For the fifth quarter in a row, assets quality pressures continued to hurt the third largest private sector lender Axis Bank, which today reported a 16 per cent dip in the June quarter net at Rs 1,306 crore, but guided towards better days going forward.
Chief financial officer of the city-based lender Jairam Sridharan said the bank has been able to some extent arrest profit declines in the past few quarters since it started recognising the pain and the percentages of slippages have improved from a negative 80 per cent to 16 per cent now.
"I feel good about the turnaround gathering strength and about our ability to breakout in the coming quarter...Next quarter," he told reporters over a concall.
The bank's gross NPA ratio stayed flat at 5.04 per cent -- which Sridharan hoped as the peak -- after fresh slippages of Rs 3,519 crore during the quarter, while provisions, which had been ballooning since the bank started recognising asset quality stress, increased 10 per cent to Rs 2,341 crore.
He said credit costs have come in at 1.95 per cent on an annualised basis and exuded confidence of meeting the guidance of keeping them between 1.75 and 2.25 per cent and even lowering the guidance if a similar performance continues.
The specially created watchlist of bad loans narrowed down to Rs 7,941 crore from a peak of Rs 37,000 crore in the March 2016 quarter after the RBI mandated AQR and contributed only a third of the Rs 2,371-crore corporate slippages.
As the number in the watchlist narrows, the share of such assets in fresh slippages will keep coming down, Sridharan said, adding the watchlist has contributed over 80 per cent of the slippages since it was created.
It took an additional hit of Rs 184 crore by setting aside 1 per cent for standard assets in its Rs 30,000-crore exposure to the stressed power, infra, construction, iron and steel, and telecom sectors. It, however, did not touch the floating provision of Rs 260 crore created earlier, he said.
Just like its bigger rival HDFC Bank, Axis also witnessed pain on its farm loan exposure with loan repayments in the states where such waivers were announced getting affected, he said, adding retail slippages have doubled to Rs 758 crore due to this.
He said the bank will be cautious in Maharashtra, Punjab, Karnataka, UP and Tamil Nadu - the five states that announced the farm loan waivers topping Rs 1 trillion.
He hinted the bank will have to set aside around Rs 500 crore over the next three quarters on account of its exposure to the 12 largest default accounts mandated by the RBI to be resolved under the provisions of insolvency code.
The core net interest income grew 2 per cent to Rs 4,616 crore on a 12 per cent advances growth that included 22 per cent jump in retail advances while the corporate loan growth was muted at 3 per cent.
Sridharan said retail loans now constitute 46 per cent of the loan book but declined to give a target on the same.
Other income grew 10 per cent to Rs 3,000 crore, helped by a rise in core fees and commissions. Despite a surge in Casa deposits to 49 per cent, net interest margin declined 0.20 per cent to 3.63 per cent primarily due to higher NPAs and customer switch to the MCRL regime from the base rate.
He said they expect NIMs to narrow by 0.20 per cent on an annualised basis from 3.67 per cent a year ago due to this.
The lender is expecting to outgrow the system by 5-6 per cent on its credit growth in FY18, he said, adding there is no pick-up in private capex and demand is only for refinancing where the bank is picking up better rated companies.
On its exposure to SMEs, Sridharan said there was a 10 per cent growth which helped the bank achieve its priority sector lending obligations, but flagged some concerns on the GST in the short-term.
He denied media reports about its managing director Shikha Sharma joining Tata Sons as an "utterly false" speculation, but didn't deny last week's reports of the bank engaging an executive search firm to find a replacement for her. Sharma's third term comes to an end in next June.
Brokerage HDFC Securities said numbers beat estimates with a stable asset quality compared to the preceding March quarter. Axis scrips gained 1.94 per cent to Rs 544.65 on the BSE, which saw a 0.05 per cent decline.
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