Axis Bank’s net profit drops 36% in Q3 due to higher provisions

Private lender Axis Bank has reported a 36 per cent decline in net profit at Rs 1,117 crore in the October–December quarter (Q3) of FY21, from Rs 1,757 crore in the corresponding period of FY21 due to higher provisions. Reported numbers were below the Street’s estimated at Rs 1,500 crore.

Net interest income (NII) rose 14 per cent year-on-year to Rs 7,373 crore from Rs 6,453 crore a year-ago. Adjusted for interest reversals, NII would have increased by 19 per cent year-on-year to Rs 7,985 crore. Other income which includes fee income, trading income, and miscellaneous income declined marginally by 0.3 per cent to Rs 3,776 crore in the Q3FY21. Q3’s net interest margin adjusted for interest reversal stood at 3.59 per cent, near about a year-ago level.

Axis Bank’s loan book grew by 9 per cent year-on-year to a little over Rs 6 trillion, including targeted long term repo operation investments. Retail loan growth came at just about 9 per cent to Rs 3.17 trillion and accounts for 55 per cent of the bank’s total advances. Deposits grew by 11 per cent year-on-year to Rs 6.54 trillion and the share of low-cost current account – savings account (CASA) at 42 per cent rose by 232 basis points (bps) year-on-year.

For yet another quarter, the bank refrained from giving any guidance on growth, though stated that the run rate for December on the retail book may continue. As for corporate loans, “we are cognizant of the fact that lot of banks are chasing some assets but we don’t want to price lower to chase growth,” said Amitabh Chaudhry, MD & CEO, Axis Bank. “We are on a certain journey with respect to NIM and if decisions are only to be based on price, we are happy to let go,” he asserted.

Q3 marked the fifth straight quarter of higher provisioning cost. At Rs 4,604.28 crore, provisioning cost for quarter rose by 33 per cent year-on-year to Rs 3,470.92 crore, though on a sequential basis remained flat compared. Loan loss provisioning stood at Rs 1,053 crore as against Rs 2,962 crore a year-ago, whereas Rs 3,899 crore was set aside for accounts which were 90 days past due (DPD) but have not been classified as non-performing assets (NPA) because of Supreme Court’s order of standstill on asset classification. Consequently, cumulative provisions held by the bank totaled to Rs 11,856 crore.

Helped by the apex court’s standstill, the bank’s asset quality improved with gross NPA ratio at 3.44 per cent in Q3 as against 4.18 per cent in Q2 and 5 per cent a year-ago. Net NPA ratio also declined by 24 bps sequentially to 0.74 per cent in Q3 and by 135 bps on year-on-year.

However, not counting for the Supreme Court’s stay, proforma gross NPA ratio and net NPA ratios would have stood at 4.55 per cent and 1.19 per cent respectively. On a sequential basis, they indicate a rise from 4.28 per cent gross NPA ratio and 1.03 per cent net NPA ratio. Axis Bank’s retail portfolio appears to be hit the hardest as retail proforma gross NPAs rose to 2.4 per cent, compared to the reported 0.5 per cent in Q3. Stress was visible across portfolios, including in mortgages due to the bank’s inability to force legal action due to the ongoing standstill situation.

Therefore, while gross slippages appeared marginal in Q3, if considered as per RBI’s income recognition and asset classification (IRAC) norms, slippages would have been Rs 6,736 crore, almost 4x larger than Q2’s Rs 1,572 crore and 8 per cent higher than a year-ago level. The bank has stated that roughly 83 per cent of Q3 slippages were from its retail portfolio. Lalitabh Srivastava of Sharekhan says that Axis Bank frontloading its stress is positive. “However, the retail stress going up is a concern,” he explained.

The restructured loans in Q3 stood at Rs 2,709 crores or just about 0.42 per cent of the gross customer assets, as against the earlier estimated of Rs 11,000 crore in Q2. Only Rs 396 crore loans have been restructured so far.

Axis Bank’s provision coverage ratio improved to 79 per cent in Q3 as against 77 per cent in Q2.

The bank’s capital adequacy ratio stood at 19.31 per cent, with common equity tier-1 capital at 15.36 per cent as of December 31, 2020.