Axis Bank third quarter net profit up 19%

Credit quality deteriorated a tad with gross non-performing asset ratio rising 6 bps to 1.25%

Axis Bank, India’s third-largest private sector lender, said on Thursday that its net profit for the quarter ended December 31, 2013, increased by 19 per cent from a year earlier to Rs 1,604 crore. Higher interest income, better net interest margin and lower provisions aided the bank's earnings growth during the quarter.

"It has been a very challenging quarter. The macroeconomic environment has not been easy. Inflation and interest rates have been staying high, restructured assets have been going up. But we are reasonably satisfied with our results," Somnath Sengupta, executive director at Axis Bank, said in his post-earnings comments.

Net interest income, or the difference between interest income and interest expense, grew 20 per cent from a year ago to Rs 2,984 crore during the three-month period. Net interest margin improved 14 basis points, on a year-on-year basis, to 3.71 per cent in the October-December period. Sengupta said the bank expects its net interest margin to remain above 3.5 per cent by the end of this financial year. Non-interest income growth was flat, rising only two per cent year-on-year.

The bank pared its provisions to Rs 202.5 crore during the quarter from Rs 386.8 crore a year earlier. This was on account of Rs 173-crore write-backs in provisions on investment book.

Credit quality deteriorated a tad with gross non-performing asset ratio rising six basis points to 1.25 per cent, while net bad loan ratio increasing five basis points to 0.42 per cent at the end of December 2013.

The private lender restructured Rs 670 crore loans during the quarter. The cumulative value of net restructured advances was Rs 4,900 crore or 2.06 per cent of net customer assets. The bank expects its restructured book to be around Rs 6,000 crore by the end of March 2014.

Axis Bank's advances grew 18 per cent from a year earlier to Rs 211,467 crore at the end of the quarter. The growth was driven by rise in domestic retail advances, which increased by 33 per cent from a year ago. Domestic retail advances now has a 30 per cent share in the bank's net loan portfolio compared to 27 per cent at the end of December 2012. Sengupta clarified the bank had offered loans against foreign currency non-resident (banks), or FCNR (B), deposits, which also contributed to the loan growth. “Without these loans, credit growth would have been around 15 per cent,” said Sengupta. The bank expects its loan growth to be around 15 per cent in 2013-14.

Axis Bank raised $1.57 billion FCNR (B) deposits. However, deposit growth was muted at 7.3 per cent year-on-year. The bank closed the quarter with deposits of Rs 262,398 crore. The share of low-cost current account savings account (CASA) deposits was 38 per cent of total deposits at the end of the quarter.

The bank's capital adequacy ratio was 15.5 per cent, while tier-I capital adequacy ratio was 11.5 per cent at the end of December 2013.

“Axis Bank’s core performance came a shade below our expectations while profit after tax came ahead largely aided by lower provisions. Asset quality saw marginal pressure. The bank has also allowed its provision coverage ratio to slide sequentially, which does not bode well for the stock, in our view,” said Saday Sinha, banking analyst, Kotak Securities.