Axis Bank had reported a net profit of Rs 12.25 billion in the March 2017 quarter. The net loss for the recently concluded quarter was contained because of a Rs 13-billion tax rebate, without which the net loss would have stood at Rs 35 billion.
Asset quality deteriorated, given that gross NPAs as a percentage of advances increased to 6.77 per cent in the March quarter from 5.28 per cent in the December quarter and 5.04 per cent in the March 2017 quarter. Net NPAs stood at 3.4 per cent, up 84 basis points sequentially.
The bank saw fresh slippages of Rs 165 billion. Of these, close to Rs 140 billion was on account of corporate loans. Of the slippages, the power sector accounted for 41 per cent.
Besides, the Reserve Bank of India’s (RBI’s) new NPA rules issued on February 12 also led to increased recognition of stressed assets as NPAs.
Axis Bank Chief Financial Officer Jairam Sridharan said, “Ninety per cent of slippages were from the BB and below-rated corporate pool, and most of our slippages over the past few quarters have been from this pool, which has been shrinking and currently stands at Rs 89.94 billion.”
Asutosh Kumar Mishra, senior research analyst at Reliance Securities, however pointed out, “The slippages from the non-corporate book at about Rs 25 billion in the March quarter is high, and is roughly equal to total slippages seen in the past few quarters.”
Provisions during the quarter stood at Rs 71.8 billion against Rs 25.8 billion in the year-ago quarter. The bank’s coverage ratio now stands at 65 per cent.
Net interest income was flat over the corresponding quarter a year earlier at Rs 47.3 billion, while other income for the quarter was Rs 27.9 billion, 7.5 per cent lower than the March 2017 quarter.
Total operating revenue at Rs 75.19 billion, fell 2.9 per cent year on year, but was ahead of Bloomberg consensus estimate of Rs 72.77 billion.
Some indicators show that with this significant recognition of NPAs, the bank seems to have cleaned its balance sheet to a large extent. For instance, the share of the BB and below-rated loan book came down to 1.8 per cent in the March quarter from 3.4 per cent in the last quarter and 4.7 per cent in the year-ago quarter. At peak level, this ratio stood at 7.3 per cent. With the new NPA rules, the restructured corporate book declined sharply by over 70-80 per cent, both sequentially and year on year. With this, the share of the restructured book as of March 2018 stood at just 0.4 per cent from 1.5 per cent in the last quarter and 2.3 per cent a year ago.
Mishra, however, has a word of caution: “Post the slippages during the quarter, the bank still has Rs 91 billion (1.8 per cent of the loan book) of standard non-retail stressed accounts, which along with reported gross NPA ratio of 6.8 per cent takes its total stressed assets pool to 8.7 per cent of the loan book. Still, this is significantly higher and will keep its credit cost at an elevated level in 2018-19.” Hence, there may be need to beef up provisioning.
The management, though, sounded optimistic about the future. “The (NPA) recognition cycle is more or less over and the focus will be on resolution,” said Shikha Sharma, Axis Bank managing director and chief executive officer.
The management also expects an upturn in performance with net NPAs likely to decrease and credit cost expected to normalise during October 2018-March 2019. For 2017-18, credit costs stood at 3.57 per cent.
The improvement in the NPA and credit cost parameters would be supported by the change in its loan book mix with the share of non-corproate loans increasing. A profitability indicator, the net interest margin (NIM), which is the difference between the yield on advances and cost of fund, fell to 3.33 per cent against 3.83 per cent in the year-ago quarter.
Here, too, margin contraction seems to be bottoming out and in the coming quarters, NIMs are likely to remain stable at the 2017-18 level of 3.4 per cent. Advances are also estimated to grow by 20 per cent, with key contribution from retail. Besides, there are opportunity in corporate loans too.
The capital adequacy ratio (CAR) as of March 31 stood at 16.57 per cent against 14.95 per cent at the end of the last year. Shikha Sharma told reporters that the bank had adequate capital to support 20 per cent of its needs for the next few years.
The management also clarified that the change in top management — reduction of Shikha Sharma’s tenure — will not change the strategy and there will not be any impact of this on corporate loan growth.
The bank’s stock closed at Rs 494.55, down 0.77 per cent from Wednesday’s close. The results came post market hours. Analysts believe the stock could see some pressure on Friday.