Q1 COMMENT. Axis Bank delivers on loan growth, slips on asset quality

Axis Bank delivered 18 per cent earnings growth in the June quarter, driven by 16 per cent growth in loans and core net interest income.

While healthy retail loan growth and stable margins are positives, the bank’s asset quality continues to witness some pressure owing to its higher exposure (compared to other private banks) to stressed sectors such as power and infrastructure.

In contrast to HDFC Bank, that declared its results on Monday, Axis Bank’s loan growth was driven by strong momentum in retail loans.

The core retail loans grew by 28 per cent in the June quarter, double the pace at which HDFC Bank grew its retail loan portfolio (14 per cent).

Axis Bank’s strong focus in this segment over the last two years and a smaller base has helped it to outpace its peers.

The retail segment now contributes 38 per cent of the bank’s overall loan portfolio — a significant leap from 24 per cent two years back, when it started de-risking its loan portfolio.

Aside from a strong momentum in retail loans, a healthy growth in the SME loan portfolio has also helped the company offset the muted growth in corporate loans.

Axis Bank has also built a healthy retail deposit base by expanding its low-cost current account and savings bank (CASA) deposits, as well its retail term deposits. The CASA deposits grew by 14 per cent in the June quarter. The strong growth in retail term deposits (44 per cent) is a positive.

Besides lending stability to the bank’s liquidity, it has helped the bank bring down its cost of funds.

The bank’s retail term deposits constitute 34 per cent of the total deposits, up from 27 per cent last year. The net interest margin (NIM) has remained stable over the last one year.

Axis Bank’s high exposure to large infrastructure projects has led to some pressure on asset quality. The gross non-performing assets (GNPA) increased to 1.34 per cent in the June quarter, from 1.22 per cent in the March quarter. Axis Bank’s restructured loans have also gone up marginally, to 2.47 per cent of loans.

While some pressure on asset quality was expected over the medium term, the bank has been able to manage slippages in asset quality within guided levels.