Mumbai: Bouyed by a 70% growth in other income, Axis Bank Ltd reported a fiscal first quarter net profit of Rs330.14 crore, up 89% from Rs174.98 crore during the year-ago period.
The net profit was recorded after making a provision of Rs225.2 crore on the depreciation of the bank’s investment portfolio, on account of weakening financial markets. Total provisions and contingencies made by the bank stood at Rs296.73 crore up from Rs100.91 crore in the year-ago quarter. The bank’s total income rose to Rs2,891.24 crore from Rs1,090.14 crore.
Net interest income for the quarter ended June was Rs810.46 crore, a growth of 93%. Fee income for the same period rose by 80% to Rs483.54 crore from Rs268.97 crore.
Growth in earnings was driven by expansion of the advances portfolio. Advances have grown by 48% year on year. Further, the bank’s balance sheet grew by 44% to Rs1.13 trillion crore at the end of June from Rs79,109 crore.
“The bank’s growth in such an environment comes as a surprise,” said Abhishek Agarwal, research analyst, Religare Securities Ltd. “The challenge will be to sustain this growth. The rise in net interest income and fee income is driven largely by growth in retail advances. In the current environment where the interest rates are inching up one will have to see if the bank will be able to sustain this growth.’’
Still, on a down day on the Bombay Stock Exchange, shares of Axis Bank fell 5.15% to Rs635.10 at the close of Monday’s trading.
The bank’s advances portfolio grew by 48% to Rs61,160 crore. Advances to large and mid-tier companies, and small to medium enterprises was Rs29,455 crore and Rs11,430 crore, respectively. At a time when banks are going slow on retail banking, Axis Bank’s retail advances grew 52% from Rs9,661 crore to Rs14,638 crore. Retail advances account for 24% of the total advances of the bank.
“The profits number is above market expectation,” noted Hatim K. Broachwala, a research analyst at Khandwala Securities Ltd.
“Over the past few months, the bank has become an aggressive player in the retail banking space. It has been eating into the market share of banks such as State Bank of India and ICICI Bank Ltd. This is reflecting in the bank’s gross non-performing assets (NPAs).” The gross NPAs of the bank increased to Rs638.33 crore in the first quarter from Rs494.6 crore in the quarter ended March 2008, he added.
Net NPAs, as a proportion of net customer assets, were at 0.47%, down from 0.59% during the year-ago quarter, but up from 0.36% at the end of March. Capital adequacy of the bank stood at 13.25% compared to 11.50% in the year-ago period. “The 80% growth in fee income has also contributed to the profit growth,” said Broachwala. “The bank has a strong fee income base driven by strong debt syndication business and growing retail banking business.”
The net interest margin, or NIM, for the first quarter increased by 79 basis points to 3.35%, up from 2.56% in the first quarter of the previous year, but was down from 3.93% in the fourth quarter of the previous year.
The quarter-over-quarter decline in the NIM has been partly on account of rising costs of funds and slower growth in demand deposits. At the end of the June quarter, demand deposits grew 54% from last year’s quarter while at end of the March quarter, demand deposits had risen by 71% from the year-ago period.
The bank’s deposit base increased to Rs88,973 crore, up 46% from Rs61,091 crore. The cost of funds increased 6.11% through the June quarter compared with 5.82% in the preceding quarter ended March and 6.43% in the year-ago June quarter.