Axis Bank delivered good earnings despite anticipation of cost pressures impacting profitability, following the Reserve Bank of India’s liquidity tightening measures in July.
The bank’s cost of funds, which was expected to rise sharply, fell a marginal one basis point.
This was possible due to its growing share of retail deposits.
Axis Bank has built a stable deposit base by focussing on current, savings and retail term deposits.
Leveraging its branch network expansion, particularly in the metros, the bank was able to mobilise savings deposits in a big way. In the past two years, the bank doubled its branch strength in the metros.
Low-cost deposits
The current account and savings account (CASA) ratio now stands at 43 per cent, an increase of 100 basis points from the previous quarter. Besides, the bank has been focussing on increasing the share of retail term deposits, as they lend stability to the bank’s liquidity.
Domestic CASA deposits and retail term deposits now constitute 73 per cent of the total deposits as against 67 per cent last year.
Besides, the bank raised Rs 2,000 crore overseas during the quarter, which too aided in boosting the margins.
If the retail drive has led to a better funding mix, it has also resulted in healthy loan growth.
De-risking its business model and focussing on the retail segment have helped Axis Bank deliver industry-leading growth in the last two years.
From 19.7 per cent in 2008-09, the retail loan book now accounts for 30 per cent of all loans.
The September quarter saw retail and SME (small and medium enterprise) loans grow at a robust 37 per cent and 29 per cent, respectively.
Due to the stress in the banking sector, the bank has guided for 10-15 per cent higher slippages (gross non-performing assets plus restructured assets) than the estimated Rs 5,000 crore for the financial year. However, the bank maintained a strong provision-coverage ratio of 80 per cent.
Like HDFC Bank, Axis Bank too, has booked its entire mark-to-market losses on investments in government securities in the September quarter itself.
It could have apportioned it over the next three quarters, making use of the window provided by the RBI.