India’s macroeconomic fundamentals continued to improve last year on the back of significant policy initiatives by the Government aided by a stable monetary policy. The country saw a sovereign rating upgrade and also climbed up the charts in ease of doing business. Both these developments should result in higher foreign investments in the medium term. The implementation of the Goods and Service Tax (GST) regime in 2017 has been one of the biggest structural economic reforms, benefits of which will continue to accrue in the years to come. GST reform along with demonetisation and digitisation efforts will significantly benefit towards formalisation of the economy.

From the perspective of the Indian banking industry, the fiscal year 2018 was a mixed one. Apart from the lingering asset quality problems, there were some serious issues around fraud and operational misses that came to the fore towards later part of the year. The regulator has initiated measures and issued guidelines to ensure that the systems, business practices, operational processes and risk management for the sector are robust and safe. While these challenges are real, it is important to acknowledge that at this stage in the development of our country, the banking sector in India remains a force of good, moving our inclusive growth agenda forward.

The resolution process for large stressed accounts referred by the Reserve Bank of India (RBI) under the new Insolvency and Bankruptcy code (IBC) has largely been on track. On the credit growth side, the situation seems to be improving. The credit growth continued to pick up through the year, partially led by the base effect, and tighter liquidity conditions helped shift credit demand back to banks from bond markets.

Moving on to the financial performance of the Bank, Axis Bank had a second challenging year in a row this year. Our historical focus on project finance in infrastructure sectors, steel and power continued to create significant headwinds for us this year. The asset quality issues thus continued to be a pain point for the second year. The recent guidelines on stressed asset recognition and resolution along with fully functioning bankruptcy infrastructure would not only expedite the recognition and resolution mechanism, but is also likely to inculcate a stronger corporate credit culture, going forward.

During this fiscal year, the Bank undertook accelerated Non-Performing Asset (NPA) recognition in line with its desire to get past the asset quality issues of the last cycle. With the aggressive recognition we undertook during the fiscal year, we believe the NPA recognition phase of this credit cycle is now nearly complete.

The Axis franchise continued to deliver steady operating performance with core operating revenue growth of 6% and moderation in operating expenses growth. The Bank’s retail franchise remains robust with strong growth in loans, fees and low-cost deposits. The Bank’s SME loan growth improved considerably in the later part of the year with risk parameters under control. The quality of corporate book too has been steadily improving with higher incremental sanctions to better rated corporates, significant reduction in concentration risk and increase in the share of working capital loans. Despite the pain on asset quality front, the Bank continues to have a strong balance sheet with one of the best provision coverage and capital adequacy ratios of 65% and 16.57%, respectively. During the course of the year, the Bank raised capital from a few marquee investors that further augmented the capital adequacy position with Tier-I ratio of 13.04% at the end of fiscal year 2018. Our subsidiaries had another good year as they continued to gain scale and market share in their respective segments.

In the corporate segment, our learnings from the last cycle have helped us to calibrate our portfolio concentration a lot more tightly than in the previous years. In the last few years, we have significantly strengthened credit underwriting and risk management practices at the Bank. We continue to focus on targeting the pool of better rated corporates and re-orienting the corporate franchise towards a more flow-led transaction banking-oriented business.

The Bank continues to remain the leading player in the Debt Capital Market segment. Our top position in the leader board over the last 10 years positions the Bank very well to benefit from the growth in the corporate bonds market.

We believe that demonetisation and the implementation of GST are likely to result in faster shift from informal to formal sector, and that is perhaps being reflected in the SME growth. With significant government policy initiatives such as ‘Skill India’ and ‘Make in India’ directed around this sector, we expect SME growth to come back into higher trajectory than witnessed in the recent past. From a risk perspective, the SME book has held up well and we intend to use more of data that is now available post GST to automate underwriting and risk management for smaller ticket-size SME loans as well.

The Retail franchise remains robust as we continue to gain market share in both retail deposits and loans. We reaffirmed our strong positioning in low-cost deposits with a CASA ratio of 54%. During the year, we added 400 branches to our distribution strength; however, the branch formats have been smaller with improving employee productivity led by automation and centralisation of back office operations.

We believe deposit mobilisation in fiscal year 2019 could pose some challenge. We expect branches to continue playing a crucial role in deposit mobilisation, customer acquisition and providing localised services. Hence, we would continue to make adequate investments in our branch network.

The overarching theme for us in Retail Banking has been to service and deepen relationships with existing internal customers for growth. Over the last few years, we have made significant investments in technology and processes and further strengthened our risk management architecture. We have one of the best digital capabilities in India and have been increasingly using digital analytics to identify potential customers, optimise branch locations and provide customised solutions through AI-backed chatbot and mobile app.

Our retail loan book continues to grow strongly with significant diversification in portfolio mix. We believe there is considerable scope to cross-sell and grow the unsecured side of our retail loan book, as we look to onboard granular retail risk while reducing concentration risk on the corporate side.

The Bank’s strong distribution capabilities, brand and ability to constantly innovate and offer right product proposition to customers has helped us build and gain significant market share in most of the retail businesses in quick time. We have the market leadership in Forex cards and in the credit cards business. Despite being a late entrant, we are currently ranked fourth in terms of market share. The Bank is today among the top five players in the home loan market. We have also built one of the best wealth management franchises among banks in the country - our Burgundy proposition is now among our fastest growing business lines.

Similarly, within the Axis family, our subsidiaries in institutional equity business, broking, asset management and non-banking finance arm have scaled up well. Axis AMC that was set up in 2009 is now among the top 10 mutual fund houses in India; Axis Direct, the broking business that was launched in 2011, ranks among the top three brokerage firms in terms of active client base. Our institutional equities business that we acquired in 2010 has maintained its leadership position on equity league tables over the last decade. The subsidiaries have helped the Bank to offer strong proposition to our corporate and retail customers and played a meaningful role in building the Axis Bank franchise.

Digital payments and online consumption of financial services are growing on the back of ‘Digital India’ initiatives. Today, there is an opportunity to ride on the digital infrastructure to strengthen payments, trade and information flow to aid sustainable and inclusive growth. The Bank has always been at the forefront of digitisation, contributing actively to the Government’s vision of a ‘less cash’ economy. We have the country’s second largest PoS network, a strong cards franchise and in the mobile banking space, the Bank ranks among the top in terms of market share by transaction value and volumes.

The Bank continues to be the leader in partnership-driven innovation and has redefined digital payments in India by providing its customers with a differentiated payments experience. During the year, the Bank, in association with Kochi Metro Rail Limited (KMRL), launched India’s first open-loop transit EMV contactless metro card. The Bank also partnered with marquee names such as Google, IRCTC, LIC, Uber, Ola and others to drive the acceptance of payments on the UPI platform.

The acquisition of FreeCharge earlier this year re-affirms the Bank’s determination to lead the journey of digitisation of financial services. We believe that FreeCharge’s unique value proposition in the digital payments space and the strength of its acquisition engine would help to build the Axis franchise further and create significant value for the Bank. The post-acquisition activities at FreeCharge remain on track and all key top-line metrics have shown considerable improvement.

During the year, the Bank also launched instant international payment services using Ripple’s enterprise blockchain technology solution. The Bank has been the first financial institution in India to offer a Ripple-enabled, frictionless payments experience that would make international remittances faster.

Over the last 24 years, the foundation of the Bank has been built on our core values – to do the right thing for our 20+ million customers. Though we have progressed a lot in terms of technology, what hasn’t changed is our legacy customer service ‘The Axis Experience’ – which is service in a digital world but with an old world charm. During the year, Axis Bank very aptly won the NASSCOM Customer Service Excellence Award - 2017 under the ‘Transformation’ category.

Core to our approach is the belief that our long-term success depends on the progress of the communities and the people we serve. Axis Bank Foundation has been relentlessly working over the last decade to help provide sustainable livelihoods and create value for the communities through its various integrated rural skill development and educational programmes. It is a matter of great satisfaction for us that the Axis Bank Foundation has achieved the target it had set for itself of achieving a million sustainable livelihoods by 2017. During the year, the Bank also launched ‘Axis Dil Se’ – a CSR initiative in partnership with 17000 ft Foundation – that saw 108 schools across the remotest parts of Kargil and Ladakh being adopted by 20 senior Axis Bank leaders for a period of three years.

The Bank deservingly was included in FTSE4Good Emerging Index in recognition of its Environmental, Social and Governance (ESG) practices. And as we move ahead, we continue to remain conscious of our deep commitment to our environment and the underprivileged. The Axis Bank Foundation now aims to create two million sustainable livelihoods over the next eight years.

Going forward, I continue to believe that the Indian banking sector is well placed to benefit from the informal to formal shift that is currently underway. Also, private banks in the country will continue to gain significant part of the incremental market share. We believe that with our strong financial and market position backed by our core capabilities, we would certainly be among the top few banks in the country.

I am extremely proud of the great franchise we have built and that is reflected in the way in which customers and shareholders have reposed faith in us. Over the last nine years, we have successfully built a strong CASA franchise on back of continued investments in branch infrastructure. Our market share in deposits has grown from 2.6% in 2008-09 to 3.6% at the end of 2017-18, with branch network increasing from 835 branches to over 3,700 branches over this period. On the lending side, we have grown our lending book from nearly `80,000 crores to around `440,000 crores over these nine years, at a CAGR of 21%. At the same time, we have achieved significant diversification in balance sheet with the share of Retail loans in our loan book rising from 20% to 47%. Most notably, we have filled up strategic product gaps and developed key subsidiary businesses to become a full service bank. The Bank now has strong capabilities across retail, corporate and SME segments and offers strong proposition to its customers with subsidiaries complementing the strategy. The retailisation of the Axis franchise has been the bedrock of the Bank’s financial performance, thus improving the quality and sustainability of its earnings.

Earlier this year, I had requested the Board to reconsider my re-appointment till 31 December 2018, which has been accepted and is subject to shareholder approval. Axis is a great institution with a very promising future and I am confident that our Board will find the right person to lead this institution in its next phase. While we go through that process, I am fully committed to maintain high performance levels at the Bank.

The Bank has taken significant steps in fiscal year 2018 to get past the asset quality issues of this cycle and the top priority for us in fiscal year 2019 will be to achieve normalisation of credit risk. The second focus area would be to deliver profitable growth. The third area of delivery would be to enhance capabilities to strengthen operational risk management and re-invent our corporate bank driven by technology. The fourth deliverable for fiscal year 2019 is to continue investing in digital capabilities, analytics and our subsidiaries to drive future growth.

I have thoroughly enjoyed my nine-year long association with this great Bank. I have given it my best and have been rewarded by the support and association of all our internal and external partners. The future of Axis Bank remains extremely bright and I wish it and all its stakeholders the very best.