Axis Bank Q1 Results: Rise In Provisions, Bad Loans Weigh; Profit Misses Estimate

A rise in provisions and bad loans has weighed on Axis Bank Ltd.'s standalone net profit for the quarter ended June, according to an exchange filing on Thursday.

The private lender's bottom-line fell 4% year-on-year to Rs 5,806.14 crore during the quarter under review. Its lower than the expectations of Rs 6,375.77 crore of the analysts polled by Bloomberg. The bank's bottomline was Rs 7,117.5 crore a quarter ago.

Provisions and contingencies of the bank surged sharply by 94% year-on-year to Rs 3,947.66 crore. It was at Rs 1,359 crore in the prior quarter. Credit cost on an annualised basis for the quarter was at 1.38%.

Asset quality of the bank worsened during the quarter, with gross non-performing ratio rising to 1.57% as of June-end from 1.28% a quarter ago. Net NPA also rose to 0.45% from 0.33% in the March quarter.

The prudent application of technical parameters for recognising slippages and consequent upgrades impacted reported asset quality parameters, including provisions and contingencies for the quarter, the bank said in the press release.

The technical impact on profit was Rs 614 crore, return on assets was of 15 basis points and return on equities was 1.4%, it said.

Explaining this technical impact, Chief Financial Officer Puneet Sharma said post the earnings conference call that NPA classification happens on different parameters such as days-past-due criteria.

"If you give a customer one-time settlement, you follow the days-past-due criteria for downgrading the customer or you downgrade a customer as and when a one-settlement takes place. Classification can happen on any DPD parameters and on qualitative parameters. We have not changed DPD criteria because they are driven by regulation," he said.

Qualitative parameters are benchmarked on annual basis and the purpose of benchmarking is that the bank's balance sheet remains resilient and can withstand any credit cycle that comes its way, he explained.

Slippages Surge

Gross slippages of the bank rose to Rs 8,200 crore during the quarter, much higher than Rs 4,805 crore in the March quarter.

Of the total, Rs 7,500 crore came from the retail side, Rs 403 crore from the commercial banking segment and Rs 297 crore from the wholesale banking.

Excluding the technical impact, slippages would be at Rs 5,491 crore. Of this, 25% of the slippages come from the agriculture segment and 75% from unsecured segment, Chief Financial Officer Puneet Sharma said post the earnings conference call.

"If you taken the unusual impact of agri slippages during Q1 and Q3, I believe overall slippages are similar. Don't see any change in slippages and even credit cards' performance has stabilised," Managing Director and Chief Executive Officer Amitabh Chaudhry said.

The technical impact is largely restricted to cash credit and overdraft products, and one time settled accounts. The bank said that Rs 821 crore of provisions and contingencies debited to the profit and loss account is attributable to the technical impact. Provisions and contingencies adjusted for technical impact is of Rs 3,127 crore.

Muted growth in net interest income did little to lift the bank's earnings. It rose by merely 1% year-on-year to Rs 13,559.75 crore, lower than expectations of Rs 13,970 crore polled by Bloomberg.

Consequently, the private lender's net interest margin came in at 3.8%, in line with expectations by Bloomberg during April-June. It was 3.97% a quarter ago.

On a through cycle, the bank expects its NIM to remain around 3.80% levels and expect the full impact of 75 basis point rate cut to reflect in the second quarter.

Loan Book Grows

The lender's net advances rose 8% on-year to Rs 10.6 lakh crore. Retail loans grew 6% to Rs 6.22 lakh crore and accounted for 59% of the net advances. The share of secured retail loans was 72% and home loans comprised 27% of retail book.

Personal loans grew 5% on-year, whereas credit card advances grew 2% on-year.

Answering to a query on loan growth, Sharma said that the implementation of policy change is across loan portfolios.

He also added that the stress in its credit card portfolio is stabilising. The bank is witnessing encouraging early signs in personal loans and expect the stress to end by the conclusion of the first half of the current fiscal.

The bank's corporate loan book grew 9%, with domestic corporate loan book increasing by 11% and mid-corporate book by 24%. Around 90% of the bank's corporate book is now rated A- and above.

The bank's deposits during the quarter under review increased by 9% on-year to Rs 11.61 lakh crore. Term deposits rose 12% from last year to Rs 6.93 lakh crore, while current account and savings account deposits accounted for 40% of the deposit portfolio.