Axis Bank net grows 19% on decline in provisions

#1
A decline in provisioning besides lower operating expenses helped private sector lender Axis Bank report a 19 per cent increase in profit to Rs 1,604 crore for the third quarter ended December 2013.

The total income during October-December 2013 stood at Rs 9,433.55 crore compared with Rs 8,580.30 crore. The net interest income (NII) which is difference between interest earned and interest paid out rose 19.6 per cent year-on-year to Rs 2,984 crore for the quarter ended December 2013 compared with Rs 2,495 crore. The bank recorded a net interest margin (NIM) of 3.71 per cent in Q3FY14 against 3.57 per cent in Q3FY13.

For the first nine months of 2013-14, the bank has clocked 21 per cent rise in net profit, to Rs 4,375 crore, from Rs 3,624.28 crore in the same period of the previous financial year.

During the quarter, the bank mobilised $ 1.57 billion under foreign currency non-resident FCNR(B) deposit scheme to avail of the concessional swap facility provided by RBI, which helped the bank clock a better loan and deposit growth.

The bank’s advances grew 18 per cent YoY to Rs 2,11,467 crore as on December 31, 2013. Domestic retail advances grew 33 per cent YoY to Rs 64,126 crore during the quarter and accounted for 30 per cent of the net advances.

Somnath Sengupta, executive director, corporate center, Axis Bank said that the bank would have registered a lower loan growth of 15 per cent without the FCNR deposit window. He attributed the increase in profit to better management of cost of funds, decline in operating expenses and good growth registered in NII and CASA.

“We would like to keep the NIMs at slightly above 3.5 per cent for the financial year. The return on equity (RoE) has been around 18-20 per cent and we have been comfortable with it,” said Sengupta.

Total expenses increased by 10 per cent to Rs 6818.52 crore during the quarter, as against Rs 6218.79 crore in the corresponding quarter of last financial year.

Provisioning expenses for the bank came in much lower than analyst expectations at Rs 202 crore and the provision coverage ratio also declined by 200 bps to 78 per cent which resulted in Rs 165 crore q-o-q increase in absolute net NPA levels. As on December 31, Axis Bank’s portfolio quality deteriorated further, with gross non-performing assets (NPAs) rising to 1.25 per cent of gross advances as against 1.19 per cent in the same quarter of the previous financial year. Its net NPAs also rose from 0.42 per cent from 0.37 per cent.

Saday Sinha, banking analyst, Kotak Securities said, “The profit after tax came ahead largely aided by lower provisions (decline of 47.7 per cent year-on-year). Axis Bank is trading well below its historical average on back of higher perceived asset impairment risk due to its large exposure to infrastructure and other stressed segments, in addition to big chunk of non-operational power portfolio.”

Rakesh Tarway, vice-president and head of equity strategy, equity and derivative products at Motilal Oswal Services said, “Lower than expected provisions at Rs 202 crore aided the net profit growth which was better than expectations. Axis Bank has done relatively better in loss given default in their Infra-book and managed the corporate slowdown very well. We remain positive on the stock.”