Axis Bank: asset quality woes persist despite core performance
The lender's slippages in the June quarter were `1,186 crore, compared with `610 crore in the three months ended March
Axis Bank Ltd’s June quarter results show exactly why bad loans will continue to haunt the Indian banking system for some time to come.
The bank’s provisions jumped almost three times higher than a year ago.
While a good chunk of this was for new loans turning bad, about one-fifth was contingent provisioning.
The lender’s slippages in the June quarter were ₹ 1,186 crore, compared with ₹ 610 crore in the three months ended March.
This was not about any single account turning bad, but was widespread across industries in case of corporate customers, the bank said.
The increase in gross non-performing assets, or NPAs, was curbed because of write-offs worth ₹ 925 crore.
The bank also made recoveries and upgrades of ₹ 120 crore.
Axis Bank also had to restructure ₹ 740 crore worth loans, taking its overall recast assets to 2.9% of its loan book.
A stressed asset portfolio of 4.3% of advances, while it may not be high when compared with state-owned lenders, is enough to cause some jitters for investors.
The bank’s exposure to power is 6.8% of its loan book, to infrastructure around 7.74% and metal 7.9%. These industries are the ones suffering the most because of the economic slowdown and meltdown in commodity prices.
Restructured loans to these companies are slipping into the NPA category.
According to the Axis Bank management, about one-fifth of the restructured assets have turned into NPAs in the past few years.
But they fear that around 25% of the restructured accounts might head that way.
That said, the bank management is, however, confident that the overall slippages this financial year will be lower than the ₹ 5,700 crore number seen in 2014-15.
That guidance, if it materializes, should offer some level of comfort for investors.
The bank’s operating performance offers few complaints.
Its loan book grew at 23% from a year ago, which helped net interest income grow by 22.5%.
Non-interest income grew by 36%, but that was mostly owing to treasury profits. Fee income grew a more sedate 13%.
Still, leaving aside one-offs and treasury income, core operating profit grew 31% for the bank.
Net interest margins are at 3.8%. This kind of performance is why the Axis Bank stock is valued at 2.7 times its book value for the current fiscal and has outperformed the Bankex for some time.
But for this to continue, asset quality remains critical.
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