The Axis Bank results for the June quarter can be summed up thus: while the bank’s profit after tax, at Rs562.04 crore, increased by a hefty 70% year-on-year, its core operating profit (operating profit less trading income) was up just 14%. Much higher trading income was the main reason for the difference between net profit and core operating profit. Trading income increased by a huge 469% y-o-y, which includes gains on sale of shares.
Both deposits and advances shrank during the June quarter. Growth in advances has slowed considerably even on a year-on-year basis, falling from a breakneck pace of 37% in March to 28% at the end of June, with the slowdown being felt across all segments. Deposit growth too fell from 34% y-o-y at March-end to 24% at end-June. The proportion of low-cost current and savings accounts (Casa) has come down from 44% of total deposits at the end of March to 40% of total deposits at June-end.
Net interest income was up 29% y-o-y, driven by advances growth. Net interest margin (NIM) was at 3.34%, almost the same level as the 3.35% notched up in same quarter last year. In the March 2009 quarter, NIM was 3.37%.
Net interest income (NII) growth is higher than in the March quarter, not so much because NII has increased dramatically in the June quarter, but because of a lower base in the June 2008 quarter. Fee income growth, at 17% y-o-y, is much lower than in the March quarter. On the other hand, growth in operating expenses is much higher y-o-y than in the March quarter.
Trading income increased by a huge 469% y-o-y, which includes gains on sale of shares. Sandeep Bhatnagar / Mint
Bad loans have gone up, with gross non-performing assets at 1% of gross customer assets, compared with 0.96% at the end of March. What’s more, that slippage has happened in spite of a big increase in restructured loans.
Restructured loans have gone up from 1.74% of gross customer assets at the end of March to 2.77% at the end of June. In terms of absolute numbers, restructured assets have gone up from Rs963.59 crore at the end of December to Rs1,625.87 crore by the end of March and went up further to Rs2,520.10 crore at the end of June 2009. With many of Axis Bank’s loans being unseasoned, analysts have long warned that bad loans will increase.
In short, despite the growth in profit, the bank’s core operating performance has weakened in the June quarter, on many counts. But that doesn’t come as a surprise and most banks are likely to see similar trends.
With economic growth picking up and credit expanding, the banking sector should do better in the future, although rising bond yields are a risk.
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