Axis Bank Q1 net up 89% despite higher provisions

2008

%  growth

Net interest income420.91810.5692.57 Total income1,879.292,891.2453.85 Operating profit367.94802.32118.06 Net profit174.98330.1488.67

As most of the government bonds in the bank's portfolio were in the held-to-maturity category, the bank made provisions largely on corporate bonds and equity shares held by it, chairman and CEO P J Nayak told Business Standard.

The bank's operating profit rose 118 per cent to Rs 808.32 crore. The net interest income was 92.55 per cent higher at Rs 810.46 crore for the quarter ended June 2008, compared to Rs 420.91 crore in the corresponding period last year.

Nayak said that the bank had managed to sail through a turbulent quarter, but suggested the need for caution on credit quality. "There has not been much impact on our portfolio since we have been cautious in lending. But we need to be careful of that," he said.

He, however, added that during the first quarter, compared to home, personal and auto loans, there was higher delinquency in the credit card portfolio, with an outstanding of Rs 600 crore. "There will be some slowdown in demand, but we do not intend to increase the interest rates on (credit) cards," Nayak said.

While net advances rose 48 per cent to Rs 61,160 crore at the end of June this year, Axis Bank expects the overall credit flow to rise around 35 per cent in the current financial year. The slowdown was partly due to the increase in interest rates in recent weeks. Nayak said that the corporate demand for credit had slowed down in the last six months. The corporate sector was borrowing less due to the pressure on margins.

The bank's net interest margin too is expected to come under pressure as the cost of funds has gone up, while lending rates have not increased in tandem. Nayak expects NIM of 3.25-3.50 per cent, compared to 3.93 per cent in Q4 last year. In Q1, NIM was 3.35 per cent.

"The fundamentals on the interest rate front is catching up very fast, which may result in slower growth. The outlook for the next three quarters looks gloomy as the RBI is likely to hike the lending rates again and NIM will fall further, and the size of non-performing assets is likely to go up. The situation looks grim going forward," said Shashank Panda, Manager, Investment Research, Capgemini Consulting. Axis Bank's shares fell 5.05 per cent to close at Rs 635.80 on the Bombay Stock Exchange.