Money & Banking

Axis Bank Q3: Slippages rise; credit growth remains healthy

Radhika Merwin BL Research Bureau | Updated on January 22, 2020

Persisting weak credit environment and fresh stress emerging in certain companies and sectors, have weighed on Axis Bank’s otherwise healthy core performance in the latest December quarter.

Significant rise in slippages, still notable stressed book (rated BB & below) and substantial write-offs, are trends that may need a watch in the coming quarters. The slippages from investment book mainly pertained to one housing finance company and downgrades to stressed book was led by a telecom and broking company.

Given the weak underlying economic environment, Axis Bank’s asset quality is likely to remain volatile in the coming quarters.

Elevated stress

For Axis Bank, its relatively higher exposure to stressed sectors has been impacting its asset quality over the past 3-4 years. Latest December quarter results suggest that the pain could continue in the medium-term. The bank’s gross NPAs increased to ₹30,073 crore in the December quarter from ₹29,071 crore in the September quarter.

Sharp rise in slippages to ₹6,214 crore in the December quarter from ₹4,983 crore in the September quarter, has brought the focus back on the bank’s asset quality. The bank’s gross slippages that had fallen to ₹3,012 crore in the March quarter, has been inching up over the past three quarters. In the December quarter, of the total slippages, ₹1,090 crore were from investment book, mainly due to one housing finance company. Even so, ₹3,891 crore of corporate slippages (as against ₹2,862 crore in the previous September quarter) are significant.

What also needs a watch is the downgrades to the stressed book. While chunk of corporate slippages (81 percent) in the December quarter have come from the BB & below rated book, there have been downgrades, too, owing to one telecom and broking company. While the overall outstanding stressed book is now a low 2.6 per cent of corporate loans, in absolute numbers at ₹5,128 crore, it is still notable.

There has also been substantial write-offs to the tune of ₹2,790 crore (rather than recovery) in the December quarter. Over the past three quarters, write-offs have remained elevated around ₹2,800-3,100 crore levels.

There have also been gross slippages in the retail loan book to the tune of ₹1,754 crore (up from ₹1,355 crore in the September quarter). The share of retail and SME loans have gone up significantly since 2013 — from 43 per cent in FY13 to 64 per cent in the latest December quarter.

Healthy credit growth

After the 21 per cent growth in net interest income (NII) in the March quarter, the growth has moderated somewhat, but remains healthy. In the latest December quarter, the bank reported a 15 per cent growth in NII, thanks to 18 per cent growth in domestic loans, led by 25 per cent increase in retail loans. Corporate loan book grew by 9 per cent, while growth in SME loans fell by 1 per cent.

Axis Bank has been able to improve its net interest margin (NIM), in a falling rate environment, which is a key positive. From 3.63 per cent in the September quarter, domestic NIM improved to 3.7 per cent in the December quarter.

But low cost CASA (current and savings account) deposits for the bank as a proportion of total deposits has fallen significantly to 41 per cent from 46 per cent last year.

Published on January 22, 2020

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