Unlike peers such as ICICI Bank and HDFC Bank which have huge retail book, Axis Bank has close to four-fifths of its loan exposure to corporates. Hence, a slowdown in corporate sector was expected to hit Axis Bank hard in the third quarter.

But the bank put to rest such concerns by reporting a gross NPA ratio of 1.1 per cent as of December 2011, only marginally above the 1.08 per cent in September 2011.

Additionally, the restructured asset proportion also was contained at 1.55 per cent, again, only a tad higher than the 1.49 per cent recorded in the September quarter.

This, along with better-than-expected profit growth of 24 per cent year-on-year helped the stock close the day with a 5.9 per cent gain. Profits were helped by a 26 per cent growth in fee income and an asset growth of 30 per cent.

However, the net interest margin (NIM) of the bank stood at 3.75 per cent for the quarter compared to 3.81 per cent during December 2010. Decline in margins was due to rise in cost of funds, and yields not keeping pace with the rise in costs.

Additionally, the fall in credit-deposit ratio (partly attributable to lower demand for credit from corporates) from 79 per cent from 71 per cent also put pressure on margins.

Going forward, margins may continue to be under pressure given the waning effect of base rate hikes and stabilisation of yields at current level. Higher deployment of deposits into credit may help expand NIMs though.

Risk factor

It is noteworthy that the corporate loan book is getting more risky. Based on the internal ratings done by Axis Bank, the risky portfolio (credit rating of BBB and less) has increased from 25 per cent in March 2011 to 30 per cent in December 2011.

>mvssantosh@thehindu.co.in

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