Considering a higher base, loan disbursals may not grow at the pace the bank has been used to in the last five years.
However, with a pick-up expected in the third and fourth quarters the bank should see an improvement to 20 per cent from 18 per cent in the first half of 2009-10. The capital raising plans worth around Rs 3,900 crore not only shored up the bank's networth but also indicates its willingness to grow its balance sheet further. For the future also, Axis Bank is expected to outgrow the industry, given that it aims to grow its loan-book by about 25 per cent and further has plans to step up lending to the infrastructure segment through its non-banking financial subsidiary.
Lending might have slowed down; however a decrease in the cost of funds is boosting the margins. As deposit rates corrected nearly 300 to 350 bps from its peak levels, the net interest margins stand at 3.52 per cent, representing an increase of 18 bps sequentially. During the quarter, the bank added 55 branches to its existing network of 860, boosting its low cost deposits which added to margins.
Earlier analysts were concerned about the potential rise in the bank's non-performing loans in view of the weak economic environment and aggressive lending undertaken in the past. However, the gross non performing loans stood at 1.21 per cent, an increase of only 30 bps year-on-year, aided by RBI guidelines to some extent. Nevertheless, restructuring loans does not hide; it grew to 3.77 per cent of gross customer assets. The management feels that this ratio could increase to 4 per cent in the subsequent quarters, suggesting that downside is limited in terms of asset quality.
At 1,012.75, the bank is trading at 2.25 times its 2011E book; it’s cheaper than peers like HDFC Bank but looks fairly priced, with no major upsides.