Axis Bank Q1 profit falls 21.38% to Rs1,555.53 crore as provisions jump

Axis Bank posts a 21.38% decline in its June quarter earnings, missing estimates, as it set aside more money to provide for bad loans


Provisions and contingencies jumped 81.21% to <span class='WebRupee'>Rs.</span>2,117.17 crore in the June quarter from <span class='WebRupee'>Rs.</span>1,168.33 crore a quarter ago, while net NPAs stood at 1.08% compared with 0.7% in the previous quarter. Photo: Bloomberg
Provisions and contingencies jumped 81.21% to Rs.2,117.17 crore in the June quarter from Rs.1,168.33 crore a quarter ago, while net NPAs stood at 1.08% compared with 0.7% in the previous quarter. Photo: Bloomberg

Mumbai: In what is a testament to the worsening asset quality of large banks, Axis Bank Ltd on Friday reported a 21.4% drop in its net profit owing to higher provisions against bad loans.

The private sector lender missed analyst estimates and reported a net profit of Rs.1,555.53 crore as compared with Rs.1,978.44 crore a year ago.

According to 27 Bloomberg analysts, the bank was expected to post a net profit of Rs.2,010.70 crore.

Last December, the Reserve Bank of India (RBI) conducted an asset quality review across the banking sector, following which banks were asked to recognize visibly stressed assets as non-performing assets (NPAs). RBI also asked banks to make adequate provisions for the stressed assets. This has hit the profitability of some banks.

Following this, at the time of its March quarter results, Axis Bank had announced a watch list of Rs.22,628 crore worth of funded loans and non-funded exposure worth Rs.2,626 crore which were at risk of slipping into NPA category. The bank had predicted that about 60% of these loans would turn bad within a period of eight quarters.

In April-June, the funded exposure watch list shrank to Rs.20,295 crore and the non-funded exposure dropped to Rs.2,562 crore, as Rs.2,680 crore worth of loans slipped into NPA category. “This is pretty much following the script we had charted last year. We will stick to our guidance of a credit cost between 125-150 basis points (bps) during this financial year,” said Jairam Sridharan, chief financial officer, Axis Bank.

One basis point is one-hundredth of a percentage point.

During the quarter, Rs.2,911 crore worth of corporate loans slipped into NPA category, of which 92% were from the watch list. Total slippages during the quarter were reported at Rs.3,628 crore, Sridharan said.

Gross NPAs at Axis Bank rose 56.93% to Rs.9,553.17 crore at the end of the June quarter from Rs.6,087.51 crore in the March quarter. On a year-on-year basis, gross NPAs jumped 124.72% from Rs.4,251.18 crore. As a percentage of total loans, gross NPAs stood at 2.54% at the end of the June quarter as compared with 1.67% in the previous quarter, a growth of 87 bps.

Net NPAs were at 1.08% in the June quarter against 0.7% in the previous quarter and 0.48% in the same quarter last year. Provisions and contingencies jumped 81.21% to Rs.2,117.17 crore in the quarter from Rs.1,168.33 crore a quarter ago. On a year-on-year basis, they jumped 88.73% from Rs.1,121.77 crore.

According to Sridharan, the bank took provisions worth Rs.142 crore against loans where RBI’s asset quality review had prescribed additional provisioning of 10%. “The regulator had given four quarters to do this provisioning, but we have taken it at the beginning of the year,” Sridharan said.

The private sector lender has also provided Rs.51 crore against Punjab state government loans, along with Rs.71 crore against cases where strategic debt restructuring has been invoked.

Net interest income (NII), or the core income a bank earns by giving loans, rose 11.36% to Rs.4,516.92 crore in the June quarter from Rs.4,056.17 crore last year. Other income increased 19.15% to Rs.2,738.28 crore from Rs.2,298.27 crore in the same period last year. Of this, fee income for the quarter rose 11% from a year ago to Rs.1,719 crore.

The bank’s net interest margin fell to 3.79% during the first quarter, as compared with 3.97% in the January-March period.

Total advances as on 30 June were reported at Rs.3.45 trillion, up 21% from a year ago. Of this, retail advances grew 24% year-on-year to Rs.1.43 trillion and corporate advances rose 21% to Rs.1.58 trillion. Loans to small and medium enterprises rose 13% year-on-year to Rs.43,611 crore.

“Most additional corporate lending during the quarter has been due to refinancing of other banks’ loans. About 80% of loans that we refinanced were in cases where the corporate is rated A or above,” Sridharan said.

Axis Bank’s total deposits grew 16% from last year to Rs.3.58 trillion. Of this, current account-savings account deposits formed 43%. “While the asset quality seems to have deteriorated, the management has reiterated its stand that the maximum credit cost for FY17 would be 150 bps and this comes as a mild relief. While the bank looks confident, we believe the macro situation might result in a little more stress on the book in near term,” said Siddharth Purohit, senior banking analyst at Angel Broking in an e-mailed statement.

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