Banking sector’s exposure to MSMEs at 12-14%- Amitabh Chaudhary, Axis Bank

Update on Indian Equity Market:

Nifty started the day with a sell-off but closed the week flat at 9,136. The only sectors to close in positive today were METAL (1.6%) and FMCG (0.1%) as all other sectoral indices traded lower with MEDIA (-1.8%), REALTY (-1.5%) and PVT BANK (-1.2%) were the biggest losers. Within the index, VEDL (3.9%), BHARTIARTL (2.8%) and BPCL (2.6%) were the highest gainers whereas M&M (-4.6%), ZEEL (-3.6%) and AXISBANK (-3.3%) were the laggards.

Excerpts from an interview with Mr Amitabh Chaudhary, MD & CEO, Axis Bank aired on CNBC TV18 on 14^th May 2020:

• Mr Chaudhary mentioned that the impact of this lockdown is widespread across all industries and no longer restricted to some. It will take more time for economic activities to pick up. IT will continue to remain tough for some period of time.
• He mentioned that as a result of all this, non-performing liabilities (NPL) will rise. The economy needs support so that people can come back to business quickly and start producing the cash flow so that the NPLs will be lower.
• He accepted that there is ample liquidity in the system. The challenge is to be able to deploy it effectively. This is resulting in the excess liquidity being parked with the RBI. There is a negative pressure on the net interest margins (NIMs) across the banking system because the cash which has been there is not getting deployed.
• Government is slowly coming up with new schemes where the deployment of some excess liquidity will start happening. He is confident that this will help the NIMs positively.
• He stated that if the NPLs rise and if moratorium is not given or some kind of one-time restructuring is not allowed, this will further lead to negative impact on NIMs. Next three to six months will determine the trajectory of the banking
• Commenting on the fiscal package announced by the Government, Mr Chaudhary said that the Government further needs to provide support to the economy to prevent non-performing loan formation.

Consensus Estimate: (Source: market screener, investing websites)

• The closing price of Axis Bank was Rs 403/- as of 15-May-2020. It traded at 1.2x/ 1.1x the consensus Book Value estimate of Rs 324/ 363 for FY21E/ FY22E respectively.
• The consensus target price of Rs 568/- implies a PB multiple of 1.6x on the FY22E BV estimate of Rs 363/-

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