Axis Bank Q3 beats estimates; asset quality deteriorates

India’s third largest private sector bank posted its Q3FY16 numbers after the market hours on Wednesday. The results were better than expected as profits beat analyst expectations. However, asset quality worsens further.

Axis Bank’s third quarter NII (Net Interest Income), the difference between interest earned and interest expended grew by a strong 16 per cent to Rs 4162.06 crore during the quarter as compared to Rs 3589.56 crore in the previous year due to robust pick up in loan advancement. Other income, which comprises fees, commissions etc also rose by 15 per cent to Rs 2,337.78 crore on Q-O-Q basis. Net interest margin, a key indicator of bank’s profitability, declined to 3.85 per cent from 3.93 per cent in the corresponding quarter a year ago. This was primarily due to decrease in the base rate which has fallen 65 basis points in the past year, leading to margin compression.

Banks profit after tax increased by 15 per cent to Rs 2175.3 for the quarter in review from Rs 1899.76 crore achieved in the same period of previous fiscal. T he bank has reported a healthy growth in profits despite large provisions for bad loans but has managed to make it up with a robust 21 per cent growth in corporate and retail advances.

Sequentially provisioning for bad loans increased by 0.8 per cent to Rs 712.59 crore from Rs 707.17 crore in the last quarter. Bank's asset quality worsens further as its gross Non- Performing Assets (NPAs), as a percentage of gross advances rose 30 basis points sequentially to 1.68 per cent and net NPA’s were augmented by 27 basis points to 0.75 per cent. In absolute terms, gross NPA shot up by 29 per cent Q-O-Q (quarter on quarter) to Rs 5724.05 crore from Rs 4451.11 crore. Whereas net NPA too saw a jump of 63 per cent sequentially to Rs 2514.09 crore from Rs 1543.62 crore. Bad loans went up sharply because Axis Bank has fully recognized the necessary impairment and the resultant provisioning impact of asset re-classification, as per the Reserve Bank of India’s (RBI’s) assessment, in this quarter. Almost half the slippages in the third quarter were because of RBI’s asset quality review.

The bank's outstanding advances grew 21 per cent to Rs 3,15,367 crore as on December 31, 2015 compared to the same period last year. Of this, retail advances grew 27 per cent to Rs 1,25,796 crore, and accounted for 40 per cent of the bank's loans. Corporate loans grew 21 per cent to Rs 1,48,385 crore and accounted for 47 per cent of loans. The overall growth was dragged down by slow growth in advances in the small and medium enterprises (SME) segment, which grew only 7 per cent to Rs 41,186 crore.

Reacting to the Q3 results shares of Axis Bank were trading with gains of more than 4.5 per cent to hit an intra-day high of Rs 421.40 in the early morning hours. Shares of Axis Bank Ltd have slumped more than 40 per cent after touching an all-time high in March last year, underperforming the banking index, which has fallen 26 per cent during the same period. The slump in the stock is a reflection of the underlying stress in asset quality.