Strong growth in retail loans, improvement in net interest margin, and a stable gross non-performing assets (GNPA) ratio—just about sum up the positives of Axis Bank’s September quarter results. While the healthy performance on the core business front, is good news, still elevated slippages, write-offs and notable stressed book (BB & below rated book), are aspects that need to be monitored in the coming quarters. The bank reported a loss of Rs 112 crore in the September quarter, owing to a one-time impact on deferred tax assets (DTA) write-off. Following the change in corporate tax rate, the bank has re-measured the balance of net DTA, resulting in a write-off of Rs 2,138 crores which the bank has fully charged to the P&L account in the September quarter.

Also read: Axis Bank posts Q2 net loss of ₹112.08 crore

Excluding this, the profit would have been Rs 2026 crore, as against Rs 790 crore in the previous year and Rs 1370 crore in the previous quarter.

Healthy trends

A key positive in Axis Bank’s performance in recent quarters, has been its gradual pick up in core net interest income (NII). After the 21 per cent growth in NII in the March quarter, the growth has moderated somewhat, but remains healthy. In the latest September quarter, the bank reported a 17 per cent growth in NII, thanks to 19 per cent growth in domestic loans, led by 23 per cent increase in retail loans. Corporate loan book grew by 7 per cent, while growth in SME loans was a modest 2 per cent.

The growth in retail loans has been driven by segments such as personal loan, credit cards etc., with their share in the overall retail loan mix inching up over the past two years.

Axis Bank has been able to improve its net interest margin (NIM), in a falling rate environment, which is a key positive. From 3.56 per cent in the June quarter, domestic NIM improved to 3.63 per cent in the September quarter. A higher spread and lower interest reversal has led to the sequential improvement in NIM.

What is important is the fact that 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 48 per cent last year. While the bank’s retail term deposit growth has been strong, there has been a rise in cost of deposits in the first half of the current fiscal (from 5.1 per cent in FY19 to 5.36 per cent as of September). A high loan to deposit ratio of 89 per cent is possibly limiting the bank’s ability to lower deposit rates.

How far the bank is able to maintain its NIM post the introduction of repo-linked loans effective October 1, needs to be seen in the coming quarters, given the pressure on the deposit front.

Stressed book

For Axis Bank, its relatively higher exposure to stressed sectors has been impacting it’s asset quality between FY16-FY18. While the gross NPA figure in absolute terms has been stable at Rs 29,071 crore in the September quarter, (Rs 29,405 crore in the June quarter), the bank has reported higher slippages. The bank’s gross slippages that had fallen to Rs 3012 crore in the March quarter, inched up to Rs 4798 crore in the June quarter and further to Rs 4983 crore in the latest September quarter. There has also been a substantial write-offs to the tune of Rs 3,104 crore (rather than recovery) which has helped the overall bad loan number remain stable for the quarter. Given that the bank had reported a significant Rs 3000-odd crore of write-offs in the June quarter as well, the trend in the coming quarters will need to be watched.

The addition to the bank’s BB & below rated book in the September quarter also needs monitoring. While chunk of corporate slippages of Rs 2862 crore (97 percent) in the September quarter have come from the BB & below rated book, there appears to be some addition (about Rs 1500 crore) to the stressed pool.

There have also been gross slippages in the retail loan book to the tune of Rs 1,355 crore and from SME book of Rs 766 crore. 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 September quarter.

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