Axis net falls 43% as provisions soar, stares at more troubles

Pointing towards one more challenging year ahead, Axis Bank today reported a massive 43 per cent plunge in the March quarter net at Rs 1,225 crore on worsening asset quality woes, even though it managed to halve fresh dud asset formation.
For full fiscal 2017, the private lender's net profit plummeted a whopping 52.65 per cent to Rs 3,953.03 crore.
The bank's troubles mounted from the fact that its corporate loan book remanded flat, which had been its traditional strength, while retail grew at a healthy 21 per cent to become the biggest contributor to the asset book.
The bank will continue to focus on the retail segment as it aims to outpace the system by 5 percentage points in overall advances growth in the current financial year.

In Q4, its provisions more than doubled to Rs 2,581.25 crore, but this was lower than the Rs 3,795.80 crore it had provided for in Q3. This is despite its net slippages almost halved to Rs 2,008 crore from Rs 4,210 crore in Q3 and 16 per cent of them were outside a specially created watchlist of stressed accounts, which has now come down to Rs 9,436 crore.
"I think the worst is behind us. However, there are some challenging times still ahead of us," chief financial officer Jairam Sridharan told reporters over a concall.

"We should recognise that Q4 does tend to be seasonally fairly strong for recoveries. I wouldn't blindly extrapolate all the outcomes of Q4 into the next year, we are cautiously optimistic," he said.

The bank, which was hit hard following the asset quality review by RBI, expects credit cost to improve to 1.75 -2.25 per cent from 2.82 per cent in fiscal 2017, he said, adding the target is to take it down to 0.95 per cent.
Like its other peers, a cement account (JP Group) continued to impact provisions for Axis Bank too. Sridharan explained the account with an outstanding of Rs 1,660 crore slipped into NPA but was regularised within the same month.
However, the bank decided to provide extra on this account at 25 per cent of the outstanding amount as against the 0.40 per cent standard asset provisioning.

Sridharan said the power sector is a major concern for the bank as it has a Rs 20,000 crore exposure and accounts for 60 per cent of the remaining watchlist.
Total exposure to the telecom sector, on which RBI last had flagged its concerns and asked banks to make additional provisions, is at Rs 3,982 crore, he said, adding as per the RBI instructions its board will create stressed- sector provisioning policies. The troubled telecom sector owes over Rs 4 trillion to the financial system.
Sridharan said the entire exposure of over Rs 9,400 crore in the watchlist will be classified as NPAs, upgraded or written-off during 2017-18, and the watchlist will cease to exist in the next financial year. There was no increase in provisioning for the bank due to RBI's recent circular on divergence in recognition of assets, he added.

During Q4, core net interest income inched up 4 per cent to Rs 4,729 crore, while non-interest income grew 8 per cent to Rs 3,013 crore. The share of low-cost current and savings account balances stood at 51 per cent and the domestic net interest margin improved sequentially to 4.11 per cent from 3.61 per cent in the December quarter.
Sridharan said the NIM for fiscal 20117 compressed 0.15 per cent to 3.67 per cent and the lender expects a similar 0.15-0.20 per cent compression this year as well.
During Q4, the bank sold a pool of assets to ARCs having a book value of Rs 2,354 crore for which it got an upfront payment of Rs 266 crore in cash, while Rs 1,420 crore was added in security receipts.

Even though it expects retail to drive growth, Sridharan said the bank will continue to look at corporate lending front which had been its traditional strength. He said much of corporate loan demand will be for working capital and he expects capex recovery only in the next financial year.
The Axis scrip gained 42 bps to Rs 517.30 on the BSE as against a 63 bps gain on the benchmark Sensex that crossed the 30,000-mount for the first time today.