Mumbai: Axis Bank Ltd, India’s third-largest private sector bank, beat market estimates with a 35.88% increase in profit for the quarter ended December 2010, riding on a 28.46% rise in net interest income (NII) even though net interest margin (NIM) fell.
Profit rose to Rs891.36 crore from Rs655.98 crore in the year earlier. NIM, the difference between interest charged on loans and that paid on deposits, dropped to 3.81% from the year-ago 4%.
The average yield on advances fell to 9.26% from 9.92% even though the bank increased its prime lending rate (PLR) by 50 basis points (bps) and base rate by 25 bps during the quarter. One basis point is one-hundredth of a percentage point.
For technical reasons, Indian banks have two loan rates. The PLR, theoretically meant for the best customers of the bank, is still in vogue, even as the base rate, or the minimum lending rate, came into effect in July.
All fresh loans are linked to the base rate whereas older customers are serviced through PLR.
Somnath Sengupta, executive director and chief financial officer, said NIM may fall further in the quarter ending March.
“Going forward, the cost of funds is expected to increase as the liquidity situation is likely to remain tight with the advance tax outflows also due in March. We expect NIM to be lower next quarter at 3.4-3.6%,” he said at a post-results conference call.
The Axis Bank stock rose 2.18% to Rs1,227.55 on the Bombay Stock Exchange on Monday.
Rajiv Mehta, assistant vice-president, research, India private clients, India Infoline Ltd, said robust loan growth, higher fees and lower loan loss provisions contributed to the results. “The bank remains adequately capitalized for strong growth in the medium term. Our estimates and recommendation on the bank is under review at this point in time,” he said.
Advances grew 46% while deposits grew at a slower 36%. Fee income grew 21%.
“The advances growth is high this year because last year it was depressed at 12.5% as companies did not draw down on credit,” Sengupta said. “We expect it to be 28-30% for 2010-11, in line with deposit growth.”
Trading profit fell to Rs135 crore from Rs170 crore last year because the yield on government bonds increased, he said.
Net non-performing assets (NPAs) decreased to the lowest ever—0.29%—compared with 0.46% in December 2009.
Axis restructured Rs163 crore of loans during the quarter, 73% of which were from large and mid size corporates.