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M.V.S Santosh Kumar

Axis Bank’s September quarter (Q2FY09) results came as a positive at a time when banks were expected to take a hit on profitability to gain market share in advances and deposits.

Axis Bank has continued to grow at a robust pace in a tough macro environment. The bank posted a 71 per cent growth in net profit on a Y-o-Y basis. The growth was driven by various factors such as increase in advances (54 per cent) and fee-income (91 per cent), low-cost deposits and superior net interest margins (NIM) owing to the PLR hikes it had done in the recently-ended quarter.

Trading income mildly dented growth numbers as it continued declining due to the unfavourable market conditions.

Branch expansions and higher employee costs led to a 45 per cent increase in operating expenses and failed to keep pace with the operating revenue growth of 66 per cent.

Further, provisioning ate into a significant portion of the pre-provisioning profits. Provisions (Rs 255 crore) increased by 122 per cent over similar quarter of last year but came down sequentially from Rs 296 crore in June 2008. Increased provision for non-performing assets and provisioning on some non-SLR debentures and bonds may have contributed to higher provisioning in the current fiscal.

Net NPA/net advance ratio has come down sequentially from 0.47 per cent to 0.43 per cent though total NPAs have increased by Rs 700 crore.

NIM improved from 3.35 to 3.51, although the cost of funds increased to 6.23 from 6.11. In an environment of difficulty in accessing low-cost deposits, the bank had managed to maintain its CASA deposits at 40 to per cent of its total deposits. The bank has not increased the deposit rates as significantly as the other banks have. Capital adequacy ratio has come down to 12.12 per cent from 13.25 per cent. Advances have continued to grow at 54 per cent with retail contributing 24 per cent, SME accounting for almost 18 per cent and corporate advances at 49 per cent. In the retail segment secured home loans accounted for 56 per cent of the advances.

In the corporate and SME clients segment, the bank has stated that its asset quality is high as most of the client had investment ratings of more than A.

The recent tight liquidity conditions may lead to banks borrowing at higher rates. The CRR cut and SLR relaxation will help in easing liquidity but the RBI may reverse these cuts once the liquidity situation moderates. Axis Bank has opened 16 branches in 3 months. This is likely to help the bank improve its low-cost deposits and also fee income. The corporate advances and SME advances being investment grade may not pose any threat but retail (including credit cards) and agriculture portfolio may contribute to NPAs in coming quarters. October 24th half-yearly policy may hold cues for the banking sector’s outlook.

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