Third-largest private sector lender by assets Axis Bank reported a 16.07% drop in net profit for the quarter ended June 30, 2017, on the back of higher provisions for its non-performing assets (NPAs) and higher provisions for select sectors.
The gross slippages during the quarter were Rs 3,519 crore, of which Rs 2,317 crore came from the corporate book and the remaining from the retail loans, including agricultural loans. However, gross slippages of the bank declined by 27% over the preceding quarter.
Provisions and contingencies rose 10.62% to Rs 2,341.93 crore in the quarter from Rs 2,117.17 crore a year ago. From the previous quarter's Rs 2,581.25 crore, they declined 9.27%.
Jairam Sridharan, chief financial officer of the bank, said in a media concall, "We have increased our standard asset provisions higher than the regulatory requirements from 0.4% to 1% as a matter of caution. The sectors where the bank still has some pain are the power sector exposure which is Rs 20,000 crore, of which only Rs 5,500 crore is accounted for in the watch list. The other sectors are construction and iron and steel."
The stock closed 1.94% higher at Rs 544.65 on the BSE.
Darpin Shah, senior vice president, institutional research, HDFC Securities, told DNA Money, "Net retail slippages were Rs 758 crore which were seasonal in nature and also had an effect from the farm loan waivers. The net SME slippage was at Rs 2,280 crore and the corporate slippages were at Rs 2,320 crore mainly from iron and steel, infra construction and power. Working capital loans grew at over 23%, thus suggesting de-growth in the term loans.
Management expects corporate loan growth to trace back to double-digits over the course of the year.
Total advances of the bank grew slower than its private sector peers, rising 11.76% from a year ago to Rs 3.85 lakh crore driven mostly by credit cards which grew at a life-time high of 75% and personal loans that grew 55% over the previous year. The corporate demand came from working capital demand from companies and is expected to stay that way for a few more quarters.
Net interest income, which is the difference between interest earned and interest expended, grew by 2.2% to Rs 4,616.14 crore over the previous year. The global net interest margin (NIM) declined to 3.63% from 3.83% in the preceding quarter and the domestic NIM was down 3.85%, largely due to the drop in lending rates.
"Axis Bank reported relatively higher growth in bottomline in 1QFY18 led by the strong growth in other income along with lower provision expenses. On asset quality front, the bank delivered impressive performance led by the 27% sequential decline in fresh slippages and decline in watch list account outstanding. Further, bank will continue to maintain provision coverage ratio including technical written off account at 65%, which will help it to sail through current challenging environment. We believe that the bank will continue to witness higher credit cost, which will keep its earning profile and return ratio subdued over next 4-6 quarters," Asutosh Kumar Mishra - senior research analyst, Reliance Securities said in a report.
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