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How demonetization has impacted the payments business of Axis Bank

Card spends by Axis Bank customers shot up to Rs 15,750 crore for the quarter ended December 31 (Q3 FY17), growing 82% from Rs 8,635 crore from the same quarter last year. This was primarily due to the demonetization of Rs 500 and Rs 1000 notes on November 8. As a consequence, fee from the cards business grew by 23% year-on-year.

Note that Axis Bank is the fourth largest issuer of credit and debit cards in the country.

At a more granular level, debit card spends stood at Rs 4,203 crore at the end of December and grew 136.8% from Rs 1,755 crore at the end of October. Credit card spends were at Rs 2,637 crore at December end growing more modestly from Rs 6.07% and the end of October.

The number of debit cards in force increased 20% year-on-year to 18.5 million while the number of credit cards issued by the bank increased to 3.1 million.

The number of UPI transactions also grew exponentially during the demonetization period from 22,000 transactions in October to 285,000 transactions in December. The value of transactions stood at Rs 12 crore in October to Rs 126 crore.

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Mobile banking transaction volume stood at 31 million at the end of the quarter and the spends on mobile banking was Rs 29,760 crore growing 69%. Note it is unclear what Axis Bank means by mobile banking – does mobile banking refer to apps on smartphones, USSD transaction, it’s Lime wallet application?

Predictably, the number of transactions at ATMs fell significantly during the quarter. ATM transactions accounted for only 23% of the total mix while digital accounted for 58%.

Note that the demonetization also had an impact on some of the bank’s lending operations. Disbursements for agriculture and microfinance took a huge hit. It is worth remembering that Bandhan Bank stopped micro-credit disbursements during the period as customers in rural areas could not use the Rs 2,000 notes which were introduced. Disbursals for personal loans, loans against property and home loans also took a hit.

Interestingly, fee income at Axis Bank fell 4% YoY to Rs 1,805 crore in the quarter. However, the fee mix is more interesting to note as transaction banking and fees related to cards increased in the quarter. Transaction banking, which refers to a set of instruments and services that a bank offers to trading partners, accounted for 29% of the fee income during the quarter while it stood at 20% in the same quarter last year. Fees related to cards accounted for 17% during the quarter while it accounted for 14% Q3FY16.

Download: Press release and presentation

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