Axis Bank focusses on retail assets

Vidrum / 08 Dec 2011

Axis Bank has expressed strong expansion plans. According to reports by a leading newspaper, the bank plans to increase its retail loans by 900 bps to 30% of the total advances in the coming years.

Axis Bank, the 3rd-largest private sector bank by market cap, has expressed strong expansion plans. According to reports by a leading newspaper, the bank plans to increase its retail loans by 900 bps to 30% of the total advances in the coming years. 

As on Sept 30, 2011, the retail loans of the bank stand at Rs 29328 cr, of which housing loans form 76%, auto loans form 13%, personal loans form 4% and others are at 7%. More exposure to retail loans will help the bank in increasing its Net Interest Margins (NIM) to some extent going ahead, but the bank will have to focus on its non-performing assets (NPAs), which usually increase. 

The following table shows the retail advances and other indicators of Axis Bank as well as other private banks:  

As on 30th September 2011 
Bank Retail Advances (Rs Cr) Total Advances (Rs Cr) % of Retail to Total Advances Net NPAs (%) NIM (%)
ICICI Bank 81900 233952 35.01 0.93 2.61
HDFC Bank 92878 188502.18 49.27 0.2 4.1
Axis Bank 29328 140089 20.94 0.34 3.78

As on Sept 30, 2011, Axis Bank has a total of 1438 branches, of which 27% are in metros. Thus, as much as 73% of the branches are is the urban, semi-urban and rural areas. The rural and semi-urban areas offer potential and huge growth opportunity, which the bank would explore. Over the last 5 years, Savings Deposits have increased by a CAGR of 35% to Rs 40850 cr as of FY11.

The bank posted good HI FY12 numbers. Its Net Interest Income (NII) increased by 19.25% to Rs 3731 cr, while the Net Profits increased by 26% to Rs 1862 cr on a YoY basis. The Net NPAs remained stable at 0.34%. Even in a rising interest rate environment, the bank’s NIM increased by 10 bps to 3.78% in Q2 FY12 on a YoY basis.

We, at DSIJ, feel that Axis Bank has taken the right steps, which will be beneficial for it going ahead. Demand from individuals, i.e. that for retail loans continues to grow at a decent pace, while the demand from industries has slowed down because many companies have postponed their expansion plans.

The bank also should deregulate its Savings interest rates and take early advantage, attracting retail investors for deposits, rather than waiting for the bigger players to make the first move.

Axis Bank has good control over its NPAs. This is evident from the fact that its Net NPAs are in the range of 0.26%-0.36% in the last 4 years. The bank had a provision coverage ratio of 77.69% as on Sept 30, 2011. We feel that is has a good risk management approach while granting loans, and will be able to maintain its Net NPA rate going forward.

Overall, the bank is in good shape, though one must wait and watch for the RBI's monetary policy that is expected on Dec 16, 2011. The central bank's stance will further provide guidance on the interest rate, inflation, credit growth and other indicators, which will provide direction for the overall economy, the banking sector in particular and also for the bank.

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