a

AXIS Bank

- - --?- as
Banking on Technology and Market Segments for
Competitive Space

Arun Kumar Jain 1

Affiliate Professor of Strategy, IB and Corporate Governance, EM Strasbourg School
of Business (France) and Nidhi Jain, Research Associate, CALIC - Germany

A XIS Bank (formerly UTI Bank) is the first new generation private sector bank to
be estabr
J-\in India under the overall reform program initiated by the Government of India
in 19
The Bank is promoted by Unit Trust of India, the largest mutual fund in India,
holding 87% of
equity. The Bank started its operations in 1994. AXIS Bank's first capital raising
post-inc.epti
was in 1998 through a public offering.

The present shareholding pattern is:

' .
.
Administrator of the Specified Undertaking of the AXIS

UC
GIIC and four PSU Insurance Companies

Non-Promoters' Holding

Foreign Shareholding

As a conscious strategy of building an organic growth engine during the year, the
B continued to expand its distribution network, in both domestic and overseas
geographies, enlarge its reach and accelerate its business momentum. The Bank has
developed a b?an , network which is built on customer-convenience and service,
helping it particularly in 1 acquisition of low-cost retail deposits, retail
assets, lending to agriculture, SME and roid41
porates and facilitating the cross-selling of third-party products. During 2007-
08, 1_43 J
branches were added to the Bank's network, taking the number of branches to 651.
Tiiis mclu
33 extension counters that have been upgraded _to branches. As on March 31,
2008, ?e d
had a network of 651 branches and 20 extension counters as against 508 brancbe:,
_an 5
extension counters a year ear?ier. Out of the 651 branches, J 58 branches are in
se?? t
and rural areas. With the opemng of these offices, the feographical reach of the
Bank ex
29 States and 3 Union Territories covering 405 centres.
. .

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'w'
I '"',,,
, strategy
s?''" usiness model Tbe bank st rt d . , . .
. . _
. ,..auil b s area. Corporate Joans offe edd hi: .. its ?peratJon V1'j h
r. rno ?. _::.._,S..,3 y?=
JJV ,r1a111foyCU99 Corporate advances

Jef 'ed

Jgllervi?Jds to

., e ,.... u

z g

- ? ? -1..:<
i}le f
w11nes ? a hi.sh.P'-

tn
1-.

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:..::
.r.

? _
. fY96 to t of funds Jent by the bank till )

?1J growtn rate z. d ;..e? :..::.

.J or =::,- --
S0pes.v.rwP,n

ed the bank's asset quaJit t,

1ear 2(J02 Howeve;

-,P-,;,,,; - ? ,.. -----?--- 1?? ,

to '-'-'_;-''-' -- --
c , iJJ1pact )

._.
,,..,J'-,.J::>05!...,.?
:ategic Ine?c;?0?n??t?t _In 1999 th:' bank's net NPAs to advacces rzzi
.:---':--?"o:
6.3o/oin FY99 ? ..

Also, when the mdustrial activity slITT\'S

d?'TI.. '"':,rpo?e. .o?
l?the first to get hit. Thj_s w? r?flected from a marginal 17% growth in the ban cs
:o?l ad-',???
aofyo2 r.rom a CAGR of 44% m the last four years. D,.,,nl?-=- 2 +w1.. ensk 0 ,.
m1

4 ?.-,:;,:- -?-
!J _

.L\J:4UL..lll

1 crexro.51:.:: ? ?-=-
?ent, AXIS Ban? _started shifting its concentration to retail finance, which ?cS
%tr.d ;--1?se
growth opporturnt1cs. .
- ?

strateg? shift AXIS .Ba? s?arted its retail focus with building up of both
r-?'5ir:?1 23.: iechnology mfrastruc,tu:e, ?hJch. 1? th?? a?e ?y t? acquire
customers in retail finance ??..::1 ,e:JL This is reflected froD? a s1gnifican?
nse in its distnbutJon network The number of branches :nczf"?? (0450 from jus_t
35 ?n FY99. With 95 extension counters and 1,890+ ATh1s.. the bznk was e
across 248 locations m the country. On the technology integration front too, the
bank speeded i:p the efforts. It is the first bank in the country to adopt
'Finacle' as its core banking software, :;:;ro vidcd by Infosys and it is also
the first Indian bank to have a remote disaster recovery m,rn ?.ge 1 i:'11.
system to protect its business from any eventualities.

AXIS's Current Strategy

The bank follows a strategy of broad differentiation. In order to attract

retail customers an
dilferentiate itself from its competitors, the company has used the following
strategies:

Managing changing customer needs A Jarge part of the transactions pro

cessing has been moved to increasingly powerful back office hubs, relieving branch
personnel of these transactions tasks and thereby enabling them to devote more
time for managing relationships with customers. The Bank's Centralized Phone
Banking Center provides cus tomers across the country access to the Bank over
the phone. Zonal Level Nodal Officers have been appointed to ensure quick
redressal of customer grievances as well as to act as the
?'s.i?terface with the Banking Ombudsmen appointed by Reserve Bank of India, The
unpJ:rnentation of regulatory guidelines relating to 'Know Your Customer' (KYq
norms
COntmued to improve in compliance.

llisk management In order to cope with a volatile and rapidly changing

environ-
drnefint and its ac.companying risks the bank's risk management processes are
guided by well- the I.ned Policies appropriate for 'the various risk categones,
independ ent nsk, oversight and n einctependent risk management committee of
the Board . Risklim- its are set accord.mg to a
ti?:ber ?f c?iteria including relevant market analysis, business strategy and
management expe
i . e. Risk hmits are monitored and reviewed regularly.

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EXHIBIT 1 The Strategy-Making, Strategy-Execution Process for AXIS Bank

Achieve or,;;mic
o, th through
Retail banking

Decrea ing the

NPAs 10 below 1% of
total a i:t.c., to
aggrc ively lap the retail domain via the uscofATMs

Building
infrastructure
and adhering to the
latest technology

Spread ucros 248 locations with 1890+ Al'Ms,

Adoption of
Pinnacle, I-Banking,
etc.

Reduction in 'PA O.<i I%, Iner use in deposits. Retail ha powering growth i
based income

Revise as needed in lhc light of actual perfonnance, changing conditions, new

opportunities, and new ideas

Dealing with regulations The bank has undertaken an internal _assessme its
preparedness for the implementation of the Basel II a?ord. It has propnetary sof
system and data management solution for a phased adoption of the B?sel II :ramewor
credit risk management. The bank calculates capital charge on operational nsk under
the Basic Indicator approach and the Standardized approach, and has mapped its a
tics to the eight business lines defined in the Basel II Accord. The bank has
simultane undertaken internal studies on several lines of business for an
evaluation of the risk pr capturing of losses incurred and identifying the key risk
indicators (KRis).

Keeping pace with technology The bank's Information Technology s cgy is

focused on capacity enhancement which is able to maintain an efficient servicing
bility in a multi-channel delivery environment. The Bank's IT team process
developed a p calJed 'SETU' (Seamless Electronic Transfer to AXIS Bank) for
enabling seamless internet ba funds transfer to corporate and to overseas Banks who
preferred to have a regular business ti for remittances.
The sale and redemption of 58 AXIS Mutual Funds schemes was an additional se
through the ATM channel, a feature that is unique to the domestic banking
industry. Toe ware development team also launched a new process called 'i-trade' to
route corporate pr
ment transactions through the Internet.

Prod?ct and ser?ice innovation The Bank set up low cost rural AT A?and
m order to provide convenient a?d low cost transaction services to the supplie
r,mlk to the Co-operative, A Channel Finance Hub was also created in order to
pro
seamless service to various channel finance customers. AXIS ba k bel" th
the
ru?, a compos te _su te o f eredit as well as liability-related pr

nucts

teves
d

at, m . w
i i r

od woul

make lo
Al M-centercd delivery models a profitable business opportunity. (Also see
Annexure 5)

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Competition among the North American Warehouse Clubs

C-69

. Growth Strategy

Objectives
Increasing the market share in various businesses resulting in an enhancement in
its core income

sImtrepaJrl1oSve the qua1 ity of i.ts m.

come streams

complementary Strategies for Business Growth and Development

Strategic Alliances and Collaborative Partnerships AXIS bank has entered into
a variety of partnerships to extend its services to customers through multiple
channels and heighten their convenience factor.

Tie-ups with Maruti and Hyundai for selling car loans

Co-financing pact with India Infrastructure Finance Company Ltd (IIFCL) for
infrastructure
projects
Tie-up with Bajaj Allianz General Insurance Tie-up with MetLife as
Bancassurance
Partner
ATM sharing, based on alliances with other banks such as SBI and multi-bank
shared pay
ment networks
Economic Times Remit2India for money transfer

Outsourcing Selected Value-chain Activities AXIS Bank has outsourced

certain processes from its value-chain to cut down on costs and achieve greater
efficiency:

Outsourcing recruitments to Monsterlndia.com: The bank's 'time-costs involved

in processing the applications have been halved. However, AXIS Bank still relies
on headhunters for spe cialised positions.
Outsourcing Print Operations to Xerox: AXIS is now able to mail personalized
chequebooks to its customers within 24 hours of a request. This also means there
no unused chequebook inventories lie at AXIS Bank's 300 branches.
Outsourcing of electronic bill payment (EBP) and ATM management: AXIS Bank
has out
sourced its EBP requirements to BillJunction, a specialist bill management service
provider.

Offensive Strategic Moves

AXIS Bank has been following an aggressive strategy to tap the retail domain via
the use of ATMs
and alternate tech-enabled channels: .
Superior Customer senice: This customer- oriented approach has enabled the Bank
to aspire to providing high levels of customer satisfaction, leading to customer
retention and loyalty, which in turn has enabled the Bank to carry out a deepening
of customer relationships and increasing cross-selling activities.
.
Range of services on ATM machines: The bank has not only developed a huge
network of
more than 18000 ATMs across the country but it also provides value additions on its
versa
. tile ATM machines, including LIC premia payment and telephone bill payments
for service
providers like MTNL and BSNL, as also mobile banking services and mobile refill
facilities for
Airtel, Hutch, Orange and Idea cellular service providers.
,.,...,,

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C-70 Crafting and Executing Strategy

Aggressive growth in cards business; The Ba? .is one. of the leading issuers
of.debit cards in ln .
and offers international debit cards in association with VISA and MasterCard. The
debit dia base of the Bank grew to 40 lacs (4 million) during year 2005-?6 fror:n
3o.3 lacs.. The Bank?rd the first Indian bank to introduce the travel currency
card, a foreig? denominated pre. ?s card, which is positioned as a convenience
alternative to the travelers cheque The Ban/aiu also the first to introduce
Remittance Cards, which cbanges the way inward remittances\:?
sent to India. The Bank launched a 'Rewards Card', a pre-paid Rupee card for
corporate
facilitate quick payments to their employees, agen.ts a?d d'1stn'b. utors.

S to
Expansion of geographical reach: The steady widenm? of its reach, especially
in dis. trict headquarters and small towns, is expected to .sustam the momentum of
the Bank's
gro?h in business particularly that of low cost deposits as well as advances to
the SME and
agr?culture sectors. The geographic reach of the Bank n?w extends to over 26 States
and 2
Uruon Territories, covering 258 different cities, towns and villages.
Financial Advisory services: The Bank has been focusing on Fina?ci.al Advisory
Services with
special emphasis on the affluent segment of customers. The Bank IS m_ the process
of acquiring
and addressing the segment of customers whose income levels are high enough for
them to
require Wealth Advisory Services.

Use of Internet

AXIS bank was one of the first banks in the country to provide Internet banking
services.
iConnect, the internet banking service of the Bank saw a rise during 2005-06 in
its user base from
8.08 lacs to 18.93 lacs. Mobile Banking also saw impressive registration volumes
during the year
2005-06.
The Bank has partnered with the Ministry of Overseas Indians to offer an
Internet based electronic remittances portal to facilitate remittances from NRis.
The portal also provides infor mation services relating to investments in
financial markets, tax consultancy and investments in
real estate.
The Bank launched an e-Payment facility for payment of central excise & service
tax through
the Internet for its customers as part of thee-Governance initiative of the Central
Board of
Excise & Customs
 The Bank's IT team provides technical and process know-how support for enabling
seamless internet banking funds transfer to corporate and to overseas Banks who
prefer to have a regu lar business tie-up for remittances. This process called
'SETU' (Seamless Electronic Tmnsfer to AXIS Bank) has provided a competitive
edge for remittances.
The software development team launched a new process called 'i-trade'. This
process allows large corporates to route their procurement transactions through the
Internet, keeping track of the outstanding dues of their dealers and operating
within pre-determined levels for dealer exposure.

. : Evaluation o

Growth

' ? ....

The Bank has registered an i mpressi ve year-on-year i mprovement in financial

performance: Theer Bank posted a net profit of Rs. 485.08 crores for the year
2005:-06, which was 44.98% high than Rs. 334.58 crores in the previous year
(Exhibit 2).

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Com pcm 1 on among the North American Warehouse Clubs C-71

(Rs. crorcs)

Net profit

RISING rnoFITABIUTY
Operating Revenue
D ::?001-02

D 2002-03 m 2003-04 2004-05 2005-06

(Rs. crores) ' .

98
: . '

2001-0:?

2002-03

FEE INCOME

182

. 2003-04 2004-05 2005-06

,.

' ! .
" :? t

ENHANCING SHAREHOLDER VALUE

17.08

. : : ..
'

". ?

?ing Pei share (Diluted) ?-- .

0 2001-02 CJ.2002-03 0 2003-04

Dividend (%)
2004-05 2005-06

. . ENHANCING SHAREHOLDER VALUE

.I,:? ;, f ...: . \, ,
t ) I \

1891

...,,. ......

: . J,:
t,.. 'I
; . : ..." .

. t; '\

.
!, - ; ., . ?:: : , /': , ...
? ', ,_,. ,:. , J 90 258..
63 80 117, :

450
Centies covered I. .. ' .. : -?ranches + Extn, :ounters? , . '
<Sovrc . tJ. ioo1:92 irJ 2002-03 o ?OOJ-
04.. Iii 2004-os ; .
e:.4nn

.wo,.s-06. :
ue: Report of AXIS bank, 05-06)).

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C-72 Crafting and Executing Str:ttcgy
. .
. 't l Adequacy Ratio ( 'A?) of AXIS Dank is .
Despite strong growth m assets, the C?ipi: . uircmcnt of 9'X, prescribed by
the Reserve 1

ttl
JI .08'Yo, substantially ab?ve the ?c?1ch?'?;ls???wn to 0.75% from 1.07'.Yc> during
the year 2,??
of India. 111c Net NPA ratio of the bank 15 f . h is reflected in the
decline of the cost: inco
06. 111c operational efficiency of the bank, w uc
rnc
ratio to 45.03'% from 50.69% in 2004-05. . AB ,
5

growth strategy has been quite effect'

The data shows that the cu?tomer?centnc t ams while at the same time helping it
red ive
for achieving the targeted growth in core mcome s re
uc:e
non-performing assets. h portunitics
to leverage its existing repui
Scope for future growth: AXIS Bank has ugebop hes extension counters and
ATM a.
b d d
ernge through ranc ,
s to lion, ran image an extensive. cov . k It can
also diversify into related value-added expand its share in the burgconmg retail
mar et.

financial services such as insurance. h

sand NPAs (during the But perhaps the Bank needs to further reduce t e
provision . . P?IOll?
year 2004-05, NPAs had actually increased from 1.03% to 1.07 Y<i) and increase m
the proportion of
fee income for the growth to be sustainable.

Governance & Ethics Structure

The Bank says it is committed to achieving a high stand?r? of ?rporate go?emance

and it aspires to benchmark itself with international best practices. How rt rs
domg on certam excellence parameters are shown below.
The Bank's policy on Corporate Governance has been:
to enhance the long term interest of its shareholders and to provide good
management, the adoption of prudent risk management techniques and compliance with
the required stan
<lards of capital adequacy, thereby safeguarding the interest of its other
stakeholders such as
depositors, creditors, customers, suppliers and employees.
to identify and recognize the Board of Directors and the management of the Bank
as the principal instruments through which good corporate governance principles are
articulated and implemented. Further, to identify and recognise accountability,
transparency and equality of treatment for all stakeholders as central tenets of
good corporate governance.

Innovation and Entrepreneurship

The Bank experimented wit? ne_w delivery models for credit, including setting up
low cost rural ATMs at Anand. Such application of technology provides customer
convenience as well as prod uct innovation.
A Channel Finance !"fub has b_een created to provide seamless service to various
channel finance _cu??omers. AXIS bank believes that in the long run a composite
suite of credit as wel? as hab1lity-rel?ted products would make low cost ATM-
centered d liv dels a profitable
busmcss opportunity
e 1 ery mo

Lear??ng, Thinking and Sharing

AXIS facilitates communication. collaboration and w k .

.
ee ba With over 150 branches and 2000+ knowl or flow between
scattered employ for employees to commum.catc, collaborate andc, ge
wko.rkers there .wa s, a, n impc..ndimg req uirerne.n.r.prv

wor 111 a pro<lucuvc manner. AXIS bank chose vvi

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Con lpctltlon among the North American Warehouse Clubs

C-73
,?de ctn onlinc solution to fit their , .
. I
t01.'?ics and information 1\."quircmcnt11 l'?cds. Wipro set up an employee
portal for mterna
1ictt??rn? with a hub and spoke archit?c? t ?: ?i?ployccs of AXIS. The portal
uses Lotus Notes
plflt
ure across the branches of the bank.

l{r,owledge, Competencies and Capabilities

bank has a skilled and well-trained k

r.
J\tlS arte f it . .
wor 'force at all levels, including the front customer mtenace.
AlJllOSt 8 ?u, ?r ? .1 s m?umgers arc recruited from premier business
institutes across the country.
The ;?we gedt?ltmli:ment oriented employee portal.spa;;s function.s of the bank
ranging frolll mar'? ?g? ! ?l m?, merchant banking to support functions
such as IT, HR, accounts, k,.,gai and a mn?s. ation, .1e mti:anet also hosts a
plethora of other services like business infor n1ati?n, competttlon a!lalysis,
busm?ss plans, proposal formats, policies etc. The portal also offers
details of p?u?t.s, circulars, caAxison lists etc. Added benefits of the portal
includes workflow
related functionalities such as business workflow pertaining to customer proposals,
HR related work
flow such as leave and travel requests, admin activities, revenue expense and
CAPEX tracking.
Technology, Scale and Scope Advantage

The bank's Information Technology strategy is focused on capacity enhancement,

which is able to maintain an efficient servicing capability in a multi-channel
delivery environment. With second largest number of ATM's, AB is leveraging the
scale and service advantage.
Up-to-date market infrastructure, sophistication in product development, reliable
banking
techniques and mitigation of risks enables Axis bank to reach newer geographies and
markets, expand its customer base and engage in extensive cross-selling to
existing customers thus harness
ing the scope advantage.

Networking, Interdependencies and Partnerships

Axis bank has entered into numerous collaborative partnerships and mutually
beneficial strategic alli ances to extend the marketing reach of its products
(car loans-Maruti etc), gain entry into previously uncharted territories such as
insurance (bancassurance partnerships with Bajaj Allianz, Metlife) and provide
value-added services to its customers (ATM sharing, ?conomic times ?emit2Inida) and
gain a sustainable competitive edge. Selected value chain actrvities such as
recruitment needs, printing operations and electronic bill payment (EBP) have been
outsourced to cut down costs and
achieve greater efficiency.

Total Customer Orientation

By centralizi

g transactions

processing'

the bank is able to achieve better consistency. The

B k' Ce m .

i B king Center prov .des customers across the country access to the
Ban s ntralized Phone . an . ulti le queries. To ensure that
customer satisfaction is high and
?nk over the pho?e handlinJ ;:1 . me to time in
customer service standards, a Customer Ser
vi proveme?ts are mtroduce rom 1 a Standing Committee on Customer Service
compris
. ce C?mm1ttee of t?e Board and ff have been constituted. 'Know Your
Customer' (KYC)
ing seruor functionanes at Central O ice
norms have also been implemented.

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C-7 4

Crafting an

d Executing Strategy

tllating its strategy on the

growth
Core Va\ues . ressive pa.th o f orgamc
Axis Bank \i. s fo\\owcd an agg
. f its core va\ues. h .
l
bas;s ?ustomer Satisfa??t??:?:!ffectively a_nd etf??:tciua\ity stressed on
. a. Providi?g qua i y our face value" is a se
b. "Smile,. it enhances YServ ce Audits
. C stomer i
c. Penodi? u takeholder value le
2 Maximization of s k integrity and peop
3. Success through teamwor '

References

1 http://www.capitaline.com
2. http://www.utibank.com
3 Axis Bank's annual reports k
4. Management Trainee Handbook of UTI Ban .

Case Questions:

Anal ze the scenario for banking industry in India keeping in mind its
market ?ize and
l. groJh rates. Also identify the industry's g\obal driving forces, and the
current toxic assets
that global banks are carrying world over.
.
2. Map the major categories of banks in lndia(as classified by RBI) on various
key perfor mance parameters. Position Axis bank on this map and identify the
critical success factors and performance rating of Axis Bank relative to the
competition.
3. Perform an internal environment analysis for Axis Bank on various parameters.
Draw. a value
chain and aggregated SWOT analysis and identify its core and distinctive
competencies.
4. What are the future challenges you foresee for Axis Bank and what str

h uld the
bank adopt to meet these challenges'?
?1egies s o_ .

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