The bank continues to grow aggressively and its loan book remains clean.
The Street’s delighted with Axis Bank’s results for the September 2008 quarter—the stock was up 20 per cent on Monday. But, it’s a little surprising that the bank’s choosing to grow its loan book so aggressively—54 per cent y-o-y in the quarter, albeit on a small base, at a time when the environment is somewhat challenging. It’s not that the bank’s credit deposit ratio is very high at 67 per cent ---it was around 70 per cent at this time last year on a smaller base.
Even if the management is confident it will maintain the quality of credit, the current credit environment isn’t too conducive to lending and smaller companies are that much more vulnerable. To its credit, Axis Bank’s portfolio is still relatively clean: net non-performing loans (npls) have risen by about 20 per cent sequentially though, as a share of customer assets, they are marginally lower at 0.43 per cent. Also, provisions are lower at Rs 256 crore compared with Rs 297 crore in the June quarter ; the bank appears to have taken care of mark-to-market losses from forex derivatives.
The numbers for Q2FY09 are very good: the bank has lent more to both the retail space–up 55 per cent as also to small and medium enterprises---up 68 per cent. What’s more it has lent at better rates and that has pushed up the yield on advances to 10.9 per cent, up 60 basis points sequentially. Since the cost of funds hasn’t gone up too much—just 12 basis points—the net interest margin has risen to 3.5 per cent, up 16 basis points. More loans to the retail segment have also resulted in higher fees and fee income has grown a stunning 91 per cent y-o-y. With total expenses up just 48 per cent, the bank has managed to grow the operating profit by 89 per cent to Rs 874 crore.
Axis Bank’s Tier I capital adequacy ratio now stands at a much lower 9.2 per cent, down from 13 per cent a year back, though it may manage not to raise more capital before FY11. At the current price of Rs 663, the stock trades at around 2.5 times estimated FY 09 book value.
