Axis Bank Keeps All Avenues Open for Capital Infusion into Axis Finance
Axis Bank Ltd is actively considering multiple pathways to strengthen the capital base of its consumer lending subsidiary, Axis Finance, with the evaluation process described as "very much ongoing" by senior management. The bank's leadership has emphasized that no options are being ruled out at this stage, as they navigate recent regulatory shifts and evolving business guidelines.
Regulatory Changes Prompt Fresh Capital Review
The Reserve Bank of India's recent withdrawal of a draft circular that would have restricted banks from overlapping business activities with their subsidiaries has created new opportunities for Axis Bank's strategic planning. This regulatory development has prompted what executive director Subrat Mohanty called "a fresh review of both existing and newly opened avenues" for capital enhancement at Axis Finance.
Mohanty clarified during the bank's post-earnings conference call that while a stake sale remains among the possibilities being examined, the bank is also considering several alternative approaches. These include direct capital infusion from the parent bank, bringing in strategic partners to dilute equity, or enabling the subsidiary to raise capital independently through deleveraging and balance-sheet optimization measures.
Axis Finance Performance Metrics
For the quarter ending December, Axis Finance demonstrated robust growth with overall assets under finance increasing by 22% year-on-year to reach ₹44,972 crore. The subsidiary maintains a strong capital position with a total capital adequacy ratio of 19.9%, while 86% of its lending portfolio remains secured in nature.
The non-bank lender's net non-performing asset ratio showed a slight increase to 0.95% in the December quarter, compared to 0.66% during the same period the previous year. Despite this marginal uptick, the organization continues to operate within acceptable risk parameters while pursuing expansion opportunities.
Parent Bank's Core Banking Performance
Meanwhile, Axis Bank's core banking operations reported a quarter characterized by strong corporate loan growth alongside a more measured approach to retail expansion. The bank's total loan book expanded by 14% year-on-year to ₹11.59 trillion, with particularly impressive performance in corporate lending which grew 27% to ₹3.75 trillion.
Corporate lending traction was broad-based across sectors including real estate, power, and large conglomerates, supported primarily by relationship-driven lending strategies. Notably, approximately 90% of incremental corporate loans during this period were extended to better-rated borrowers, indicating that growth has been achieved without compromising risk-adjusted returns.
Retail loan growth, while more modest at around 6%, reflects the bank's deliberate approach to this segment following earlier stress observed in parts of the retail portfolio. However, management highlighted that disbursement growth significantly outpaced loan book expansion, with retail disbursements increasing 20% year-on-year and home loan disbursements jumping an impressive 30% year-on-year.
Strategic Positioning and Future Outlook
The bank has successfully moderated its exposure to unsecured retail loans, which now represent a reduced share of the portfolio compared to previous peak levels of 28-29%. Currently, secured loans constitute approximately 73% of the retail book, reflecting a more conservative risk posture.
Looking ahead, Axis Bank anticipates some near-term pressure on net interest margins, with the full impact of December's rate cut expected to materialize in the fourth quarter. The bank's net interest margin for the December quarter stood at 3.64%, slightly down from 3.73% in the previous quarter, though management maintains that margin movements remain consistent with earlier guidance.
As the regulatory landscape continues to evolve, Axis Bank remains committed to ensuring that capital availability does not constrain the growth trajectory of Axis Finance, while simultaneously maintaining disciplined expansion across its core banking operations.
