Mumbai: Helped by a 41% increase in net interest income and a higher proportion of low-cost deposits that kept funding costs down, India’s third largest private sector bank by assets Axis Bank Ltd on Thursday announced a 38% rise in net profit for the three months ended September.
Axis Bank’s net profit rose to Rs735.15 crore in the quarter, from Rs531.64 crore in the same period a year earlier, the bank said. Net interest income, which measures interest earned on loans minus the cost of deposits, rose to Rs1,615 crore from Rs1,150 crore in the same period.
A rise in current account and savings account (Casa) deposits contributed to the bank’s performance in the quarter. Banks don’t pay interest on current accounts and pay just 3.5% on savings accounts. For the September quarter, such accounts made up 41.55% of Axis Bank’s total deposit portfolio.
“Continuing increase in Casa helped us hold our cost of funds down, though it has increased to 5.41% versus 4.75% last year. Had Casa not improved, the rise would have been sharper,” said Somnath Sengupta, executive director and chief financial officer at Axis Bank.
Higher profits improved the bank’s earnings per share to Rs17.72 from Rs14.38 last year.
The bank’s shares rose to an all-time high of Rs1,608 before paring gains to end at Rs1,563, down 1.59% and in line with a 0.92% drop in the Bombay Stock Exchange’s benchmark Sensex. The bank announced its earnings during market hours.
The results were largely in line with analysts expectations. Any increase in the cost of funds could lower its margins in the coming quarters.
Laxmi Ahuja, senior analyst at Mumbai-based Marwadi Shares and Finance Ltd, said the repricing benefits Axis Bank had been deriving so far this year have ended, meaning it would have to pay more for funds in the remaining part of the year.
If that happens, its net interest margin (NIM) will narrow. The bank’s NIM, the difference between the interest charged on loans and that paid on deposits, was 3.68 percentage points in the September quarter—lower than the 3.71 percentage points in the first quarter, but higher than 3.52 percentage points in the corresponding quarter last year.
Axis Bank expects 26% credit growth this year. This is more than the 20% credit growth target for the banking industry, but less than its current growth trajectory. Year-on-year, its credit portfolio has grown 36% till September.
A mid-quarter loan rate hike had helped the bank sustain its interest margin, said Rajiv Mehta, assistant vice-president of research, India private clients, at securities house India Infoline Ltd.
The bank increased its benchmark lending rate to 15.25% from 14.75% in two tranches in August and September.
“Axis Bank is targeting a higher than system loan growth in current year and expects its NIM to witness a marginal correction in coming quarters. Expect material book value accretion for Axis Bank over the next two years and remain positive,” Mehta said in a note after the bank announced its earnings.
The bank’s fee income during the quarter rose 18% to Rs849 crore, but its trading profits fell 52% to Rs108 crore.
Sengupta blamed the fall on rising yields on government securities. “Rise in interest rates has increased the debt market yields with government bonds especially being volatile in nature,” he said.
Its investment portfolio is Rs61,942 crore and a bulk of this—Rs39,159 crore—is in government securities. When bond yields rise, banks are hit by mark-to-market (MTM) losses. MTM is an accounting practice of valuing an asset in accordance with its market price and not the price at which it was acquired.
Separately, Axis Bank chief executive officer Shikha Sharma said the bank isn’t looking for acquisitions to expand internationally, telling reporters in Shanghai, where the bank’s board met, that the lender’s focus would remain on the Indian market, Bloomberg reported.