 "An employee speaks on his mobile phone as he walks inside Axis Bank's corporate headquarters in Mumbai")
Axis Bank, the country’s third largest private sector lender, had its net profit falling one per cent to Rs 2,154 crore in the March quarter from the same period a year before, on account of increased provisioning. This is the first time after 46 quarters that the bank has reported a decline.
The FY16 net profit rose 12 per cent, to Rs 8,224 crore. The bank saw some pressure on asset quality, with gross non-performing assets (NPAs) increasing to 1.67 per cent of the total in the quarter, from 1.34 per cent a year before. Net NPA rose to 0.7 per cent, from 0.44 per cent.
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However, on a sequential basis, the asset quality was stable, with gross NPAs 1.68 per cent in the quarter ended December, and net NPAs 0.75 per cent. However, the management has said that bad loans are likely to continue to remain at an elevated level in the coming quarters. In FY16, there was slippage of Rs 7,345 crore, slightly higher than the Rs 7,000 crore it was expecting at the start of the financial year.
In the March quarter, Axis sold loans worth Rs 349 crore to asset reconstruction companies, for Rs 110 crore, of which Rs 25 crore was in cash. There has been Strategic Debt Restructuring in four accounts worth Rs 205 crore, mainly from the power and infrastructure sectors, and one account has been restructured under the 5/25 scheme.
With the increase in bad loans, provisioning jumped 64 per cent over the year, to Rs 1,168 crore. Of this, Rs 300 crore were contingency provisions and another Rs 105 crore with regard to the Punjab government for procurement of foodgrain.
“Though the asset quality has remained stable, the stress outlook remains elevated due to the challenging operating environment. The outlook remains cautious on stressed assets, as some of the increase we have seen this year will continue,” said Jairam Sridharan, chief financial officer, Axis Bank. For FY17 the management has given a credit cost of 125-150 basis points, as compared to 111 bps in FY16.
Net interest income, the difference between interest earned and expended, increased by 20 per cent to Rs 4,553 crore in the quarter. However, other income — fees, commissions, treasury gains, etc — declined to Rs 2,694 crore, from Rs 2,687 crore in the same period a year before.
Net interest margin, a key indicator of profitability, inched up to 3.97 per cent as the cost of funds softened slightly. Net advances grew 21 per cent, led by retail credit at 24 per cent and corporate book growth at 22 per cent.
Puts Rs 22,600 cr of loans on watch
Axis Bank has put loans worth Rs 22,600 crore under a watch list. Analysts say it is troublesome that the bank expects 60 per cent of the watch list accounts to fall into the non-performing assets category over the next eight quarters. It is also likely that a major portion of the slippages might be in the first two quarters of FY17.
Loans given to iron and steel and the power sector are the highest contributors to the watch list. Also there are loans to textiles, services, shipping and infrastructure sectors.
