Asset quality key indicator in Axis Bank's Oct-Dec qtr

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Asset quality key indicator in Axis Bank's Oct-Dec qtr

According to a CNBC-TV18 poll estimate, Axis Bank’s net profit is expected to grow 13% year-on-year to Rs 1,006 crore as compared to Rs 891 crore in the corresponding quarter of last fiscal. Net interest income or the difference between interests earned and paid out, is seen going up by 21% Y-o-Y to Rs 2,017 crore.

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Moneycontrol Bureau

India's third largest private sector lender will announce its third quarter (October - December) results on Friday.  According to a CNBC-TV18 poll estimate, Axis Bank 's net profit is expected to grow 13% year-on-year to Rs 1,006 crore as compared to Rs 891 crore in the corresponding quarter of last fiscal. Net interest income or the difference between interests earned and paid out, is seen going up by 21% YoY to Rs 2,017 crore.

Moreover, the loan book would expand at 18% to 20% (as against 26% in Q2) due to slowdown in mid-sized corporates & SME loans. Deposit base may grow at a higher pace at 34% YoY.

"Slippages have inched up in Q2FY12 and given the high share of SME credit, we expect moderate inch up in slippages from Q2FY12. However, due to lower investment depreciation, we expect provisions to trend down. Overall, we expect 13% PAT growth in Q3FY12. We also expect margins to moderate by 15bps in Q3FY12." brokerage firm Prabhudas Lilladher said in a report.

Key points to watch out for Axis Bank's Q3:
(Moneycontrol.com spoke with a few number of analysts on this)

• The asset quality of the bank is going to be an important barometer for the bank's third quarter performance. Many analysts are expecting some fresh bad loans. However, some allege that the disclosure of the bank's bad loans needs to be more transparent. In Q2, gross non-performing asset (NPA) and net NPA ratios stood at 1.08% and 0.34% respectively.

• Consequently, adequate provisioning should be made in accordance with the rising non-performing assets. High exposure to SME & infra sectors remain key risks to asset quality.

• The net interest margin (NIM) is likely to contract by 10-15 basis points on rising cost of funds. However, a flat NIM growth quarter-on-quarter basis would be a positive trigger for the stock. NIM was at 3.78% in Q2 and the management said that these levels of NIMs were not sustainable.

• Axis bank is primarily known to be a specialized lender for corporates, which account for around 50% of its loan book. Amidst this perception, any fresh retail foray will be scrutinized from risk management perspective. Managing retail business requires extra cautious approach, especially in an economy downturn. The bank has been advocating for higher retail focus. Currently the retail segment forms around 20% of the book.

• In order to generate non-interest income, fee income and treasury gains are two key factors to be viewed carefully.

saikat.das@network18online.com