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Credit cards and other analyses

AXSB’s thrust on high-yield lending is palpable

We had placed AXSB as our top pick in our most recent Banking Sector Report, wherein we mentioned its thrust on high-yielding segments as 1 of 3 key reasons underlying our view. In this report, we specifically note that (1) AXSB’s market share in net credit cards added has improved dramatically after a lean CY20 (2) AXSB’s thrust on high-yielding segments has already been playing out in FY22 and (3) AXSB has been able to reduce dependence on RIDF bonds and is likely to continue to do so

In this report, we also continue to acutely examine the critical credit cards market since success in growing a credit cards’ franchise can materially move the needle in terms of overall bank RoA. We incorporate data for April 2022 into our long-term monthly database, which dates back to December 2016 and we present all key data pictorially in this report (see page 8 onwards). Our last report on credit cards had exclusively dealt with the subject.

We most prefer AXSB, SBI, ICICI, FED and CSB in the banking space, in that order.

AXSB’s market share in net credit cards added has improved dramatically after a lean CY20

We note that AXSB’s market share in net credit cards added had declined to 0.4% in CY20 but has since bounced back to 14.8% in CY21 and improved further to 18.1% in 4MCY22. This is positive from a leading indicator perspective as spends would rise with a lag and, also, lead to improved credit card loan book. We note that the market share of AXSB in credit card spends had declined from 10.5% in CY19 to 8.8% in CY20 and to 8.5% in CY21. This has inched back up to 8.8% in 4MCY222 and we expect further improvement as cards added see improvement in spend per card with a lag

AXSB’s thrust on high-yielding segments has already been playing out in FY22

We identify personal loans, credit cards, loan against property and small business banking as the 4 segments of high-yield that we see AXSB pursuing meaningfully. Personal loans had slowed to a crawl, growing 0.1% YoY in FY21, and have bounced back to 13.8% YoY growth in FY22. Credit cards loan book de-grew -13.2% YoY in FY21 and have since returned to growing at 19.6% YoY in FY22. LAP book has shown standout improvement, growing 42.4% YoY in FY22 compared with 8.5% in FY21. Small business banking has dramatically improved upon its already healthy growth of 35.6% YoY in FY21 to an even stronger 72.8% growth YoY in FY22. Taken together, these 4 segments had grown 5.0% YoY in FY21, which improved significantly to 33.0% YoY in FY22.

AXSB has been able to reduce dependence on RIDF bonds and is likely to continue to do so

Share of RIDF bonds in assets has declined from 4.75% of assets as of FY21 to 3.54% of assets as of FY22. There was no incremental allocation to RIDF in FY21 itself as PSL targets were satisfied via organic PSL loan origination and PSLC purchases. In FY21, AXSB purchased PSLC aggregating to Rs 597.2bn and sold PSLC aggregating to Rs 499.8bn. AXSB’s PSL achievement for FY21 was 41.7% compared to the target of 40%. While we do not have the corresponding figure for PSL achievement in FY22, the material decline in RIDF assets as a proportion of total assets is indicative of incremental success in this area. Share of PSL loans as a proportion of domestic advances had risen from 27.3% in FY20 to 31.8% in FY21. Traction for PSL loans has been healthy in FY22, with Rural loans growing 29% YoY in FY22 compared with 17.5% YoY in FY21 whereas, Commercial Banking Group, 89% of which is PSL-compliant as of FY22, has grown 26% in FY22 compared with 13% in FY21

We most prefer AXSB, SBI, ICICI, FED and CSB in the banking space, in that order

We least prefer DCB, CUBand KMB in our coverage universe. Our detailed valuation table with pecking order is provided on page 12.

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