Axis Bank, country’s third largest private sector bank, said it will face compression in net interest margins and net interest income in the current fiscal year but expects the profitability to turn around in the second quarter.
Jairam Sridharan, CFO, Axis Bank said, “Our PAT (profit after tax) over last few quarters — the growth was -80 percent, then -70 percent, -40 percent and now -16 percent. So that shows the trajectory of where we are headed. I feel the turnaround is gathering a lot of strength and it has ability to breakout in the coming quarter.”
Net interest income, or NII, is the difference between the interest income generated by banks from loans or from other assets and the amount of interest paid out on deposits.
Net interest margin, or NIM, is net interest income expressed as a percentage of average interest-earning assets.
NII grew marginally by 2 percent over last year to Rs 4,616 crore, while NIM declined to 3.63 percent from 3.83 percent in the previous quarter and 3.79 percent in a year ago period.
The bank expects NIMs to be further compressed by about 20 bps (basis points) which tells that growth in NII is likely to be sluggish. “Our retail would continue to grow but there will be sluggishness in corporate credit and that will reflect in our credit growth,” Sridharan said.
One basis point is a 100th of a percentage point.
Exit of Shikha Sharma
On reports of Axis Bank MD and CEO set to leave the bank next year to join the Tata Group, the CFO clarified that it is "utterly false".
"Clearly there is a lot of interest in the leader of our bank. We can confirm to you quite unequivocally that there is no truth to this speculation that is going on and the news that you are referring to is utterly false."
Asset quality and Credit costs
Credit costs, or the amount the bank expects to lose because of standard credit risks, are likely to be in the range of 175 to 225 bps in FY18. The bank expects to reduce it towards long-term average (90-100 bps) in financial year 2019.
Axis Bank’s gross non-performing assets (NPAs) showed some stability from the previous quarter with slower increase in slippages from standard to bad loans.
Gross slippages for Q1FY18 stood at Rs 3,519 crore down from Rs 4,811 crore in Q4FY17.
However, it will have to make provisions of about Rs 2,520 crore towards the 8 of the 12 cases under insolvency towards which it has exposure of Rs 5,071 crore.
According to Sridharan, the bank should see some partial upgrade on some of the larger cases under the Insolvency and Bankruptcy Code (IBC).
The bank’s watchlist (potential list of bad loans) has reduced to 35 percent at Rs 7,941 crore from its peak.
Sridharan said that the gross NPA levels are near peak and there will not be much increase going forward, while on a net level, there could be some spike.
It has also made one percent additional provisions towards standard assets in four sectors — power, infrastructure construction, iron and steel, and telecommunication services — with Rs 184 crore made during this quarter.
In Q1FY18, Axis Bank’s net profit dipped for the sixth straight quarter by 16 percent to Rs 1,306 crore.
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