Mumbai: Axis Bank Ltd, India’s third largest private sector bank by assets, posted a better-than-expected 22% rise in net profit as interest and other income increased.
Profit rose to Rs.1,409 crore or Rs.29.94 per share in the April-June period, from Rs.1,154 crore or Rs.27.73 per share in the year ago. Profit exceeded a Bloomberg estimate of Rs.1,392 crore.
Net interest income (NII), or the difference between interest earned and interest expended, rose 31% to Rs.2,865 crore from Rs.2,180 crore.
Other income, which includes trading gains and fees and commissions, increased 33% to Rs.1,781 crore from Rs.1,336 crore, mainly because trading profit tripled year-on-year to Rs.440 crore.
The rise in profit was despite a near threefold increase in provisions to Rs.712 crore from Rs.259 crore. The bank had to provide Rs.572 crore on account of rising non-performing assets (NPAs), said executive director and head of corporate centre Somnath Sengupta. Gross NPAs increased to 1.10% of total loans, from 1.06% last year.
“We have done well despite challenging conditions. NII increase, costs were kept down and credit quality was in check. All in all, it was satisfactory,” Sengupta told reporters in a conference call.
In a note after the results, Rikesh Parikh, vice-president, equities, Motilal Oswal Securities Ltd, said NII growth was also “on back of benefits accruing from fund-raising done in the last quarter”.
Parikh added, “NII growth and other income compensated for higher provisions. However, corporate fees remain subdued; the bank maintained gross NPA at 1.1%, indicating assets quality is maintained.”
Axis Bank’s net interest margin (NIM)—or the difference between interest earned on loans and that spent on deposits—improved to 3.86% from 3.70% in March 2013, supported by a Rs.5,537 crore share sale in January as it reduced the cost of funds for the lender.
Sengupta, however, said NIM will “trend down” as the bank uses up the funds generated from the share sale. “We expect NIM to be in the 3.25-3.50% range for the rest of the year,” he said.
Axis Bank’s advances grew 16%—led by a 40% year-on-year rise in retail loans such as mortgages—and higher than the 13.7% growth seen by the banking system. Sengupta said the bank expects to grow “at premium to the banking system” this fiscal.
Smaller peer Kotak Mahindra Bank Ltd’s stand-alone net profit rose 43% to Rs.404 crore in the quarter ended June, mainly as other income such as fees and commissions increased 92% to Rs.462 crore.
Net profit was still lower than the Rs.475 crore that analysts had estimated, according to a Bloomberg poll of six brokerages, but despite a jump in provisions to cover for an increase in non-performing assets (NPAs), or bad loans. Provisions increased five times to Rs.169 crore from Rs.34 crore in the quarter ended June last year.
Net NPAs increased to 1.95% of total loans from 1.6% a year ago. Joint managing director Dipak Gupta said provisions also increased as the bank had to provide for stressed assets acquired during the quarter as well as investments.
On a consolidated basis, net profit rose 46% to Rs.627 crore from Rs.443 crore last year. Net NPAs increased to Rs.546 crore from Rs.375 crore.
Gupta said he expects the bank’s credit growth to slow to 15% in fiscal 2014 from 25% in 2013. “So far, there has been no impact on the consumer book because job losses are not as much as in 2008 and the importance of credit bureaus has increased. But if growth slows, there could be an impact,” he said.
Daljeet Singh Kohli, head of research at India Nivesh Securities Ltd, said though the bank had done well in the quarter gone by, it will face headwinds in the short-term as the cost of funds is likely to rise following Reserve Bank of India measures to increase bank borrowing costs.
“Kotak is one bank which is likely to be affected because it depends on wholesale deposits for funding,” Kohli said.
However, Kotak Mahindra chief financial officer Jaimin Bhatt said the bank will adjust its cost of funds by liquidating some short-term treasury bills, the price of which haven’t fallen as much as long-term government bonds.
On Thursday, Kotak Mahindra shares ended at Rs.711 apiece on BSE, up 0.05% from the previous close while Axis Bank shares rose 3.83% to Rs.1,238 a piece. The benchmark 30-share Sensex rose 0.9% to 20,128.41 points, while the 14-share Bankex rose 2.04% to 12,779.17 points.