Axis Bank’s Managing Director and CEO, Shikha Sharma, claims that rising rates will affect the bank’s profit margins.
Rising interest rates have been an issue for a majority of the banks. With the announcement of the Reserve Bank of India (RBI) of a 25 basis points (bps) hike in its key rates on Thursday, Axis Bank is now afraid of the squeezing of margins.
In the annual general meeting (AGM) of Axis Bank, on Friday, the chairman, Adarsh Kishore, said, “In the wake of rising interest rates, it is going to be a challenging task to maintain profit margins.”
So far, Axis Bank has not taken any decision on hiking interest rates any further. Shikha Sharma, managing director and CEO said, “We have not yet taken any decision in this regard as it has been announced just yesterday. But, if we are not able to take in the cost of funding, we will have to pass it on to our customers.”
Talking about the real estate segment, she said, “We have a comparatively smaller share in retail home loans segment, but managing it is going to be a challenging task this year. With the hike in interest rates resulting in higher cost of funding, we may have to increase the interest rates which will have some impact on our home loan segment.”
The bank is proposing financial inclusion, which would affect the profitability in the short run, but in the longer run, gains are expected. “We are prepared to bite the bullet with lower profitability and withstand healthy competition. This year is going to be challenging for us,” Kishore said. And, where cost of funding is to remain high, the credit tightness is to continue. “But, under the current situation the fiscal deficit seems to be coming under control,” he added.
Acquisition of Enam Securities’ business during the year has been a significant element, which will bring institutional and retail broking services, wealth management and investment banking capabilities. The bank is now to operate in the UK markets in addition to Singapore, Hong Kong, Dubai, Shanghai and Abu Dhabi.
In his speech at the AGM, Kishore also said that India has been facing various constraints, one of them being food. “Food prices are on the rise with a major constraint being on the supply side rather than the production side. The food produced is lying idle and not reaching households,” said Kishore.
However, it isn’t just food that is a constraint. The country is facing problems of infrastructure and skill development as well. “By 2031, Rs39 lakh crore would be required for infrastructure at 2009-10 prices,” added Kishore.
This was the last AGM of SK Chakrabarti, deputy managing director of the bank. His official tenure ends on September 30, 2011, when he will reach the age of superannuation.
Axis Bank registered 34.76% growth in profit after tax (PAT). The PAT of the company increased to Rs3,388.49 crore for FY11. The deposits of the bank increased by 33.93% to Rs1,89,237.80 crore, while the advances also grew by 36.48% to Rs1,42,407 crore during the year. Also, during the same period, the EPS of the company went up from Rs65.78 per share to Rs82.95 per share. A dividend of Rs14 per share was proposed at the AGM.
The AGM further approved the borrowing of funds by issue of debt instruments on private placements basis within the limits permitted by RBI and other regulatory authorities. As per the business plan for the year, the bank proposes to raise the funds in domestic and/or overseas markets eligible for inclusion in Tier I and Tier II capital. The proposal for the approval of a maximum amount of borrowing of Rs1,00,000 crore was passed.
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