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M.V.S Santosh Kumar

Axis Bank’s numbers for Q1, closely watched for clues to other bank numbers, have beaten market expectations by a significant margin.

The bank’s net profit has grown by 89 per cent to Rs 330.14 crore in the June quarter, helped by interest income as well fee-based income. Market expectations were for a profit growth of anywhere between 27- 55 per cent.

Axis Bank’s interest income has grown by 93 per cent year-on-year, driven by strong growth in advances (47 per cent). Loan growth was higher than the industry average of 25.9 per cent.

The bank also managed to grow fee income quite strongly, by 80 per cent during the quarter. Deposit and credit growth for the banking industry has been quite healthy in the last quarter (20.6 per cent and 25.9 per cent y-o-y respectively), despite the central bank increasing the cash reserve ratio and repo rate by 75 bps in the last quarter. There is a slow down in demand deposits compared with last year and this is reflected in Axis Bank’s number too.

Though the bank had a very good quarter in terms of interest income, a higher cost of funds reduced net interest margins, which contracted to 3.5 per cent from 3.93 per cent sequentially.

There was a spike in cost of funds from 5.82 to 6.11 per cent, sequentially, possibly owing to the decline in demand deposits (proportion of CASA/ total deposits was at 40 per cent, down from 45 per cent). As expected, the bank also made provisions of Rs 225 crore towards losses on its government securities portfolio, due to increasing yields.

The bank’s net NPA to net advances has risen significantly to 0.47 per cent as compared with 0.36 per cent, the preceding quarter. The bank has low exposure to retail lending compared to its peers but is increasing its presence in retail segment by leveraging on its branch network. Retail lending to total lending has increased by 1 per cent to 24 per cent. Housing loans constitute 59 per cent of the retail portfolio.

Though the recent numbers are heartening, sustaining this pace of performance may prove more challenging in the coming quarters, given the upward pressure on interest rates and the likelihood of further pressure on the bond portfolio. With concerns about retail assets, Axis Bank is concentrating on corporates and SMEs to maintain its asset quality.

The bank has already increased its prime lending rate, which could help maintain net interest margins in the next quarter, given that deposit rates too have been hiked. There is no further clarity on grievances from exporters relating to forex derivative contracts.

The bank has a capital adequacy of 13.25 per cent, allowing cushion for investments in more risky assets such as capital markets and real estate.

Fee income continues to present scope for growth, given the large network of branches.

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