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Axis Bank’s loan book grows, but NIM comes under pressure

Axis Bank’s loan book grows, but NIM comes under pressure
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First Published: Mon, Jan 17 2011. 10 15 PM IST
Updated: Mon, Jan 17 2011. 10 15 PM IST
Macro concerns such as high inflation, imminent interest rate hikes and relatively tight liquidity conditions continue to weigh on bank stocks. That could explain the ambivalent attitude of investors towards them, even as individual banks report performances that disclose reasonable operating metrics.
Take the case of Axis Bank Ltd, which reported its December quarter results on Monday. A minute or two before its third quarter results were announced, the scrip was trading at its intraday high. No sooner were the financial numbers out, the stock fell some 1.7% as if investors were disappointed by the results. Subsequently, the stock recovered to end 2.28% up from the previous close.
Also See Margin Concerns (PDF)
But that initial drop after the results is somewhat puzzling, as Axis Bank’s December quarter profit at Rs891.36 crore, beat Street expectations by 11%. The profit was one-third more than what the bank earned a year ago and continued to reflect strong growth this fiscal year. Its earnings per share came in at Rs21.77, better than the Rs18.01 in the September quarter.
Growth was propelled by a 28% increase in net interest income, on back of a 46% growth in advances. Deposits grew 37%. Moreover, low-cost current account and savings deposits accounted for 42% of total bank deposits. The growth in advances and deposits are well ahead of what has been seen for the entire banking system so far this fiscal.
Other indicators appear positive as well. Fee income grew 21%. Provisioning dropped nearly 16% to Rs313.8 crore. That was made possible by the net non-performing assets (NPAs) coming in at 0.29%, historically the lowest level seen in Axis Bank.
Yet, the galloping cost of deposits meant that operating profit grew at 21%, somewhat less than the dizzying 36% growth in net profit. The bank’s net interest margin (NIM) shrank to 3.81% during the December quarter compared with 4% in the previous three months. The bank itself fears that this number might shrink to between 3.4 percentage points and 3.6 percentage points in the March quarter, due to advance tax outflows.
The Axis Bank stock has underperformed the broader market and even peers such as HDFC Bank Ltd and ICICI Bank Ltd since November. Its loan book is growing at a good rate and with lower NPAs, credit quality is not an issue. But given the current overhang in the sector, investors will be more concerned about NIM and the direction it’s headed in. Till a recovery in margins becomes imminent, investors would be unwilling to give bank stocks the same valuations they gave in the past.
Graphic by Yogesh Kumar/Mint
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First Published: Mon, Jan 17 2011. 10 15 PM IST
More Topics: Mark to Market | Ravi Krishnan | Axis Bank | Loan | NIM |