Axis Bank reported a 46 percent year-on-year (YoY) drop in net profit at Rs 701 crore for the first quarter ending June 2018.
The third largest private lender in India had posted 16 percent YoY fall in net profit at Rs 1,305.60 crore in the same quarter last year. It had posted a loss of Rs 2,188.7 crore in the March quarter.
In the post-results conference call, Jairam Sridharan, chief financial officer at Axis Bank, said, "This is the quarter of turning around with PAT (profit after tax) coming back in black..."
During the quarter, provisions towards bad loans rose 42.5 percent to Rs 3,337.7 crore as against Rs 2,342 crore in June end 2017. Sequentially, it declined by 53.5 percent from Rs 7,179.5 crore.
A Reuters’ poll had projected a profit dip by 57 percent at Rs 558.5 crore, while a Motilal Oswal report had estimated decline by 40 percent to Rs 790 crore.
“Despite a build-up in global uncertainty, growth momentum seems to be picking up in India…While large corporates are in the process of finalizing capex plans, we are optimistic of a continuing 12-13 percent loan growth, primarily driven by retail and services... Our experiences in this quarter increase our conviction that the asset quality cycle has turned,” said Shikha Sharma, Axis Bank’s CEO and Managing Director, after the results announcement.
NPAs
Gross non-performing assets (NPAs) as a percentage of total loans reduced more than expected to 6.52 percent in Q1FY19 from 6.77 percent in Q4FY18 but increased from 5.03 percent in Q1FY18.
Net NPAs also decreased to 3.09 percent from 3.40 percent in the fourth quarter but worsened on a year-on-year basis from 2.30 percent in the first quarter of last year.
Gross and net NPAs were projected to deteriorate to 7.6 percent and 3.9 percent, respectively, by the Motilal Oswal report.
Fresh additions to NPAs declined by 74 percent to Rs 4,337 crore.
Sridharan said, "The pool from which slippages are coming, particularly in corporate credit of BB and below rated ones, has continued to shrink over the last nine quarters. It has reduced from a peak of 7.5 percent or so to now two percent."
"When the Gangotri reduces in size, Ganga is going to thin out. So, the slippages are reduced because the origin point is just much smaller now," he added.
As on June 30, 2018, Axis Bank’s gross NPAs in absolute terms stood at Rs 32,662 crore and net NPAs stood at Rs 14,902 crore.
Recoveries and upgrades during the quarter were at Rs 2,917 crore while write-offs during the quarter stood ar Rs 3,007 crore.
On the NPA outlook, Sridharan said, "We continue to think, we are in the last phases of asset quality recognition cycle in corporate, so you'd probably see one more quarter of slightly elevated level and then going back to normalised level."
Interest income
Net interest income (NII) - the difference between interest earned on loans and paid on deposits – beat estimates to grow by 12 percent to Rs 5,167 crore as compared to Rs 4,616 crore in the year-ago period.
The projected growth was 7.2 percent at Rs 4,947 crore.
Non-interest income or other income fell marginally by 2.5 percent to Rs 2,925 crore from Rs 3,000 crore last year. It was estimated to drop by 11.5 percent to Rs 2,655 crore.
Trading profits as part of other income plunged to Rs 103 crore as compared to Rs 824 crore in Q1FY18.
Loan growth and Margin
Loan growth during the quarter stood at 14 percent over a year ago at Rs 6.53 lakh crore driven by retail (21 percent) and SME or small and medium sector enterprises (19 percent) segments. Retail and SME loans constituted 61 percent of total loans.
Corporate loan growth was at six percent.
Net interest margin for Q1FY19 stood at 3.46 percent down from 3.63 per cent in Q1FY18.
"The two-year NIM compression cycle is over and this quarter's dip is because of a large steel loan recovery from the insolvency process. A range of 3.40 percent, similar to last year, is the overall guidance for the full year...Overall trajectory is upwards," Sridharan said.
The results were announced post market hours on Monday.
Anticipating better results, Axis Bank shares ended at Rs 568.45 per share, higher by 2.67 percent as compared to 0.42 percent rise of trade in BSE Sensex.
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