 "V Srinivasan")
Axis Bank's June 2016 quarter earnings were dented by higher provisions as well as operating expenses. Going forward,the bank's management believes operating expense would be higher than that in FY16 even as it expects a large part of incremental bad loans from the watch list to accrue in the first half of this financial year. V Srinivasan, deputy managing director, Axis Bank, talks to Sheetal Agarwal about the bank's performance in the quarter gone by and the road ahead. Edited excerpt
Against the Street's expectations of a flattish net profit, the bank witnessed a sharp fall in the same. What went wrong?
Higher provisions as well as higher operating expenses impacted our bottom line in the quarter. The increase in operating expenses was primarily on account of investments in new branches. So, the cost of infrastructure as well as additional people was higher in the quarter. While operating expenses should soften a bit from here on, they will be higher when compared to FY16.
We should look at two aspects of our quarterly results. One is the operating performance, the second is in terms of bottom line. Bottom line performance has been affected by higher credit costs. But, we continue to do well on the operating level. We have gained market share in both deposits and loans in the June quarter.
In addition to the watch list, the bank is witnessing stress in healthcare and education sectors. Could we see further stress from outside the watch list in the coming quarters?
I would like to clarify that 92 per cent of corporate slippages came from exposures in the watch list. The slippages in the first quarter from sectors such as healthcare, education were also part of the watch list. Going forward, too, we expect that the bulk of the slippages would be from exposures in the watch list.
Q1 saw the watch list fall by 10 per cent. Will slippages from the watch list be similar in Q2, or will those be higher?
We expect about 60 per cent of the watch list exposures to slip through this financial year and the next. We had stated earlier that the slippages could be higher in the first couple of quarters of FY17. We reiterate that guidance.
The bank's net interest margin (NIM) contracted in the June quarter and it is likely to be lower in FY17 as well. What are the reasons?
We had earlier stated that our NIM for FY17 would be above 3.6 per cent and we reiterate that expectation. There was a marginal dip in NIM in Q1, which was on account of the higher amount of slippages.
Your credit costs stood high at 190 basis points in Q1. What is the outlook on credit costs for the full year?
We are maintaining our credit costs guidance of 125-150 basis points in FY17.
What has driven the strong growth in corporate loans in the quarter?
A large part of incremental corporate loans are towards working capital needs. Strong growth in corporate loans is also driven to a large extent by refinance loans. While SME (small and medium enterprises) loan growth has been good, bulk of the incremental lending is to companies which have credit rating of A and above.
In Q1, the number of your corporate borrowers having credit rating of below BBB/unrated increased. Please explain.
Eighty-two per cent of our incremental lending is to companies enjoying credit rating of A and above. The increase in sub-BBB rated segment is because we did a rating review of accounts in our watch list and a lot of companies in BBB have come down to below BBB. Beyond that, the ratings profile has remained largely stable.
What is your loan growth guidance for FY17?
We believe we can achieve 18-20 per cent loan growth in FY17. While the retail segment will grow the strongest at about 25 per cent, corporate and SME segment will also do well.
Are you witnessing signs of an uptick in private capex in select industries, if not all?
Private capex investment continues to stay muted as of now. We expect some pickup in the later part of FY17.
