Axis Bank Q4 results: Lender's asset quality worrying for investors still

The bank's slippages moderated significantly in March, but provisioning costs because of the coronavirus rose.

The dilemma for Axis Bank’s investors is how to interpret its March quarter (Q4) numbers. There are signs of easing asset quality pressure if investors consider the gross non-performing assets (NPA) ratio easing to 4.9 per cent, from 5 per cent last quarter, the absolute additions to gross NPA being contained at Rs 160 crore sequentially or even slippages (addition to bad loans) remaining contained at Rs 3,920 crore, as against Rs 6,214 crore in the December quarter. Yet, the Rs 7,730-crore provisioning cost, which is near twice the December quarter figure and resulted in a Rs 1,388-crore net loss in Q4 (analysts were expecting net profit of Rs 1,460 crore), may force them to rethink. In fact, Q4 is the first time after March 2018 that Axis dipped into losses of this magnitude because of the provisioning cost. The September 2019 quarter’s loss was due to adjustment of deferred tax assets.

 

 

Even if investors dissect provisioning costs and take comfort under Rs 3,000 crore created towards probable Covid-related asset quality pressure, it doesn’t bode well as loan loss provisioning rose to Rs 4,204 crore in Q4, from Rs 2,962 crore in Q3. Also, when seen against the provisions made by HDFC Bank and IndusInd Bank towards Covid-related exigencies, Axis’ numbers are too high.

“Axis Bank has had a decent run-rate at churning reasonable operating profit adequate to absorb unexpected stress. In this context, the Covid-related provisioning does appear quite high,” says Siddharth Purohit of SMC Capital. He says if the elevated provisioning cost does become a trend, investors are in trouble for the next three-four quarters.

Unlike peers, guidance from Amitabh Chaudhry, MD & CEO, was extremely cautious. “There have been a few hits and misses, and Covid will be a headwind for FY21,” said Chaudhry, while refraining from giving guidance on FY21. Nonetheless, given uncertainties regarding the lockdown, investors will have to keep a watch on the below-investment-grade book (17 per cent of corporate loans), especially in light of the management indicating the possibility of an uptick due to Covid-related stress.

 

 

For now, Q4’s 19 per cent year-on-year (YoY) net interest income growth and the 3.6 per cent net interest margin provide comfort on the quality of growth. How soon Axis can reclaim its low-cost current account–saving account (CASA) deposits ratio, which dipped to a three-year low of 39 per cent in Q4, will be watched.
 

As for the deal with Max Life, analysts say it comes at a time when Axis must shore up its fee income (down 3 per cent YoY in Q4). Analysts say it will place Axis alongside leaders, such as HDFC, ICICI and SBI, in terms of diverse business offering.