Axis Bank Q3 Results: Muted Performance But Profit Meets Estimate

A sharp rise in provisions and slightly higher bad loans has caused Axis Bank Ltd. to report muted results for the quarter ended December.

However, the higher net interest income helped the bank's net profit to rise 4% year-on-year in the third quarter of the current financial year to Rs 6,304 crore, which is in line with the consensus estimate of Rs 6,297 crore of analysts tracked by Bloomberg.

The net interest income grew 9% to Rs 13,606 crore. The net interest margin contracted to 3.93% from 3.99% a quarter ago and 4.01% a year ago. While the bank did not provide an outlook on margin, Chief Financial Officer Puneet Sharma said the drop in margin was broadly due to higher credit cost and higher liquidity coverage ratio.

"Our through cycle guidance on margins is 3.8% and we are committed to defend this target and believe that we will comfortably maintain this in the current macro environment," Sharma said.

Provisions and contingencies of the bank were Rs 2,156 crore against Rs 1,028 crore a year ago and Rs 2,204 crore a quarter ago.

Axis Bank's asset quality slipped marginally, with the gross non-performing assets ratio rising to 1.46% as of Dec. 31, compared to 1.44% in the previous quarter. The net NPA ratio also rose slightly to 0.35% from 0.34% in the prior quarter.

"We don't think that there is a material jump in provisions and we don't see much volatility in this figure. Most provisions are toward the retail unsecured loans and we have taken corrective action toward this segment," Sharma said.

The bank's gross slippages during the quarter stood at 2.13% as against 1.78% a quarter ago and 1.62% a year ago. Upgrades and recoveries were at Rs 1,915 crore as against Rs 2,069 crore sequentially and Rs 2,598 crore a year ago.

On slippages, Sharma said that the third quarter is seasonally heavy due to the agriculture segment. Retail segment accounted for Rs 4,923 crore to the bank's gross slippages, followed by wholesale at Rs 294 crore and Rs 215 crore in the small and medium enterprises.

About 29% of gross slippages during the quarter were due to linked accounts, or accounts which were upgraded during the quarter, Sharma said. Linked accounts are those where only one loan product such as credit cards would have seen a default, but all exposures such as home or car loans were downgraded to the NPA.

Write-offs also remained high during the December quarter at Rs 3,133 crore, up from Rs 3,119 crore a quarter ago. Therefore, net credit cost for the bank rose to 0.80%, as against 0.54% a quarter ago and 0.28% a year ago.

Axis Bank's total advances rose 9% year-on-year to Rs 10.1 lakh crore.

Retail loans grew 11% to Rs 6.05 lakh crore and accounted for 60% of the net advances of the bank. Home loans grew 3% on year, personal loans rose 19% and credit card advances grew 8%

The bank witnessed increased risks in certain retail segments, which has largely been pan-market and not only for Axis Bank.

There is a certain overleveraging that is happening in the system currently but the bank has taken corrective action, such as raising income cut-offs, orienting acquisition to certain set of customers and reviewing the leverage of customers, Group Executive-Retail Lending Arjun Chowdhry said.

Corporate loan book grew 4%, while domestic corporate book grew 3%. Mid-corporate book grew 15%. 90% of the bank's corporate book is now rated A- and above.

Total deposits also grew 9% on year to Rs 10.95 lakh crore. Term deposits rose 14% from last year to Rs 6.63 lakh crore, while Current Account Savings Account deposits accounted for 39% of the deposit portfolio, compared with 42% a year ago.