On the face of it, the near doubling of net profit, stable bad loans, and healthy growth in domestic loans for Axis Bank in the latest June quarter offers comfort to investors. After the deterioration in the bank’s asset quality between FY16 and FY18, the gradual improvement over the past four to five quarters has been heartening. But the strong growth in net profit in the June quarter has come on a low base. Also, a substantial increase in provisions (sequential and year-on-year), write-offs and slippages, and addition to the bank’s stressed book (BB & below rated book) in the June quarter are aspects that may need monitoring in the coming quarters.
Axis Bank has been making additional provisions over and above the regular NPA provisioning in the past few quarters. In the June quarter, the bank made additional provisions of ₹994 crore; ₹459 crore pertains to non-fund-based outstanding in NPA/ stressed accounts. Cumulatively, Axis Bank now holds ₹2,358 crore of provisions for various contingencies.
As a result, total provisions have gone up from₹2,711 crore in the March quarter to ₹3,815 crore in the June quarter, weighing on the strong operating performance.
On the core business front, Axis Bank has been witnessing a pick-up in the core net interest income in recent quarters. After the 21 per cent growth in NII in the March quarter, the 13 per cent growth in the latest June quarter may seem muted. However, in the same quarter last year, there was a one-time impact of interest realisation from recovery on an IBC account. Excluding this, the bank’s growth in NII stood at 19 per cent in the latest June quarter, which is healthy.
As such, growth in the bank’s loans has been healthy. Domestic loans grew by 19 per cent in the June quarter, led by 22 per cent growth in retail loans. Corporate loan book grew by 3 per cent (domestic corporate loans up 16 per cent). Growth in SME was modest at 8 per cent.
The growth in retail loans has been driven by segments such as personal loan and credit cards, with their share in the overall retail loan mix inching up over the past two years. The higher share of these high-yielding loans have aided net interest margin.
Stressed book
While the gross NPA figure in absolute terms has been stable at ₹29,405 crore in the June quarter , the bank has reported higher slippages. The bank’s gross slippages that had fallen to ₹3,012 crore in the March quarter inched up to ₹4,798 crore in the latest June quarter. Substantial write-offs of ₹3,005 crore (rather than recovery) have led to the marginal decline in bad loans. While the management has attributed the higher slippages and write-offs to seasonality, trend in the coming quarters will need to be seen.
The addition to the bank’s BB & below-rated book in the June quarter also needs monitoring.
The bank has added ₹2,242 crore to the stressed book (mainly exposures to groups that have newly exhibited signs of stress in recent months). Hence, while the chunk of corporate slippages (about half) in the June quarter have come from the stressed book, the parallel addition has kept the stressed pool constant at about ₹7,500 crore.