet banking, mobile banking and phone banking havedeveloped as important alternate distribution channels for the Bank.
The sustained slowdown in economic growth especially deceleration in the momentum ofinvestments has reflected in the corporate sector loan growth. Certain initiatives takenby the Government during the year resulted in a minor uptick in the execution of theexisting projects; however demand and growth of credit remained subdued. The corporatecredit portfolio of the Bank comprising of advances to large and mid-corporates (includinginfrastructure) grew by 4.07% to Rs.102,238 crores from Rs.98,239 crores last year. As on31st March 2014, large corporate advances at Rs.53,706 crores decreased 1.13%comprising 23.34% of total advances, mid corporate advances at Rs.21,422 crores grew 7.06%comprising 9.31% and infrastructure advances stood at Rs.27,110 crores which grew 13.39%and comprised 11.78% of total advances. The Bank witnessed growth in its infrastructureloans mainly due to disbursements from earlier sanctions, in line with the progress inproject execution. As on 31st March 2014, the corporate advances at overseasbranches amounted to Rs.31,716.17 crores (equivalent to USD 5.29 billion) and mainlycomprised of loans to Indian corporates and their subsidiaries, which grew by 5.82% andaccounted for 13.79% of total advances.
The relationship model introduced in earlier years, maintained its focus on increasingthe Bank's wallet share by cross-selling a wide range of banking products to corporatecustomers and thereby increasing customer engagement. The Bank continued its focus ontrade finance, treasury and other fee-based businesses. The Bank has been following asectoral approach to credit where the focus is on identifying sector-specificopportunities and risk. The tracking of industry, group and company specific exposurelimits are undertaken continuously with a view to identify and mitigate risk so as tofacilitate proactive decision making. Portfolio diversification is also ensured throughthis continuous monitoring.
Despite the macroeconomic slowdown, the Bank actively managed its corporate creditportfolio, maintained asset quality and also pursued new lending opportunities in ajudicious manner. The entire corporate credit portfolio of the Bank has been internallyrated. Presently, 61% of outstanding loans and more than 80% of incremental sanctionsduring the year were rated 'A' and above in respect of total corporate loans. The share ofloans rated 'AAA' was 11% as on 31st March 2014.
The Bank continued to retain its leadership position in the loan syndication market andsyndicated an aggregate amount of Rs.22,996 crores by way of Rupee loans and USD 1,977million of foreign currency loans during the year.
The Treasury Group in the Bank includes the Global Markets Team dealing in interestrates and foreign exchange. Treasury plays an important role in the sovereign debt market,participating in primary auctions of RBI and market activities in Government securities.The Foreign Exchange Trading Group under Treasury is an active participant in theinter-bank/financial institutions space.
It also maintains proprietary positions to generate trading income for the Bank. MoneyMarket and Balance Sheet Management groups within Treasury take care of asset-liabilitymismatches and interest rate sensitivities of the Bank's portfolio, along with theresponsibility for liquidity management for the domestic operations and foreign branchesin the different geographies. Over the last few years, the Bank has emerged as one of theleading banks providing foreign exchange and derivatives solutions along with tradefinance services. Through its various verticals, the Treasury serves customers acrossvarious industries, segments and regions.
The Bank is a dominant player in the Debt Capital Market (DCM) Segment. During thecurrent financial year, the Bank arranged Rs.122,556 crores of bonds and debentures forvarious PSUs and corporates. For the sixth year in a row, the Bank has been ranked numberone in Bloomberg league table for domestic corporate bonds in India. The Bank has alsobeen ranked number one bank by The Asset Benchmark Research in local Asian Currencyprimary and secondary corporate bond markets. During the year, the Bank won the award forthe 'Best Domestic Debt House - India' by Asia Money, Best Bond House in India by FinanceAsia and Best Debt House - India by Euro Money.
The Global Financial Institutions Division (GFID) within Treasury is responsible forfostering business relationships with financial institutions (FI) across geographies andundertakes foreign currency fund raising. Global Trade Service Division (GTSD), housed inTreasury is entrusted with the responsibility of transforming Trade Finance business intoa key flow business for the Bank by providing trade solutions for corporates as well asthe FI clients of the Bank. The Customer Trade and Forex Group (CTFG), as part ofTreasury, drives cross-border trade finance, remittances, capital account transactions andderivatives from all segments of corporate relationships through its dedicated andexperienced Relationship Managers across the Bank.
Business Banking provides payments and transaction banking solutions across corporates,SMEs, financial institutions, Government segments and small business customers. The keyproducts offered are current accounts, collection and payment solutions, custodial anddemat services.
Current accounts are a key focus area for the Bank, forming the bedrock of itstransaction banking and payments franchise. Current account products are categorised intovalue-based products, segmented products for specific industry sectors (e.g. financialservices, pharmaceuticals etc.) and need-based products (e.g. escrows, dividend paymentsetc.). The Bank leverages its distribution network and technology platform to deliver aseamless banking experience to its customers. The current accounts group is focused onaugmenting its electronic channels and has rolled out an award-winning mobile applicationfor its current account customers. The Business Banking team also works on various processredesign initiatives to deliver a simple, easy and user-friendly customer experience. TheBank had more than 16 lac live current account customers as on 31st March 2014,a YOY growth of 16%. As on 31st March 2014, Current account deposits stood atRs.48,686 crores and constituted 17.33% of total deposits. During the year, currentaccount balances (on a daily average basis) grew by 9% to Rs.31,281 crores from Rs.28,698crores last year.
The Bank has adopted a two-pronged approach in the collection and payments business -introducing new products, features and channels on the one hand and developingsector-specific solutions on the other. The Bank has made a significant technologyinvestment in terms of an enterprise-wide payment hub, which when fully implemented isexpected to augment the Bank's capabilities in the transaction banking business, acrossdomestic and foreign currency transactions. The Bank offers advanced products such asPower Access, which enable corporates and institutions to ensure straight-throughtransaction processing with multi-layered security protocols and customised MIS. The Bankhas also been in the forefront of the rollout of the newly introduced NACH (NationalAutomated Clearing House) mechanism and has taken the lead in terms of processingtransactions on the NACH platform.
The Bank has identified select industry sectors as focus areas and has rolled outcustomised solutions to cater to the specific needs of clients in these sectors.Operational excellence is a key success factor in the collection and payments business andthe Bank has embarked on a process improvement initiative to provide a solid platform forservice delivery. The Bank processed transactions to the tune of Rs.2,034,866 croresduring 2013-14, a growth of 28% over the previous year. The Bank has one of the largestdistribution channels to support the collections and payments business, with 959 locationsenabled for collections and 421 branches enabled for remote printing of instruments. TheBank also acts as a Sponsor of White Labelled ATM deployers, being only the second Bank inthe country to do so.
The Bank, in its capacity as an agency bank for various Central Government ministries,departments, State Governments and Union Territories, accepts income and other directtaxes. The Bank also handles the disbursement of civil and defence pension through theCentralised Pension Processing Centre (CPPC). In addition, the Bank provides collectionand payment services to four Central Government ministries/departments and 13 StateGovernments and Union Territories. The Bank rolled out customised solutions such as PFMS(Public Financial Management System), e-procurement and e-freight to meet the unique needsof the Government segment. The Bank is the nodal bank for collection of subscription tothe National Pension Scheme. During the year, the Bank also commenced opening of accountsunder the Public Provident Fund scheme. The total Government business throughput duringthe year was Rs.100,318 crores. The Bank has been awarded the mandate for handling'Trustee Bank' services under National Pension System.
The Bank is a SEBI-registered custodian and offers custodial services to both domesticand offshore customers. As on 31st March 2014, the Bank held assets aroundRs.11,000 crores under its custody and had 3,459 demat accounts in the corporate andinstitutional segment.
LENDING TO SMALL AND MEDIUM ENTERPRISES
The Small and Medium Enterprises (SME) business thrives on relationship building andnurturing the entrepreneurial talent available. The Bank extends working capital, termloan, project finance as well as trade finance facilities to SMEs. This segment has beenidentified as one of the key growth areas for the Bank.
The Bank has segmented its SME business into three groups: Medium Enterprises Group(MEG), Small Enterprises Group (SEG) and Supply Chain Finance (SCF), which comprises 47%,41% and 12% of SME advances respectively. During the year, advances to SMEs increased by18.65% to Rs.35,502 crores from Rs.29,922 crores last year and constituted 15.43% of theBank's total advances as compared to 15.19% at the end of last year. The Bank currentlyoperates from 38 SME Centres and 16 SME Cells across the country compared to 32 SMECentres and 9 SME Cells last year, to service customers effectively covering 1,000branches.
Keeping in mind the changing economic environment, the Bank has enhanced its riskmanagement capabilities by developing an 'early warning system' model based on holisticcustomer information. The Bank has also adopted a granular approach in growing the SMEportfolio by focussing primarily on better rated SME accounts. Incremental loan growth inSME is mainly driven by higher rated SME 1 to 3 categories which correspond to a single'A' rating. The loan book remained well diversified and carried lower concentration riskwith 80% of the outstanding loans being rated between SME 1 and SME 3. The SME businesscontinues to perform well and the portfolio behaviour remained healthy.
The Bank also sponsors