Axis Bank eyes major turnaround as retail, SME drive growth, slippages fall

In what one could term as a strong indication of internal cleanup and turnaround, Axis bank posted an 83 per cent surge in its net profit to Rs 78.9 million for the quarter ended September 2018.

The bank's net profit stood at Rs 43.4 million during the same quarter of financial year 2018. 

In regulatory filings, the board of directors of the bank appointed Amitabh Chaudhry as the managing director-designate with effect from November 19 to December 31.  

Chaudhry will take over the reins from Shikha Sharma, the bank's present chief executive officer, as the next managing director and chief executive officer of Axis Bank with effect from January 1, 2019, as approved by the Reserve Bank of India (RBI).   

Retail loans grew by 20 per cent to Rs 2.2171 trillion, accounting for 49 per cent of the net advances as at the end of Q2 FY2019. SME (small-medium enterprise) loans grew 14 per cent over the last year to Rs 602.6 billion at the end of September 2018. 

On the corporate loan side, lending has continued to focus on working capital loans and the book grew 0.6 per cent, year on year, to Rs 1.7415 trillion at the end of Q2 FY2019 as against Rs 1.732 trillion at the end of Q2 FY2018. 

Jairam Sridharan, the chief financial officer at Axis Bank, said, "Most of the slippages in the corporate segment have come from 'BB' and below book, with 88 per cent of slippages coming from them. Retail and SME loans constitute 62 per cent of the bank's loans. Within the corporate segment, which was overall flat, working capital loans grew by 21 per cent, year-on-year, while term loans declined by seven per cent, year-on-year." 

The outstanding 'BB' and below book has come down in absolute terms by 15 per cent, quarter-on-quarter, to Rs 88.6 billion, Sridharan said. 

"We remain a top player in the digital space and we continue to be ranked number one in mobile banking spends based on RBI data. Our market-share in UPI transactions is still market-leading at eight per cent. Our mobile banking spend grew 106 per cent, year-on-year, while credit card spend grew 44 per cent year-on-year," he told members of the press.  

Total fee income has grown by nine per cent, year on year, to Rs 23.8 billion at the end of Q2 FY2019. This was driven mainly (62 per cent) by the retail banking segment, the bank stated in exchange filings. 

The retail, transaction and SME lending segments are growing at a healthy pace, while the bank has seen a deterioration in fees gained from the corporate credit segment over the past three quarters. 

Core operating profit was up by 16 per cent, from Rs 34 billion in Q2 FY2018 to Rs 39.6 billion at the end of Q2 FY2019.  

While total deposits grew by 15 per cent over the year, CASA (current account and savings account) deposits grew by nine per cent, constituting 48 per cent of total deposits with the bank as at the end of September 2018.  

Net advances were up by 13 per cent, year on year, from Rs 4.1017 trillion in Q2 FY2018 to Rs 4.5612 trillion at the end of Q2 FY2019. 

Net interest income (NII) grew 15 per cent, over the last year, to Rs 52.32 billion in Q2 FY2019 as against Rs 45.4 billion in Q2 FY2018. 

Net interest margin (NIM) has come down marginally from 3.45 per cent in Q2 FY2018 to 3.36 per cent at the end of Q2 FY2019. 

"Overall, growth opportunities are still there. As lending institutions, we have been focused on the funding side of the book in this quarter just to make sure that loan-to-deposit ratios are not running too far away from [us], given the liquidity constraints in the system," he said.

"Loan-to-deposit ratio has come down a touch from 99 per cent in the last quarter to 95 per cent in this quarter. We feel good about that," he added. 

Axis Bank stated that it had outstanding dues worth Rs 8.25 billion in relation to the IL&FS Group, without naming the infrastructure conglomerate that has been in the news over the past two months. 

"Of this, Rs 2.38 billion is fund based and Rs 5.87 billion is non-fund based. In Q2, we have made a provision of 20 per cent on the fund based outstanding. Rs 5.4 billion of the outstanding is part of the 'BB' and below rated book," the lender said in a regulatory filing.  

Around 40 per cent of its lending to corporates goes to those rated 'AAA', while 50.3 per cent goes to 'AA' rated corporates, 9.4 per cent to 'A' rated ones, and the rest to 'BBB' and below corporates. 

Axis Bank has a total exposure of Rs 45 billion to the 40 corporate defaulters referred by the RBI for insolvency proceedings almost two years ago. 

Sridharan said the bank has made Rs 41 billion in provisions against this exposure and so far, they have recovered Rs 21 billion from the Insolvency and Bankruptcy Code process. 

Further, the bank wrote-off Rs 23 billion in loans this quarter. 

NPA slippages have also come down by 69 per cent from last year to Rs 27.8 billion in Q2 FY2019 as against Rs 89.4 billion in the corresponding quarter of the previous financial year.

"In absolute terms, there has been a substantial reduction in slippages. In terms of slippage ratio, we are seeing continued moderation. As a bank, we will always have slippages but the fact of the matter is that we are seeing quarterly slippage ratio fall below one per cent, which is a good sign. We would want to bring the slippage ratio down much further," Sridharan said.  

Provisions have come down by seven per cent, year on year, from Rs 31.4 billion in Q2 FY2018 to Rs 29.3 billion at the end of Q2 FY2019. Provision coverage stands at 73 per cent at the end of Q2 FY2019 as against 69 per cent as of Q1 FY2019. 

Gross non-performing assets (NPAs) have reduced to 5.96 per cent for Q2 FY2019 from 6.52 per cent as at the end of Q1 FY2019. 

In absolute terms, gross NPAs stood at Rs 309.4 billion at the end of September 2018 as compared to Rs 326.62 billion at the end of Q1 FY2019.   

Net NPAs stood at 2.54 per cent for Q2 FY2019 as against 3.09 per cent at the end of Q1 FY2019. In absolute terms, net NPAs came down from Rs 149 billion in Q1 FY2019 to Rs 127.16 billion at the end of Q2 FY2019.  

ALSO READ: Challenging times ahead for Axis Bank's new MD and CEO Amitabh Chaudhry 

The bank allotted 1.174 million equity shares under its Employee Stock Option Scheme during the quarter. 

Axis Banks' board of directors appointed Girish Paranjpe, the former co-chief executive officer of Wipro's IT Business from 2008 to 2011, as an additional independent director with effect from November 2. Further, V Srinivasan, currently the deputy managing director of the bank, will not be re-appointed given the expiry of his three-year tenure on December 20. 

Axis Bank's stock price closed at Rs 609.95 on the BSE, up by 1.26 per cent from the previous closing price.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel