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Why Nayak opposed Shikha Sharma as Axis CEO
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Shikha Sharma to head Axis Bank
April 22, 2009 13:31 IST
Former Axis Bank chairman and CEO PJ Nayak said managements should look at appointing outsiders only when the organisation is weak.

"If it's strong, look for insiders," he told Business Standard, a day after resigning over differences with the bank's board on choosing his successor.

Nayak, however, made it clear that his comments were generic in nature and not specific to yesterday's developments at the bank. "Everything depends on the situation and the person. Most outsiders can do well. When I joined, I was myself an outsider at Axis Bank," he said.

The Axis Bank board on Monday named Shikha Sharma, who heads ICICI [Get Quote] Prudential Life Insurance, the next managing director & CEO after a vote that saw eight members supporting Sharma's candidature, with Nayak being the lone dissenter.

Nayak said he had no problems with the board and the members were hugely supportive of him. "There was a difference in judgment on how you select a CEO and I wanted a successor from within (the bank)," he said.

In any case, the differences did not have any impact on the bank's performance since profits grew over 30 per cent in 35 of the last 37 quarters. In fact, in the last seven quarters, the bank grew over 60 per cent.

Asked whether he had any message for his successor, Nayak said Axis was a great bank and she would find it hugely enjoyable to work with this set of bankers.

On his next plan, the former chairman said he wanted to stay in Mumbai and would plan his next step after getting Axis Bank "out of the system, which will happen over the next few weeks".

On why he was opposed to splitting the post of chairman and managing director, Nayak said he wasn't this time, as it was already decided the post would be split and the shareholder's resolution had also been passed.

He dismissed the criticism that he was averse to grooming a successor. "Some people think you should keep moving a person from one department to another to familiarise him with the job, but that does not help. We have fantastic heads for retail and corporate banking and they are people of standing within the industry. I am also accused of being inflexible. But I take an instrumental view. If the model is working, then the leadership is doing well," he said.

Speaking on his nine-year term at the bank, which ended three months ahead of schedule, Nayak said Axis' asset quality was among the best in the industry, with net non-performing assets (NPAs) of under 0.35 per cent, which was lower than what the bank have ever had.

The bank, he said, always focused on risk diversification and the strategy had paid off well. "In addition, at every stage we took risk mitigation very seriously. All decisions were taken by a committee based on the feedback we received from various people. This resulted in varied assessment and helped build a very good quality balance sheet," he said.

What also helped the bank was a very strong Casa (current account savings account) base. In 2000, when everyone was focusing on retail lending, Axis focused on raising retail deposits because it realised that it did not have access to funds at a cost that supported retail lending. The Casa base now is 40 per cent against 5 per cent in 2000, he said.

On the 85 per cent increase in gross NPAs during 2008-09, Nayak said the quality of portfolio would worsen as companies faced more stress and liquidity problems. But the bank was able to cope with it because gross earnings were higher. "The lesson is that earnings must outstrip provisions for any business," he said.

Nayak said the financial markets needed to be stable because banks faced difficult times with the markets turning unstable. Although the RBI has helped check instability, there was still some threat of financial market volatility. "Also, there are questions over when we reach the bottom.

The consensus growth forecast for India's GDP growth is 5.5 to 6 per cent. If the growth is lower, then we will also be affected like the others," he said.

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