NPA provisions, expenses pull down Axis Bank profit 21 pc

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Axis Bank today reported a steep 21 per cent decline in net profit at Rs 1,555.5 crore for the three months to June, roiled by a more than doubling of its bad loan provisions, higher operating expenses (opex) towards branch expansion and the resultant salary outgo.

“Decline in profit is driven by slippages from the watch list, which lead to a rise in both gross NPA as well as net NPA levels to 2.54 per cent and 1.08 per cent, respectively, in the reporting quarter.
“Another reason for the dip in profit is the higher salary outgo and investment into branches which led to a 23 per cent increase in operating expenses,” Deputy Managing Director V Srinivasan told reporters on a post-earnings concall late this evening.

He said the lower profit is due to tepid other income or fee income, which grew only 11 per cent in the first quarter ended June 30, to Rs 2,738 crore from Rs 2,298 crore a year ago.

On the rise in operating expenses, he said while the bank did not open a single branch in the first quarter of last fiscal, it has opened 102 branches in the reporting quarter, which has taken its headcount to 52,400 from 43,300 a year ago. From January this year, the private lender has opened 201 branches against 31 during the same period last year.

“But still we maintained our cost to income ratio at 38 per cent,” Srinivasan said.

Gross NPA in absolute term more than doubled to Rs 9,553 crore from Rs 4,251 crore as of end June. Of this, NPA provisions stood at Rs 1,823 crore as against Rs 1,046 crore a year ago and Rs 906 crore in the March quarter of last fiscal.

Chief Financial Officer Jairam Shirdharan said all the provisions, including an additional Rs 115 crore towards AQR accounts identified by RBI last December, have been met through the balance-sheet only and that nothing has been from the Rs 3,000 crore contingency buffer created in the March quarter.

In the March quarter, it can be noted that, the Shikha Sharma-led bank had tagged a whopping Rs 22,000 crore worth accounts into a special watch list and had warned that 60 per cent of this might slip into NPAs over the next eight quarters including the June quarter. And this does not include the AQR accounts. Of this total watchlist, 53 per cent accounts are from iron and steel and textile accounts.

Asked whether the bank expects any negative surprises in the second quarter from the watchlist, Srinivasan said, “No. We are also not revising our NPA outlook for the September quarter.
“This 10 per cent additional slippages in the June

quarter from the watchlist is as expected and I don’t see any negative surprises either in the second quarter.

“But since we don’t see any solid recovery in the affected sectors of steel, power and textiles, we are still sticking to our March quarter assessment that 60 per cent of the identified a little over Rs 22,000 crore may turn dud assets,” Srinivasan said.

Of this total watchlist, fund-based accounts are worth Rs 20,295 crore and the non-fund are of Rs 2,562 crore, he said.

On provisions, the Axis Bank Deputy MD said he sees provisions from AQR accounts coming down going forward as he sees no surprising spurt in bad loans.

Total income of the bank improved to Rs 13,852.1 crore as against Rs 12,234.41 crore in the same period last year. During the quarter, the interest income rose to Rs 11,113.9 crore from Rs 9,936.14 crore.

During the first quarter, the bank added Rs 3,638 crore in fresh slippages, which Srinivasan said, was expected. Of this, 92 per cent, or Rs 2,680 crore, came from the watchlist account that the bank had identified in the March quarter and are in line with its own assessment, he said, adding recoveries and upgrades stood at Rs 140 crore while write-offs stood at Rs 32 crore during the quarter.

Of the total NPAs, as much as Rs 2,911 crore came from corporate accounts while Rs 306 crore of slippages came in from retail and SME accounts, especially from the agri lending side of retail loan book, as well as a few accounts from healthcare and education sector, Srinivasan said.

But he was quick to add that there is no reason for any worries on the SME side.

“SME loan book constitutes 13 per cent of our total assets, or Rs 45,000 crore. We have not seen any stress in the sector as such and therefore we have no reason to believe that this sector per se is in trouble,” Srinivasan said in response to a question whether the SME sector is the next power and steel sectors for the lenders.

Yesterday, Axis Bank’s larger rival HDFC Bank also reported a spike in NPAs, primarily from its SME loan book.

He was quick to add that the slippages in the education sector is not from the education loan book, which is growing very healthy-having doubled last year alone, and so is the healthcare account.

Maintaining an 18-20 per cent advances growth for the fiscal, driven by refinance which was very good in the reporting quarter, he said in the June quarter its loan-book grew 21 per cent driven by corporate refinance (teleco, pharma, oil & gas); personal loans and credit cards. The unsecured book is worth Rs 15,000 crore as of June.
Shridharan said 80 per cent of new corporate loans

were to A-rated companies, but admitted that most of the firms in its watchlist have slipped to BBB rating now.

The bank did not have any S4A accounts in the quarter but it had 4 SDR cases worth Rs 252 crore, of which one has already turned an NPA and it restructured Rs 790 crore worth from five accounts under the SDR scheme during Q1.

However, the bank did not sell any assets to ARCs.

Provisions also included Rs 51 crore towards the Punjab food scam account and Rs 142 crore worth towards three AQR accounts as it set aside the full provisions for them as against the incremental 15 per cent that RBI has mandated. Also there was Rs 71 crore provisions towards 4 SDR accounts.

The net interest income grew 11 per cent to Rs 4,517 crore in the April-June period from Rs 4,056 crore, while net interest margin stood at 3.79 per cent against 3.81 per cent a year ago.

Net advances grew 21 per cent, led by retail, which expanded 24 per cent and accounting for 41 per cent of net advances and followed by corporate refinance. Retail fee income grew 19 per cent, or 42 per cent of total fee income.

The bank’s domestic NIM slipped a tad to 40.4 per cent from 4.11 per cent a year ago.

Since the numbers were announced post-market hours, the Axis counter closed almost unchanged with a marginal negative bias at Rs 537.55 on the BSE, down 0.13 per cent.