Lender Axis Bank concerned about Vodafone Idea; banks on govt support

Axis Bank CEO Amitabh Chaudhry has said the financial health of Vodafone Idea is a concern for lenders, although the government is expected to find a solution to prevent the collapse of the loss-making telecommunications company.

“If this company survives, which I believe the government will try very hard to do, they will continue to make those spectrum payments and our guarantees will not be called on,” Chaudhry said in an interview with Bloomberg TV. “But it is something to worry about; we have a plan in place.”

Axis is the country’s third-largest private bank and is among lenders that have extended guarantees to Vodafone Idea, whose survival has been threatened by the government’s claim of back dues. The joint venture between Vodafone Group Plc and Indian billionaire Kumar Mangalam Birla’s conglomerate suffered a setback recently when the Supreme Court rejected petitions by telecom operators to reassess how much they owe.

Also read: Should govt offer a lifeline to embattled Vodafone Idea?

Kumar Mangalam Birla has stepped down as non-executive director and non-executive chairman at a time when VI is struggling to stay afloat. Himanshu Kapania, a nominee of the Aditya Birla Group, has been appointed as the non-executive chairman.

“I am sure when it comes to the crunch, the government will try and find ways and means to ensure this company stays for the long term,” Chaudhry said.

Separately, Chaudhry — who took charge of Axis Bank in January 2019 — wants the lender to achieve an 18 per cent return on equity. While that’s much higher than 7.6 per cent currently, Chaudhry hopes to achieve that goal on “transformational projects” the bank has undertaken. Axis Bank achieved a 15-16 per cent ROE (return on equity) in the March quarter, which fell due to the second wave of COVID.

Also read: Will Vodafone Idea Ltd survive the test of time and competition?

“I am the first one to admit that it’s an aspirational target, but without those aspirations how do we become distinctive?” he said. “We want to put those aspirations, we want to share them with the market and we want to be held to those aspirations over a period time.”

The bank, which raised 100 billion rupees ($1.3 billion) in equity capital last year, wants to strike a balance between increasing lending, while being attentive to asset quality alarms.

“We are like a crouching tiger. We will capitalise on opportunity that comes our way but at the same, we will prepare ourselves for any risk that comes up on our horizon,” Chaudhry said.

The government on August 5 brought a bill in the Lok Sabha to withdraw all back tax demands on companies such as Cairn Energy and Vodafone, saying it will refund the money collected to enforce such levies. “It is also proposed to refund the amount paid in these cases without any interest thereon,” it said.

The bill has a direct bearing on long-running tax disputes with British firms Cairn Energy and Vodafone Group.