Axis Bank net profit soars 70% in Q1; bad debts worry analysts

Axis Bank net profit soars 70% in Q1; bad debts worry analysts

Mumbai: India’s third largest private sector lender Axis Bank Ltd reported a 70% jump in first-quarter (Q1) net profit, boosted by unexpected foreign exchange gains and a stake sale, but analysts were worried about rising bad debt and the sustainability of such growth.

The bank’s net profit increased to Rs562.04 crore for the three months to 30 June, against Rs330.14 crore in the corresponding year-ago period, beating the average estimate of Rs475 crore based on a survey of six analysts by Bloomberg.

Its net interest income, or income earned as interest on loans minus that paid for deposits, rose 29% to Rs1,046 crore while trading income, a component of other or non-core income, surged to Rs326.07 crore, from Rs57.31 crore a year earlier.

Axis Bank shares climbed 2.27% to Rs755.90 on Monday on the Bombay Stock Exchange, while the benchmark Sensex lost 0.8% to 13,400.32.

“There is an extraordinary growth of about Rs100 crore in trading income on account of stake sale in Shriram Transport Finance (Co. Ltd) and income from foreign exchange and derivative transactions, which was not expected," said a banking analyst at a Mumbai-based brokerage, who did not want to be named as he is not authorized to speak with the media. “This growth in trading income has led to a rise in net profit, which may not be a sustainable income stream in future and (may) affect profit growth in the coming quarters."

Axis Bank president (finance and accounts) Somnath Sengupta attributed the quarterly performance to a 24% jump in its deposit base to Rs1.10 trillion and a 28% increase in advances to Rs78,105 crore.

“The net interest margin also remained stable at about 3.34%," said Sengupta. “We are expanding our branch and ATM (automated teller machine) network to mobilize deposits. We would have 1,000 branches and 4,000 ATMs by the end of the financial year."

Bad debt, however, continued to rise. “Asset quality is a cause of concern," said another banking analyst with a Mumbai brokerage, who, too, didn’t want to be named. “The gross non-performing loans (NPLs) have increased to Rs915.31 crore from Rs638.33 crore and net non-performing assets also increased to Rs367.12 crore as against Rs325.66 crore."

During the June quarter, Axis Bank restructured loans worth Rs995.95 crore, of which Rs182.86 crore were under the corporate debt restructuring mechanism. Of the total assets restructured during the quarter, loans worth Rs101.71 crore were restructured for a second time. The total value of the assets restructured up to 30 June was Rs2,520.10 crore, constituting 2.77% of the bank’s gross customer assets.

“We are monitoring the large and mid-corporate, small and medium enterprises, personal loans, and credit card

portfolio, where there have been some slippages," said Sengupta. “At the current levels, the non-performing loans do not ring any alarm bells."

The bank’s net NPLs stood at 0.41% as on 30 June, against 0.47% a year ago. Currently, an asset is “non-performing" if interest or instalments of principal due remain unpaid for nearly 90 days.