Axis Bank disappoints as Net slips 1%, warns of more pain inQ1

Axis Bank, the third largest private sector lender, today negatively surprised the markets with a 1 per cent drop in March quarter profit at Rs 2,154 crore on higher provisions and it proactively set aside money in a buffer expecting a deterioration in asset quality in future.
For the full year, the Shikha Sharma-led bank reported a post-tax net profit of Rs 8,349 crore, up 12 per cent.
"Our asset quality was stable compared to the preceding quarter, but we have an outlook of elevated stress...The threats remain elevated," Chief Financial Officer Jairam Sridharan told reporters on a call.
The bank guided toward a further pressure from the credit costs basis, expecting it to go up to even 1.50 per cent in a worst case scenario and 1.25 per cent conservatively from 1.11 per cent in 2015-16, which saw the asset quality review by the Reserve Bank that led to a spurt in reporting of asset quality stress being reported by banks across the system.

To cover up for future stress, the bank set aside Rs 300 crore into a countercyclical buffer taking the overall contingency assets provisions to Rs 480 crore, which had been used up in the last two quarters.
Net interest income was up 20 per cent at Rs 4,553 crore, driven primarily by a retail fuelled credit growth of 21 per cent and also an expansion in net interest margin to 3.97 per cent from the 3.80 per cent in the year ago period.

Sridharan said the other income grew only marginally to Rs 2,694 crore and explained that last year there were higher gains from treasury operations which had lifted the other income line.

Retail credit grew 24 per cent to now form 40 per cent of the overall advances, he said, adding that unsecured products like personal loans and credit cards was one of the biggest reasons for the strong retail performance.
On the asset quality front, the bank witnessed fresh slippages of Rs 1,474 crore as against the Rs 2,082 crore in Q3, when it recognised maximum stress owing to the RBI mandated asset quality review.
Total slippages in 2015-16 touched Rs 7,345 crore, but the bank management declined to give a guidance on the same in 2016-17. The gross NPA ratio was almost stable at 1.68 per cent, while during the quarter, it sold assets of Rs 349 crore to asset reconstruction companies for Rs 110 crore.

In a note, brokerage Emkay Global said the numbers are below its estimate, primarily due to lower other income and higher operating expenses and higher prudential provisions.
The share of the low-cost current and saving account
deposits was at 47 per cent as of end March, Sridharan said.
When asked about impact of new rate setting methodology based on marginal cost of funds, (MCLR) he said it is not possible to maintain the NIMs at high levels and the introduction of the MCLR will see a dip in the NIMs in 2016-17.
The bank had four cases going under the SDR with underlying assets of Rs 205 crore, while one asset with an exposure of Rs 170 crore was recast under the 5/25 scheme.

The overall provisions were up at Rs 1,168 crore as against Rs 709 crore in the year-ago period.
Even though the bank has proactively taken the hit in NPAs in the December quarter, there was no provision write-back because of the RBI move to take out 20 accounts from the AQR list, Sridharan said.
Over the next two years, he said corporate loans of over Rs 22,000 crore accounting for 4 per cent of its overall loan book need to be monitored closely as they are displaying different kinds of stress at present, he added.
Sridharan said while the operating environment in the fourth quarter remained tough, there was some signs of term-loan demand revival from PSUs, but private capex will have to wait till next fiscal.

It set aside Rs 105 crore for the possible losses arising from the Punjab food stock scam in the reporting quarter, and expects to provide a similar amount in the first quarter of the ongoing year as well.
Its overall capital adequacy was at 15.29 per cent as of March and Sridharan said there are no plans of a capital infusion.
The Axis Bank counter closed over 2.2 per cent up at Rs 480.45 on the BSE whose benchmark rallied 1.3 per cent on global cues.