Axis Bank’s Q3 Profit Misses Estimates, Asset Quality Improves

Axis Bank Ltd.'s profit missed analysts estimates in the October-December quarter. The private lender’s asset quality improved, even as it reported slippages worth Rs 4,430 crore in the quarter.

Net profit rose 25 percent to Rs 726 crore compared to the year-ago period, the private lender said in an exchange filing. This was lower than the Rs 818 crore consensus estimate of analysts tracked by Bloomberg.

The core income of the lender, or the net interest income, rose 9.2 percent to Rs 4,732 crore, higher than the Rs 4,695 crore consensus estimate. This was the fifth straight quarter of single-digit NII growth for the lender.

Axis Bank's asset quality improved, with gross non-performing asset ratio dipping to 5.28 percent from 5.9 percent in the quarter-ended September and net bad loan ratio falling to 2.56 percent from 3.12 percent. Provisions for bad loans fell 10.5 percent to Rs 2,811 crore.

The Shikha Sharma-led lender reported new slippages worth Rs 4,430 crore in the quarter. Provision coverage including prudential write-offs, increased to 66 percent from 60 percent as on Sept. 30.

Exposure To IBC Accounts

The bank's total exposure to stressed accounts undergoing resolution under the Insolvency and Bankruptcy Code, stood at Rs 6,074 crore as of Dec. 31, the company said in the press release accompanying the earnings filing. It made an incremental provision of Rs 237 crore against these accounts in the three months ended December. With this, Axis Bank has provided for 68 percent of its exposure to IBC accounts.

“In our case, I believe that the recognition phase of the (asset quality recovery) cycle is drawing to a close, there is still some more to be done, particularly in the power sector. So you will continue to see some pressure from that sector,” Jairam Sridharan , chief financial officer of the bank told BloombergQuint. The bank is in an early stage of resolution and recovery. As the cases come to a close at the National Company Law Tribunal in the latter part of this quarter and the early part of the next quarter, the next round of big ticket resolution recovery will begin to come up, he added.

During the quarter, the lender recovered a substantial amount in cash from an account in the information technology sector and also upgraded one account from the steel sector. These two accounts were part of the nine reclassified as NPA by Axis Bank in the previous quarter, the release said.

Other Highlights

• Net interest margin stood at 3.48 percent.
• Recoveries and upgrades stood at Rs 4,008 crore, while write-offs during the quarter came in at Rs 2,822 crore.
• Bank’s watch list declined 12 percent quarter-on-quarter to Rs 5,309 crore.
• Corporate slippages stood at Rs 2,980 crores and 93 percent of it came from low rated BB & below accounts.
• Capital adequacy ratio stood at 17.5 percent as on Dec. 31.
• Net advances grew 21 percent year-on-year
• Retail loan book grew 29 percent while SME book grew 27 percent, year-on-year.
• Current and saving account deposits grew 21 percent year-on-year

Guidance

Axis Bank said it has retained its credit cost guidance for fiscal 2018 in the range of 220-260 basis points. The credit cost for the third quarter and first nine months of this fiscal was 233 bps and 250 bps, respectively, the lender said in its press release. It expects to maintain the provision coverage ratio in the 60-65 range.

“We think the credit costs should come down to long term averages by the second half of fiscal 2019,” said Sridharan. The long term average of the Axis Bank has been about 100 basis points of the credit cost. In this quarter, the bank was about 233 basis points of credit cost annualised and that should get down on a run rate basis to about 100 crores in the second half of this year, he said.

Axis Bank's shares rose as much as 4.4 percent to Rs 616.2 apiece after the earnings announcement. The stock has risen over 30 percent in the last 12 months compared to the 42.9 percent increase in the NSE Nifty Bank Index.