Axis Bank—country's third largest private sector lender—reported a 83% drop in net profit to Rs 319 crore in July-September quarter as compared to Rs 1,915.64 crore in the same quarter last year. This sharp drop in profit was led by higher provisioning that increased by over five times as bad loans increased.
In the quarter ended September, bank's Gross non-performing loans (NPAs) rose to 4.17% (Rs 16,379 crore) from 1.38 %(Rs 4,415 crore) in the same quarter a year ago. In quarter ended June 2016, its Gross NPAs were at 2.54% (Rs 9,553 crore).
For Axis Bank, the worst in terms of asset quality is expected to continue for at least two more quarters. In the March quarter, Axis had put out a watchlist of Rs 22,628 crore and the bank had stated that they expect 60% of the loans from it to fall into NPAs.
However, now the bank has revised its guidance and expects an even higher percentage of accounts to slip into the bad loans category.
Jairam Sridharan, CFO, Axis Bank explained that even though the macro environment is improving, pressure on wholesale and corporate lending remains.
"Some of the resolution mechanisms such as S4A, SDR etc haven't worked out as expected and this has also led to an increased number of accounts slipping. There needs to be some modifications with respect to the structure of the tools and the lenders coming together for recovery," he said.
At the end of quarter eneded September, the bank's watchlist reduced by 32% over the previous quarter due to increased slippages and stood at Rs 13,789 crores. The reduction in the list was on account of higher slippages to NPAs amounting to Rs 7,288 crores, which comprises 89% of the total corporate credit slippages.
As a result of the higher NPAs, the lender also saw some pressure on net interest income and net interest margins.
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Net interest income, the difference between interest earned and interest expended increased by 11% year- on-year to Rs 4,514 crore. Net advances grew by 18% led by growth in the retail book which improved by 25%.
Net interest margin, a key indicator of bank's profitability, declined by 20 basis points on a year on year basis to 3.64%. The management explained that this was a result of increase in interest reversal due to higher slippages and also because margin compression on yield of assets has fallen more than cost of funds.