Axis Bank Q2 net jumps 36% to Rs 432 cr but bad loans rise

Gross NPAs and net NPAs stood at 5.9% and 3.12% in September quarter against 5.03% and 2.30% in the June quarter respectively

Axis Bank on Tuesday reported 36 per cent year-on-year growth in its second-quarter net profit, aided by low provisioning.

 
Asset quality numbers worsened significantly on the Reserve Bank of India’s (RBI’s) assessment of its previous financial year numbers.
 
According to rules, if the RBI’s assessment of bad debt numbers for a financial year differs from the bank’s assessment by more than 15 per cent, the divergence should be disclosed.
 
Profit for the quarter stood at Rs 432 crore, against Rs 319 crore in the year-ago quarter. Gross slippages, or good assets turning bad, in the quarter rose significantly to Rs 8,936 crore, of which Rs 8,110 crore was in the corporate sector. Total slippages in the June quarter were at Rs 3,519 crore.
 

Source: Capitaline

Most of the slippages were from the “BB-and-below” pool, the bank said.
 
Analysts termed the result of the bank “bad” and said the bank had earlier guided that their BB-and-below pool was healthy and there was not much cause for concern. This was not a good indication for the industry as well, they said.
 
The bank said RBI auditors had identified nine accounts for reclassification at the end of 2016-17 and all those accounts were now non-performing assets (NPAs) and provided for in the second quarter. The nine accounts accounted for Rs 4,867 crore. Last year, the divergence was of Rs 9,478 crore. Of these nine accounts, Axis Bank is the lead banker in one company in the information technology sector, having an exposure of Rs 1,143 crore. NPAs in the quarter under review mainly came from the power and steel sectors.
 
“We continue to engage with the RBI to align our understanding on the interpretation and guidelines in the current economic environment,” said Jairam Sridharan, chief financial officer, Axis Bank, in a call with journalists. Gross NPAs and net NPAs stood at 5.9 per cent and 3.12 per cent in the September quarter against 5.03 per cent and 2.30 per cent in the June quarter, respectively. In the year-ago quarter, gross NPAs were at 4.17 per cent and net NPA were at 2.02 per cent of the loan book.
 
But the provision for the quarter fell to Rs 3,140.41 crore from Rs 3,622.74 crore in the year-ago quarter. The bank’s retail and SME loans grew at 23 per cent and 15 per cent, respectively.

 
The bank management said it wanted to get back into the corporate loan segment; the portfolio has seen growth at near-zero level for a long time.
 
The bank’s corporate loan book grew at 10 per cent, led by working capital loans. The bank management guided that they wanted to get back into corporate sector lending. “We want to get back into that space,” said Sridharan, adding the bank would be “happy to grow this business but business opportunities need to come up and the economic environment needs to see a bounce back.”
 
The net interest margin (NIM), a key profitability indicator, was at 3.45 per cent against 3.64 per cent in the year-ago quarter. However, the bank ruled out lending rate cuts in the coming days.
 
There are no plans of cutting lending rates “unless there is a significant softening of funding costs, which we are not seeing now”, said Sridharan.
 
The Axis Bank stock closed at Rs 513.2 a share, down 1.44 per cent, on the BSE on Tuesday.