Mumbai: Axis Bank's struggles with asset quality continued in the third quarter (October-December) of the current financial year, slowing down loan growth and hurting profitability, as the private lender saw a rise in gross slippages, largely in the retail unsecured and agriculture credit portfolios.
Gross slippages for the December quarter rose 22% sequentially and 46% annually to ₹5,432 crore, the bank said in statement detailing its quarterly results. Slippages to the tune of ₹4,923 crore were from the retail book, owing to higher delinquencies in unsecured loans. Agriculture loan slippages were also higher due to seasonal impact in the bank’s Bharat Banking or financial inclusion portfolio.
Of the remaining, ₹215 crore worth of slippages were from the mid-corporate and SME book, whereas ₹294 crore was from wholesale loans, chief financial officer Puneet Sharma said in an earnings call.
Axis Bank's provisions and contingencies for the quarter were at ₹2,156 crore. Provisions were up over two-fold from the year-ago period, but about 2% lower on quarter. The bank held cumulative provisions of ₹11,875 crore as at the end of December. Its loans grew 9% year-on-year and 1% sequentially, taking the total advances to ₹10.1 trillion as of 31 December.
The muted loan growth and elevated provisions weighed on the bank’s profits. India's third-largest private sector lender posted a net profit of ₹6,304 crore for Q3FY25, up 4% from the same period a year ago. However, on a sequential basis, the profit after tax was 9% lower.
The retail microfinance portfolio accounts for just about 1% of the retail book, and 0.6-0.7% of total advances, which means that the impact remains minimal on overall asset quality, Sharma said, adding that the lender also saw significant upgrades and recoveries from these slippages.
The bank recovered ₹1,300 crore from written off accounts during the quarter. During the quarter, the lender saw recoveries and upgrades of non-performing assets (NPAs) of ₹1,915 crore. It also wrote-off bad loans worth ₹3,133 crore.
Gross NPA ratio of the bank deteriorated to 1.46% as of 31 December, from 1.44% a quarter ago, but was better than 1.58% a year ago. The net NPA ratio too was slightly worse at 0.35% compared to 0.34% a quarter ago, but improved marginally from 0.36% in the previous year.
Corrective action
Sharma said that the higher provisions were largely on account of the retail unsecured portfolio, where the bank has been taking corrective actions and continues to monitor the segment carefully. He added that this is in line with the “higher risk” being seen in personal loans and credit card books across the industry compared with historical levels. Provisions and contingencies to average assets, over the last three quarters, have been in the range of 0.56-0.59%, he added.
Arjun Chowdhry, group executive - affluent banking, NRI, cards/payments and retail lending, said that the bank has been taking these corrective measures for a while on an ongoing basis. Some of these measures include raising the income cut-off for onboarding new customers, orienting new acquisition to certain customer segments, and looking at customer leverage levels given that the bank has observed a degree of borrower overleverage in the lower ticket segment.
Loan growth, profitability
Retail loans rose 11% year-on-year and 1% on quarter to ₹6.1 trillion, accounting for 60% of net advances. The share of secured retail loans was 71%, with home loans comprising 28% of the retail book. Personal loans were up 17% on year and credit card advances increased 8%.
Executive director Subrat Mohanty said that sequential loan growth in Q3 was muted due to calibration in some segments where the bank is seeing stress. The lender has taken a call in terms of which segments they want to push and which to go easy on, he said, adding that the bank remains “fairly confident” of seeing good loan growth for FY25.
Mohanty said that is difficult to predict when loan growth will normalise given that the macro environment is dynamic, liquidity conditions continue to be tight, India's GDP growth was tepid as per the latest print, and there are certain undefined global and geopolitical risks. He said that the bank has multiple early warnings indicators for several portfolios and remains comfortable with the 17% growth in personal loans at this point, despite the rising stress in the portfolio.
Net interest income for the quarter rose an annual 9% and 1% sequentially to ₹13,606 crore. Net interest margin (NIM) for the quarter was 3.93%, lower than 3.99% in the previous quarter and 4.01% in the year-ago period.
The sequential fall in margins was equally due to higher interest reversals in Q3 due to seasonality factors in the agriculture loan portfolio, and as the bank has been maintaining higher liquidity coverage ratio (LCR) throughout the quarter, Sharma said, adding that the bank’s average LCR has improved to 119% from 114-115% in the previous quarter.
The bank aims to operate with a net interest margin of 3.8% in the medium term, as per which the bank currently has a 13 basis point cushion over the NIM guidance on a “through-cycle basis”, Sharma said, adding that the bank will work very hard to protect this cushion going ahead.
Deposits of the bank grew 9% year-on-year and 0.8% sequentially to ₹11 trillion at the end of December. Current account deposits grew an annual 8%, growth in saving account deposits was flat whereas term deposits grew 14% from a year-ago period. The share of low-cost CASA deposits was 39% of total deposits.
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