Great expectations from Amitabh Chaudhry

Axis Bank’s stock on Monday reacted positively to the news of Amitabh Chaudhry, CEO of HDFC Standard Life Insurance, being named successor to managing director and CEO Shikha Sharma when she ends her tenure in December. Shares of the bank hit a high of Rs 676.90 in intraday trade a little after trading began before closing at Rs 651.55, up 0.99% from the previous day’s close. The Sensex ended the day at 37,922.17, down 1.22%.

The bank made the announcement late on Saturday. Chaudhry, 54, has worked with banks such as Bank of America and Calyon Bank earlier; he also has a stint with IT giant Infosys to his credit. He joined HDFC Life in January 2010 and oversaw the company’s recently concluded successful IPO.

Investors seem pleased with the announcement. But what exactly are the expectations that shareholders have of Chaudhry?

Investors are hoping for a turnaround in the bank’s performance beginning with barely-there profits to better margins. A shift in focus to retail is another thing that investors are keeping an eye on. Moreover, a balanced portfolio to minimise the impact of bond losses is another important factor. All this along with continuing the cleanup of NPAs and maximising recoveries.

A Nomura report said, “There could be more legs to the re-rating journey for the bank if he is able to improve the operating profitability of the bank.” The report, however, added that any large incremental additions to the stress book over the next two to three years would be viewed negatively.

An Edelweiss note said that while the management move is a strong one “further structural re-rating will be driven by asset quality performance, visibility on execution and strategic changes”.

Sanjiv Bhasin of IIFL said all eyes are now on Chaudhry to see how he takes the bank through the process of changing systems for the better and how he keeps the team motivated to perform. He added, “Given his experience at HDFC Life, I think he will be able to get a good mix of the bond and equity markets when it comes to the portfolio as well.”

However, he went on to say that it may not be right to expect the world from Chaudhry. “It’s not like he has a magic wand that he can simply wave to change things. It is just that the bank is getting rid of someone who was at the helm for a long time but didn’t do much in the past seven to eight years.”

Under Sharma’s tenure the gross non-performing assets of the bank rose from 0.96% in March 2009 to 6.52% in June 2018. The bank also reported its first ever loss since listing in Q4 of FY18.

Experts are confident that Chaudhry’s experience will ensure a turnaround for the bank going ahead. An executive search consultant and an expert who is familiar with Axis Bank and Chaudhry said, “He comes from a corporate and investment banking background, and with his HDFC Life Insurance experience, he understands the retail side of the business. So he is one of the better candidates for this job,” he said, adding that it is a good time to be taking over Axis Bank as it has already identified most of its NPAs.

“Amitabh is a good hand to take over the steering wheel. They’ve given him a three-year term, but I’m sure they will extend it further,” he said.