Mumbai: India’s third largest private sector lender, Axis Bank Ltd, on Friday posted a 33.37% jump in net profit in the fourth quarter, bolstered by growth in fees as well as interest income. The rising cost of funds squeezed its net interest margin (NIM) or the spread between interest earned from loans and that spent on deposits.
The lender posted a net profit of Rs1,020 crore during the quarter, up from Rs765 crore in the corresponding period last year on a total income of Rs5,817 crore that rose 48.3%.
Net profit for the fiscal year ended 31 March stood at Rs3,388 crore, up 35% from Rs2,515 crore in the previous fiscal.
In the fourth quarter, NIM slipped to 3.44% from 3.81% in the third quarter and 37 basis points (bps) down from the year-ago quarter.
One basis point is one hundredth of a percentage point.
The bank expects to maintain NIM at the current level, said Somnath Sengupta, executive director and chief financial officer.
“The rise in the cost of funds has impacted the NIM. We would like to maintain the NIM at 3.25-3.5% and would not like to go below this,” Sengupta told reporters on a conference call.
Another private sector lender Yes Bank Ltd also showed a drop in NIM to 2.8% from 3.2% last year amid a 45.2% rise in fourth-quarter net profit to Rs203.4 crore, buoyed by an increase in loan demand from companies and individuals. Yes announced earnings on Thursday.
“The contraction in NIM is slightly more than expected and the market was expecting a 20 bps reduction in Axis’ NIM due to the increase in the cost of funds,” said a banking analyst with a Mumbai brokerage. He did not want to be named as he’s not authorized to speak to the media.
Axis Bank’s net non-performing assets or NPAs as a percentage of its loan book, during the quarter, stood at 0.26% against 0.36% in the year-ago quarter.
“The improvement in NPAs is a good sign as moving ahead the industry expects the asset quality to deteriorate due to rising interest rate scenario and weakening industrial activities,” the analyst said.
On a year-on-year basis, the fee-based income of the bank rose 58% to Rs1,231 crore in the fourth quarter. The rise in fee-based income was largely from large and mid-corporate and treasury segments, Sengupta said.
During the quarter, net interest income stood at Rs1,701 crore, up 17% from the corresponding quarter in previous year.
Total advances in the quarter grew 36.48% year-on-year, from Rs1.04 trillion as on 31 March 2010, to Rs1.42 trillion as on 31 March 2011.
Deposits grew to Rs1.89 trillion from Rs1.41 trillion in the year-ago period.
The lender said it wants to grow its loan book faster than the industry. “We would like to grow at a higher rate than the industry. If the industry is growing at 19%, we would be growing 1.4 times that,” Sengupta said.
Sengupta said the bank is yet to take a call on the induction of Vallabh Bhansali, chairman of Enam Securities Pvt. Ltd, to the bank’s board.
Axis Bank announced that it will acquire the business for Rs2,070 crore on 17 November.
As part of the all-stock deal, Enam shareholders will get 5.7 shares of Axis Bank for every one Enam share they own, leaving them with a stake of 3.3% in Axis Bank’s expanded share capital. The plan is to fold the Enam units and Axis Bank’s own fledgeling investment bank unit into a wholly owned subsidiary.
Sengupta said Axis is yet to secure all necessary regulatory approvals to complete the process. “We have received an in-principle approval from the Reserve Bank of India but there are other approvals required. It might take a couple of months (to complete the acquisition).”
Anup Roy contributed to this story.