Axis Bank managed a better-than-expected profit growth, thanks to improved fee income and retail loan book growth. The net interest margins rose along the expected lines as wholesale deposit costs moderated sequentially. On the asset quality front the bank fared better, with the addition to fresh stressed assets (fresh NPAs and restructured loans) at only Rs 951 crore.
Retail push
Axis Bank’s key numbers were in line with what IndusInd Bank and HDFC Bank achieved during the quarter. The retail loan book which accounted for just 19 per cent of the portfolio in September 2010 has steadily increased to 26 per cent in the last two years. During this period, the bank expanded its branch network by 60 per cent.
The bank is also leveraging on existing depositors to improve its retail loan book growth. The bank targets 30 per cent retail loan share in the total loan book by 2015.
While the retail book grew by 51 per cent year-on-year, the corporate loan book growth was at 16 per cent. Loans to the troubled segments, such as SME and agriculture, grew at a lower rate.
The net interest margins of the bank expanded by nine basis points to 3.46 per cent sequentially due to fall in cost of funds which, in turn, was a function of a sharp fall in wholesale deposit rates. The bank hopes to maintain margins in the 3.25-3.5 per cent range.
‘Other income’ surprise
The boost to profits came from improved trading profits (due to rising bond prices) and fee income. For the quarter ended September 2012, the fee income grew 20 per cent year-on-year driven by 43 per cent growth in retail sources. Third party distribution and retail asset-linked fee contributed to the fee income growth.
Asset quality slippages
The net stressed assets (net NPA plus restructured loans) accounted for 2.34 per cent of the loan book, up from 2.26 per cent in June 2012. Fourteen per cent of the cumulative restructured loans have slipped into NPAs. Around Rs 1,490 crore worth loans, or 37 per cent of the restructured loans, have performed well for more than a year.
Asset quality risks may not have abated for Axis Bank. Concerns remain on the rising credit risk of the corporate loan book. The proportion of loans rated as ‘A’ and above is down from 73 per cent in September to 62 per cent in a year.