Axis Bank : A creditable show

Although the share of bad loans has risen, the bank has made adequate provisions to take care of them.

In a relatively difficult environment, Axis Bank has managed to post a reasonably good set of numbers for the June 2009 quarter. To begin with the net interest income is up 29 per cent year-on-year, more or less in line with expectations, and the bank has managed to post a net interest margin (nim) of 3.34 per cent, only slightly lower than the 3.37 per cent reported in the March quarter.

The pace of growth has tapered off somewhat in a sluggish credit market with the loan book growing at just 28 per cent year-on-year compared with a growth of 35 per cent in the March quarter. Even if there has been a slight sequential fall in the yields on assets of an estimated 50 basis points, the performance is creditable against the backdrop of falling interest rates.

However, if the growth in the bottom line is an impressive at 70 per cent year-on-year, much of it has to do with the strong increase in other income--the bank has made huge profits — up 469 per cent year-on year — trading in government securities and corporate bonds. The concerns lie in the higher quantum of restructured loans, now cumulatively at Rs 2,500 crore, which is 2.77pe rcent of gross customer assets . Besides, net non-performing assets (npas) have inched up to 0.41 per cent from 0.35 per cent in the March quarter.

However, bad loans are likely to increase for the banking system as a whole. Where Axis Bank scores is that it has been prudent enough to stay well covered — the coverage ratio is a high 86 per cent of gross npas and accumulated write-offs — and it is cleaning up the book — npas on credit cards for instance have halved since the March quarter.

The Axis Bank stock was up just over 2 per cent at Rs 756 on Monday; at this price it now trades at around 2.5 times price to estimated book value for 2009-10 with upsides priced in for the present.