The Quiet Architect: Shikha Sharma has magically transformed Axis Bank in a short span

Image: Vikas Khot

Award: Best CEO-Private sector
Shikha Sharma
MD & CEO, Axis Bank
Age: 55
Interests outside of work: Loves movies, particularly ‘happy’ ones; also enjoys swimming and maintaining a fitness regimen. With her two children Tilak and Tvisha now away, goes for short holidays occasionally with husband Sanjaya
Why she won this award: Successfully transformed a bank, which primarily had a corporate lending and retail liability portfolio, into a full-service, end-to-end financial institution focussed on sustained profitable growth

Comparisons with peers and predecessors don’t bother Shikha Sharma, the 55-year-old managing director and CEO of Axis Bank, India’s third largest private sector bank by assets.

Sharma stepped into the shoes of PJ Nayak, who quit in a huff before his term ended when she was appointed MD and CEO over his candidate, in June 2009. But despite this rather turbulent entry, Sharma has, over the past five years, successfully brought about far-reaching changes at the bank while maintaining continuity on a number of fronts. The result: A bank with assets of Rs 3.79 lakh crore (as of June 2014), return on equity of nearly 18 percent, net non-performing assets of 0.44 percent, over 2,400 branches and a strong corporate and retail franchise.

“One of the things about being a woman leader is that the world is dominated by male leaders, so you’re constantly being compared,” says Sharma. “You have to shut out certain things and not worry about them so that you’re effective at the job.”

But succeeding Nayak couldn’t have been easy for the soft-spoken daughter of an Army officer, given the iconic status the former Axis Bank boss enjoyed not just at the bank (Nayak oversaw the changeover from the erstwhile UTI Bank to its Axis avatar) but also across the financial sector. Sharma, who studied at the Indian Institute of Management (Ahmedabad), is no stranger to the rough and tumble of  high finance herself. In the 29 years she spent at the formidable ICICI Bank, India’s largest private sector banking institution, she performed a variety of functions, setting up various businesses, including a joint venture with JP Morgan and the investment banking and retail finance businesses. After a deputation to JP Morgan & Co, she returned to the ICICI Group as MD & CEO of ICICI Prudential Life Insurance. It is this wealth of experience that came in handy for her as she began to get acclimatised to the new assignment.

The Initial Challenges
One of Sharma’s first tasks was to understand the key things that made Axis Bank tick. Axis had a healthy track record even earlier, with a balance sheet size of Rs 1.47 lakh crore and net profits at Rs 1,815 crore in FY09, with a five-year compound annual profit growth rate of 45.51 percent. She was mindful that there was no need to fix what wasn’t broken.

“For me, the challenges were more personal because, while I had been with ICICI before it converted into a bank, I had not been a part of a commercial banking organisation earlier. I was in life insurance before I came here. So just understanding the conceptual framework of how all parts of the banking business tie up together was important,” says Sharma. “In hindsight, I realise there was nobody to teach me; I just landed in the middle of it all. The succession had been a very public one. So to come in as an outsider without knowledge of the business was pretty challenging.”

Sharma was aware that anyone who came into an organisation from the outside tended to have some preconceived notions. “If you start acting on those impressions too early, you can make some terrible mistakes,” she says. “So I had to step back and learn.”

While Axis had some basic similarities with her earlier institution, ICICI Prudential Life, the sheer breadth of activities was quite different. Besides, ICICI Pru was a joint venture, and Axis was a publicly listed company. This brought its own set of challenges, including a board whose composition was quite different from the one she had dealt with earlier.

But there were a number of positives as well. “There was no cultural mismatch. It’s easy to deal with people who are straightforward and respectful and Axis is very apolitical,” she says.

The other important factor that helped her settle in quickly was the tailwinds in the economy. India was recovering well from the financial crisis of 2008, and that made the job that much easier. 

A New Vision
As she started to understand the lay of the land, it became clear that she would need to tweak some aspects to make the bank future-ready: For one, the decision-making process. Under Nayak, decision-making was largely top-down as the bank had been growing in a different environment and then took on a new corporate identity. But Sharma, who was used to more participative processes, realised that as the organisation scaled up and became complex, and markets grew larger, it would need more layers of decision-making. “My personal leadership style is delegative. So, from a cultural point, that was the only change I sought to bring,” says Sharma.

This break from the past manifested itself amply when, within three months of her taking charge, she held the first major strategic planning exercise, called Vision 2015, with the entire top team participating. Prior to this, while parts of the senior management had worked together on specific strategic areas, the entire top rung had never come together to plan for the future. “That was a defining moment in many ways,” recalls Sharma. The idea behind Vision 2015 was to understand where Axis stood and the direction it needed to take. “When we entered that meeting, we didn’t know what we were going to come out with,” says Sharma. “That [exercise] is what shaped the direction of the institution from there.”

The bank had thus far grown on the back of a strong retail liability, a corporate lending franchise and the small and medium enterprises (SME) business. The challenge for the future was how to deepen those by offering a wide suite of products in each of these categories. The idea was to turn Axis Bank into a strong, customer-focussed bank and, if that had to be done, some key gaps in product offerings needed to be filled.

For instance, the bank had a retail liability franchise but needed to strengthen its retail lending and payment products. On the corporate side, the obvious gaps were the mergers & acquisitions (M&A) and equities verticals. “We then decided to make a fundamental shift in where we wanted to go,” Sharma says.

They decided to address these issues one by one. The first task was to sort out the retail business; the M&A and equities gaps were discussed and then kept aside to be addressed later (the bank later acquired the investment banking and broking business of Enam in a Rs 1,400 crore deal in 2010, which went through many changes and regulatory hurdles). Today, Axis Bank’s loan mix is far more balanced than earlier, with 40 percent retail (up from around 20 percent when she took charge), 16 percent SME and 44 percent corporate.

Executing The Plan
The way forward, then, was to ensure that the bank was able to roll out all the products and services customers wanted, and try and be an end-to-end financial services provider. On the retail lending side, for example, the bank focussed on building product delivery capabilities in terms of risk management, operational processes and hiring the right set of people.

As Sharma went about remodelling Axis Bank, she was also acutely aware that while some talent gaps needed to be filled, the existing loyal workforce should not be made to feel left out. “I had to make sure that I don’t mess with the people in terms of lateral hiring and upset the aspirations of the internal team. That’s something I was very conscious about. I wanted to ensure that any lateral talent was brought in only when there was a certain skill gap,” she says.

When Axis identified retail lending as one of its main focus areas in the Vision 2015 plan, analytics was an area the bank knew it would have to concentrate on. NPAs in the personal loans business were unacceptably high (a figure which is not in the public domain) and the problem could be addressed only through analytics and retail behaviour. It was also important to identify the right customers for the bank. That was when Sharma decided to hire Jairam Sridharan, who she had worked with at ICICI Bank, from Capital One in the US to head the bank’s retail business. The bank then put in place a detailed risk management system. “Over a period of time, we saw a reduction in retail NPAs and that is showing in the balance sheet,” says Sanjeev Kumar Gupta, executive director, corporate centre, and the bank’s chief financial officer.

As the execution of the Vision 2015 plan gained momentum, Sharma kept benchmarking herself against her own targets, making sure she was neither too quick nor too slow in implementing the changes. “If you’re too slow, there is a sense of frustration; if you’re too fast, you can blow up. So pacing the changes was a big deal. For the first three years, that was something that I used to constantly assess,” she says.

Sharma’s ability for strategic decision-making skills even while addressing micro issues draws high praise from peers.

Vishwavir Ahuja, MD and CEO of the private sector RBL Bank (formerly Ratnakar Bank), who has known Sharma since 1979, says: “Shikha is a rare person who is able to straddle both strategic and micro issues extremely well. Her decisions may have been doubted by some from time to time, but her conviction ensured the bank moved in the right direction.”

Five Years On
The hard work put in by the team at Axis to transform the bank is paying off. The June quarter results showed an 18 percent growth in net profits year-on-year (YoY), with net interest income growing by 16 percent, net interest margin at 3.88 percent and daily average current and savings accounts (CASA)—a key measure of granularity of deposits—up 16 percent.  Further, retail term deposits indicate how strongly the retail franchise is spreading its wings: They grew 44 percent YoY in the June quarter, constituting 60 percent of total term deposits. Domestic CASA and retail term deposits together made up as much as 78 percent of total deposits, a figure Sharma is quite happy with. “These are the big shifts. CASA plus retail term deposits used to be around 61 percent earlier,” she says.

Consumer loans, too, grew 29 percent YoY and accounted for 32 percent of net advances as of end-June. Today, with a Rs 86,446 crore retail lending portfolio, secured loans comprise 88 percent of total retail lending and housing loans 53 percent.

Another area where Axis—which featured in Forbes Asia’s Fab 50 list for the fourth time this year—has managed to do well is capital. As of June 30, the bank’s tier I capital adequacy ratio stood at 12.64 percent, with overall CAR at 16.09 percent under Basel III.

Besides, with the markets on a roll, the troubled Enam acquisition —which has morphed into Axis Capital and Axis Securities—is now paying off, vindicating Sharma’s decision. At the time of the acquisition, the bank had to contend with depressed equity markets as well as severe regulatory delays. “Now that the markets have bounced back, we’re seeing the benefits of the franchise. We’re present in most of the new issues that are taking place and also the M&As. So the franchise was fundamentally a good decision,” says Sharma.

“The Enam acquisition also proves that Shikha’s strategy of creating a one-stop shop in Axis was a correct strategic call,” adds RBL Bank’s Ahuja.

The investors and the stock market seem happy with what Axis Bank has achieved in five years. In a recent report after the bank’s June quarter results, Nomura says Axis “continues to deliver well on asset quality and increasing balance sheet granularity”, while Edelweiss says “asset quality was noteworthy” with incremental stress well within guidance. This stable asset quality—despite the infrastructure and power sectors comprising over 12 percent of the bank’s fund-based outstandings—and growing book value per share (Rs 849.63 in the June quarter) have meant that the stock has also surged over 150 percent since June 2009, trading at around Rs 400 now.

Future Ready
Today, as Axis Bank successfully metamorphoses into a one-stop financial institution with strengths across both the corporate and retail franchises, Sharma is leaving nothing to chance. A Vision 2020 exercise, which began around 15 months ago in 2013, is in the works, where the earlier strategic plan will undergo some revisions. But Sharma quickly cautions that one must not expect too many drastic changes in the new vision document. “Vision 2020 is more an extension of Vision 2015, not a new direction we are going into,” she says. Though the latest strategy exercise began before the Narendra Modi government came to power in May, it won’t require much updating. “We fundamentally believe in the India story, so it won’t change the big picture and where we want to go.”

What will be the key elements of Vision 2020? Sharma says that while the product suite is built out, the future strategy will be all about the ‘how’. Digitisation will be a major theme as customer behaviour changes and Axis Bank will have to rely more on technology to deliver products. “As the world becomes complex, customers want more simplicity. So we have to think about how we can make banking simpler for them,” she says. The product mix will remain broadly the same, but Axis will draw increasingly on synergies to cross-sell and bring different parts of the bank to the customer.

As the bank gets prepared for the next frontier, its corporate bank franchise will continue to be a growth driver (particularly if the investment cycle picks up and the infrastructure sector begins delivering results). The capital markets capability will also position it well as bourses turn more buoyant. Add to that the retail business which continues to roll out new products, expanding into rural geographies while also growing affluent customers, and Axis has a well-rounded recipe for future growth.
 
But Sharma knows she will have to keep pegging away so that the bank remains firmly on the profitable growth path. “There are so many growth opportunities in India. Growth is not the problem. It’s how you deliver and manage,” she says.

It’s too early, but the question still needs to be asked. What legacy would she want to leave behind at Axis Bank? “I’ll say what I told investors in 2009,” she says. “I took over a good business. I want to leave behind a great institution.”

(Additional reporting by Pravin Palande)