Axis Bank net falls 16% on higher provisions, slippages decline in Q1
The management hopes to bring down the credit cost to its long-term average of 100 bps by FY19.
ET highlights five key takeaways from the Q1 results:
Business growth: Despite reporting an improvement in the underlying credit growth compared to the previous two quarters, Axis reported a sluggish 2 per cent increase in its net interest income (NII), or core operating income, during the June quarter compared to 11 per cent last year. The management reiterated its expectations of up to 20 basis points of contraction in its net interest margin for FY18, which may keep the NII growth in check.
The increased proportion of MCLR-(marginal cost of funds based lending rate)-linked advances in the loan book from 26 per cent last year to 36 per cent at the end of June quarter, also restrained growth in the bank’s interest income.
Credit growth: Axis bank reported its best YoY credit growth in three quarters at 12 per cent in the first quarter, led by a stronger growth in the retail book at 22 per cent, which now accounts for about 46 per cent of its total advances. The corporate loan book reported a meagre 3 per cent growth during the June quarter, while the working-capital loans increased at a healthy 23 per cent during the period.
While Axis Bank expects shortterm challenges to its SME loan book that expanded at 10 per cent during the quarter on account of the GST transition, the lender also sees the segment as an opportunity amidst shift from informal to formal business models.
Asset quality: The performance looked stable with gross slippages declining sequentially during the June quarter at Rs 3,519 crore against Rs 4,811 in the March quarter. Total slippages from the corporate lending book stood at Rs 2,317 crore, of which Rs 1,500 crore came from the non-watch accounts. Slippages from the watch list were at Rs 797 crore, taking the final tally of the list to Rs 7,941 crore, or 1.81 per cent of customer assets.
The outstanding watch list now predominantly consists of the power sector (69 per cent), followed by iron and steel (8 per cent). The GNPA ratio for the June quarter stabilised at 5.03 per cent, against 5.04 per cent in the previous quarter; it was 2.54 per cent a year ago. Net restructured assets now stand at Rs 5,336 crore, or 1.25 per cent of the customer assets.
Provisions: The provisioning burden of Axis reduced in the June quarter with the bank reporting its slowest YoY growth in provisions and contingencies at 11 per cent, in the past eight quarters.
The bank has already provided for nearly 80 per cent of its outstanding secured exposure to accounts —referred for insolvency proceedings — to which it has an exposure to the tune of Rs 5,000 crore. In the June quarter, it also decided to increase the rate of standard provision for accounts in four sectors — power, iron and steel, infrastructure and telecom — to 1 per cent resulting in additional provisions of Rs 184 crore.
However, the bank adhered to its credit-cost guidance of 175-225 basis points for FY18 given that the slippages from outside the watch list at Rs 1,520 crore remained high and credit cost for Q1FY18 stood at 195 bps. The management hopes to bring down the credit cost to its long-term average of 100 bps by FY19.
New CEO search: The bank management rubbished a media report that claimed that its CEO Shikha Sharma was joining the Tata Group to lead the firm’s financial services vertical. “There is no truth to this speculation. There is a laid-down process that the board undertakes at regular intervals, but to conclude that there is going to be a change of leadership is entirely premature and speculative,” the bank said.