Axis Bank Ltd’s earnings per share for the fourth quarter came in at Rs18.57, Rs2.59 per share more than in the December quarter. Net profit for the quarter was at Rs764.87 crore, up 31.55% year-on-year (y-o-y), despite trading income falling to Rs102 crore from Rs166 crore in the year-ago period.

How was this achieved? Net interest income grew 41.4% y-o-y, on the back of a 28% growth in advances and an expansion in margins. Net interest margins (NIM), which were 3.37% in the fourth quarter of FY09, expanded to 4.09%, even higher than the 4% NIM in the December quarter. The margin expansion was driven by a higher proportion of low-cost current and savings account (Casa) deposits, lower term deposit costs and the equity issue last September. Fee income grew at 17% y-o-y. Even so, growth in operating profit was a somewhat subdued 21%. Lower provisions, though, bolstered the net profit.

How has the bank done vis-à-vis the December quarter? What is remarkable has been the business growth, both in advances and in deposits. Loans outstanding at the end of the March quarter was 28% higher than a year ago. In contrast, loans outstanding at the end of December 2009 was 12.5% higher than a year ago. Put another way, loan outstandings rose by 23% between December 2009 and March 2010. After a short hiatus, loan growth is back at Axis Bank. The balance sheet expanded 20% during the quarter. Deposits, too, grew substantially and the credit-deposit ratio at the end of March was 73.8%. As mentioned earlier, NIM have continued to expand. Casa deposits moved up from 46% to 46.7% of total deposits.

Graphic: Naveen Kumar Saini / Mint

Another positive sign is that delinquencies appear to have peaked. Net non-performing assets (NPAs) were 0.36% of net customer assets at March-end, against 0.46% at the end of December. The bank has a provision coverage of 72%, more than the 70% required by the Reserve Bank of India guidelines by the end of September. But it also restructured loans worth Rs160 crore during the March quarter, more than the Rs87 crore it had restructured during the December quarter. Nevertheless, the cumulative value of restructured assets declined from Rs2,309 crore at December-end to Rs2,286 crore at the end of March, thanks to payments and a small slippage to NPAs. Provisions at Rs201.87 crore are significantly lower than the Rs373.14 crore worth of provisioning in the December quarter.

Looking ahead, the improvement in the economy is expected to lower bad loans and provisions. Axis Bank is also expected to do better than most lenders at a time of rising interest rates. That’s because of its high Casa and NIM, the low duration of its bond portfolio and higher-than-industry loan growth. That is why the stock has outperformed the Bankex, despite high valuations.

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