Is Axis Bank Interested In Buying Spandana Sphoorty? — BQ Exclusive

Axis Bank Ltd. wants to grow its microfinance business, but is yet to decide whether an acquisition will be the right way forward. According to Amitabh Chaudhry, managing director and chief executive officer, the bank is being extremely careful while considering inorganic expansion in this segment, considering the experience of other banks.

"Please look at examples around you where acquisitions have been made, and the result of those acquisitions," Chaudhry told BloombergQuint in an interview.

The largest acquisition in the microfinance segment has been IndusInd Bank's 2019 buyout of Bharat Financial Inclusion Ltd. Recently, concerns have emerged at that unit after whistleblower allegations of evergreening.

RBL Bank, which had purchased microlender Swadhaar FinServe Pvt. in 2018, is also facing elevated slippages from the microfinance business.

Acquisition In The Works?

Speculation of Axis Bank considering an acquisition of Spandana Sphoorty Financial Ltd. have been doing the rounds for some time now. Earlier this month, Padmaja Reddy, the founder CEO of Spandana Sphoorty exited the company, alleging the potential deal was the reason behind her being pushed out.

"Yes, there is news about some transaction we are going to do. I don't want to comment on it. It is playing out in a form and shape none of us expected," Chaudhry said in the interview.

There are no immediate acquisitions on the cards right now, said the bank chief, adding that it remains open to consider such opportunities.

Tapping The Microlending Opportunity

Controversies aside, Chaudhry does see merit in growing the microfinance business for Axis Bank.

"We are keen on microlending, specifically in the context of our Bharat Banking foray. We have created a growth-focused Bharat Banking unit to address the needs (of this segment)," Chaudhry said.

In September, the bank roped in Munish Sharda, former chief executive of Future Generali Life Insurance to lead the Bharat Banking initiative. Through this business, the bank aims to offer tailored products for its rural clients. It is also planning to add 3,000 new hires to focus on micro, small and medium enterprises in rural India, the bank had said in a statement.

"The yields and RAROC (risk-adjusted return on capital) on this business are quite attractive, if done well," Chaudhry said. "You need to ensure that you execute very well in the microlending side of the business because if you look at the results of the (microfinance) companies during this quarter, they have taken a pretty large provisioning hit."

As of Sept. 30, Axis Bank's loan exposures to small businesses stood at Rs 20,900 crore, while rural loans contributed Rs 41,150 crore. In comparison, the total retail loan book stood at Rs 3.45 lakh crore.

"We are building our own teams and digital capabilities for this. We believe Bharat is the big opportunity for this decade," he said.