Strong Quarter For Axis Bank As Asset Quality Shows Signs Of Stability
The lender’s net profit in the fourth quarter fell 43.1 percent to Rs 1,225.1 crore.
Fourth quarter earnings from Axis Bank Ltd beat market expectations and showed early signs of stability returning to the asset quality on the bank’s books.
The lender reported a net profit of Rs 1,225.1 crore for the January-March quarter of the financial year 2016-17, a 43.1 percent decline compared to a year ago, according to a stock exchange filing. The consensus of analyst estimates had pegged the profit at Rs 873 crore.
Asset quality indicators for the bank improved during the quarter.
The ratio of gross non-performing assets (NPAs) to total assets fell by 18 basis points sequentially to 5.04 percent. The net NPA ratio also declined to 2.11 percent compared to 2.18 percent in the previous quarter. In absolute terms, the bank reported the lowest addition to gross bad loans in at least the last four quarters.
Three factors contributed to this. First, gross NPAs rose 4 percent to Rs 21,280.5 crore. Gross slippages, or fresh additions to bad loans during the quarter stood at Rs 4,811 crore, lower than the peak level seen in the second quarter of the financial year 2016-17.
Second, bad loans worth Rs 2,804 crore were recovered or upgraded to standard during the quarter, and another Rs 1,194 crore were written off.
Third, the bank sold stressed assets worth Rs 2,354 crore to asset reconstruction companies for Rs 1,686 crore, it said in a separate media statement. The book value of these assets was Rs 1,828 crore.
The bank continues to try and tackle a watch list of stressed loans worth Rs 9,436 crore, which would be completely wound down by the end of the current financial year, the management told reporters in a conference call.
The Watch List - In Transit
The fourth quarter was characterised by a wide split between gross and net slippages. Explaining this anomaly, the bank’s chief financial officer Jairam Sridharan said a large cement account, worth Rs 1,660 crore, which was in the watch list, first slipped into the NPA segment and was later recovered and regularised.
As a result, the net addition to non-performing assets was Rs 2,008 crore.
When the account became a bad loan, the bank made a loan loss provision of Rs 415 crore, or 25 percent of the loan outstanding. However, when it was upgraded to standard, the bank did not write back the higher provision, Sridharan added.
The loan has been retained on the watch list, he said.
As on March 31, 2017, as much as 58 percent of the watch list has slipped into NPA. The bank had, at the start of financial year 2016-17, guided that 60 percent of the watch list of Rs 22,600 crore would turn bad. They, however, changed this guidance in the second quarter, when bad loans spiked. At the time, they said that the slippages from the watch list would be materially higher than previously guided.
The bank’s management on Wednesday refused to give a guidance on asset quality in the current financial year, but said that credit cost would be lower than the peak seen in 2016-17.
For the full year, the bank had a credit cost of 2.82 percentage points, much higher than its 15-year average of 94 basis points. This was on account of the significant increase in bad loans and the subsequent provisioning that was required.
Sridharan said that while the bank would not go back to its average in the current financial year, it would likely be in the range of 175-225 basis points.
Operationally, the quarter reflected weakness in the overall banking industry where credit demand has been sluggish.
Net income from interest in the January-March quarter went up 3.9 percent to Rs 4,728.6 crore, higher than the Rs 4,605.6 crore expected by the consensus of analysts. The bank’s net interest margin contracted 14 basis points to 3.83 percent.
However, the margin expanded by 40 basis points on a sequential basis, primarily on account of the improvement in asset quality, said Sridharan. A good portion of the expansion, he added, was on account of writing back interest reversals that were taken over the course of the previous two quarters when loans went bad.
Advances grew 10 percent year-on-year, led by retail loans which grew 21 percent. Retail advances now make up 45 percent of the net advances at the bank, reflecting a slight shift away from corporate loans.
Deposits, particularly, low cost current account and savings account (CASA) deposits grew strongly due to the impact of demonetisation. CASA deposits grew 26 percent on a year-on-year basis.
