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Axis Bank Q1 net rises 22% on higher interest income

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Axis Bank, the third largest private sector lender in the country, on Tuesday said its net profit for the quarter ended June 30 expanded 22 per cent to Rs 1,154 crore from Rs 942 crore a year earlier. Higher interest income from advances and surge in trading profit aided the bank’s earnings growth during the quarter.

Net interest income, or the difference between interest income and interest expense, grew 26 per cent to Rs 2,180 crore during the three-month period. Net interest margin improved nine basis points from a year ago but narrowed 18 basis points sequentially to 3.37 per cent.

“The sequential decline in our net interest margin is on account of increase in cost of funds. It increased by 25 basis points during the quarter. We will try to maintain our net interest margin in the range of 3.25-3.50 per cent,” Somnath Sengupta, executive director and chief financial officer of the bank, said in his post-earnings comments.

The bank’s other income was up 14 per cent at Rs 1,336 crore as trading profit more-than-doubled during the quarter. In April-June, trading profit was at Rs 150 crore compared with Rs 70 crore in the corresponding period last year.

Fee income growth was muted at nine per cent as the bank failed to participate in some of the big-ticket transactions in the debt market.

While the bank’s asset quality remained steady from a year-ago period, it deteriorated marginally from a quarter-ago period. shares fell over two per cent in on Tuesday’s trade as investors feared slippages may increase in the coming quarters.

“The total provisions were higher at Rs 260 crore along with Rs 130 crore sequential increase in net non-performing assets.... We await details on slippages, restructured loan portfolio and quality of loan portfolio,” noted broking firm Emkay Global Financial Services.

While gross and net non-performing asset ratios remained unchanged year-on-year, they deteriorated by 12 basis points and six basis points, respectively, from a quarter ago. The bank closed the quarter with a gross non-performing asset ratio of 1.06 per cent and net bad loan ratio of 0.31 per cent. The provision coverage ratio was at 79 per cent.

Axis Bank also restructured Rs 628 crore of loans in April-June. The private lender’s restructured portfolio stood at Rs 3,827 crore or 1.95 per cent of gross customer assets at the end of June 2012.

Sengupta, however, dismissed fears of sharp deterioration in the bank’s credit quality in the coming quarters. “We have been able to maintain our asset quality. A few more accounts may be restructured, but there is no reason to believe that it will sharply deteriorate our asset quality. The is no cause for alarm. We are not anticipating any severe stress on our asset quality,” he added.

The bank’s advances grew 30 per cent year-on-year to Rs 171,146 crore at the end of June 2012. However, adjusting for currency depreciation and a relatively lower base caused by run-offs in short-term loans last year, the normalised growth in advances is estimated at 21 per cent.

Sengupta expects the bank’s credit growth to outpace the industry average in 2012-13. He expects retail loans, which grew by 50 per cent in last 12 months, to drive growth in advances.

The bank’s deposits were at Rs 222,631 crore at the end of June, up 21 per cent from a year ago. The current account, savings account (CASA) deposits had 39 per cent share in total deposits.

The bank closed the quarter with a capital adequacy ratio of 13.03 per cent, of which tier-I ratio was 9.02 per cent. The capital adequacy ratios exclude first quarter net profit.

Axis Bank said it is “awaiting the necessary approvals under applicable law from various regulatory authorities” for completing the acquisition of Enam Securities’ businesses. Hence, its first quarter earnings figures do not include the broking firm’s financial numbers.

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