 "Axis Bank: Retail biz shines in Q1")
Several factors have come together to boost Axis Bank's first quarter report card. The bank has reported very strong growth in its retail business, on the liability side as well as the asset side. Two factors have driven the bank's bottom line in the first quarter (Q1) - higher net interest margins and treasury gains. Like its peers, Axis Bank, too, reported a healthy 33 per cent year-on-year (y-o-y) growth in trading profit and other income grew to Rs 1,781 crore in Q1.
What has come as a surprise is the sequential improvement in margins. Analysts say the bank has shed some of the high-cost deposits, which has helped improve net interest margins by 16 basis points sequentially and 50 basis points annually to 3.86 per cent in Q1. However, margins will settle between 3.25-3.5 per cent as capital is deployed, the management says. Improvement in margins has helped the bank report a 31 per cent, y-o-y, jump in net interest income or NII (eight per cent quarter-on-quarter) to Rs 2,870 crore. Although loan growth has been one per cent, sequentially, interest income has grown eight per cent primarily due to bunching up of loans in the fourth quarter of FY13. According to Emkay Global, the NII beat was largely driven by higher net interest margin at 3.4 per cent as loan/deposit ratio expanded by 500 basis points to 83 per cent.
Axis Bank has reported a very healthy growth in its retail business - loans and deposits. While retail loans have grown by 40 per cent year-on-year in the first quarter and now account for 29 per cent of net advances, retail term deposits and current and savings account deposits for 69 per cent of overall deposits. The bank's high exposure to the corporate clients has always been a concern, but the bank seems to have addressed this issue effectively. Dinesh Shukla of Sharekhan believes that since a large part of the retail loans are secured loans, the risk is not high for this portfolio. For instance, loans against property account for eight per cent of the retrial loan book.
On asset quality, the bank seems to have maintained the headline figures sequentially. While its gross non-performing assets increased by just four per cent sequentially to 1.1 per cent, net non-performing assets increased by a higher 12.2 per cent to 0.35 per cent. During the quarter the bank has restructured assets worth Rs 686 crore and upgraded and recovered Rs 72 crore. Slippages stood at Rs 681 crore. Of the Rs 47,000 crore loans that were restructured in Q1, some of these accounts could also from Axis Bank's portfolio, believe analysts.
What has come as a surprise is the sequential improvement in margins. Analysts say the bank has shed some of the high-cost deposits, which has helped improve net interest margins by 16 basis points sequentially and 50 basis points annually to 3.86 per cent in Q1. However, margins will settle between 3.25-3.5 per cent as capital is deployed, the management says. Improvement in margins has helped the bank report a 31 per cent, y-o-y, jump in net interest income or NII (eight per cent quarter-on-quarter) to Rs 2,870 crore. Although loan growth has been one per cent, sequentially, interest income has grown eight per cent primarily due to bunching up of loans in the fourth quarter of FY13. According to Emkay Global, the NII beat was largely driven by higher net interest margin at 3.4 per cent as loan/deposit ratio expanded by 500 basis points to 83 per cent.
Axis Bank has reported a very healthy growth in its retail business - loans and deposits. While retail loans have grown by 40 per cent year-on-year in the first quarter and now account for 29 per cent of net advances, retail term deposits and current and savings account deposits for 69 per cent of overall deposits. The bank's high exposure to the corporate clients has always been a concern, but the bank seems to have addressed this issue effectively. Dinesh Shukla of Sharekhan believes that since a large part of the retail loans are secured loans, the risk is not high for this portfolio. For instance, loans against property account for eight per cent of the retrial loan book.
On asset quality, the bank seems to have maintained the headline figures sequentially. While its gross non-performing assets increased by just four per cent sequentially to 1.1 per cent, net non-performing assets increased by a higher 12.2 per cent to 0.35 per cent. During the quarter the bank has restructured assets worth Rs 686 crore and upgraded and recovered Rs 72 crore. Slippages stood at Rs 681 crore. Of the Rs 47,000 crore loans that were restructured in Q1, some of these accounts could also from Axis Bank's portfolio, believe analysts.