Axis Bank net profit up 15%

Axis Bank, the country’s third largest private sector bank, reported a 15 per cent rise in net profit to Rs 2,175 crore in the October-December quarter on the back of higher net interest income and other income.

It is for the first time in the past eleven years that the bank has reported a net profit growth of only 15 per cent. Prior to this, the last time the bank had reported a drop in net profit of 28 per cent in quarter ended September in 2004. In the last 12 quarters, the lender had managed to always grow its bottom line at an average of 20 per cent.

Net interest income, the difference between interests earned and expended, increased by 16 per cent to Rs 4,162 crore in the quarter ended December. Other income, which includes fees, commissions etc also rose 15 per cent to Rs 2,338 crore.

The bank witnessed further pressure on asset quality with the gross non-performing assets increasing to 1.68 per cent against 1.38 per cent in the quarter ended September. Gross NPA inched up by 34 basis points compared to the third quarter of the last financial year.

As on December 31, 2015, the bank’s gross NPA was Rs 5,724 crore against Rs 4,451 crore as on September 30, 2015. During the quarter, the bank added Rs 2,082 crore to gross NPAs, and recoveries and upgrades were Rs 156 crore. Net NPA also increased to 0.75 per cent from 0.44 per cent in the corresponding quarter last year. The lender said it had not made any sale to asset reconstruction company in the quarter ended December.

“Based on a thorough systemic review, Reserve Bank of India (RBI) had recommended recognition of certain assets which we have done. There was a formal communication with the regulator and based on the specifics communicated we have done the recognition,” said Jairam Sridharan, chief financial officer, Axis Bank.

The management added the slippages in this quarter were around Rs 2,082 crore - of which 50 per cent was due to a central bank directive. The fresh slippages were mainly from pharma and power sectors. For the full year, the bank expects the slippages to be around Rs 7,000 crore.

This quarter, the bank has also restructured four accounts under the ‘5/25 scheme’ worth around Rs 1,600 crore.

RBI’s 5/25 scheme allows banks to extend the repayment schedule of loans to 25 years with an option to refinance them after five years.

At present, the bank has a restructuring pipeline of about Rs 2,500 crore. The lender also undertook strategic debt restructuring of one account with an underlying loan amount of Rs 500 crore.

Sridharan added that the pressure on asset quality might continue in the January-March quarter as well. “The economic environment continues to be challenging and there hasn’t been any substantial improvement at the micro level. There has not been any significant pick-up in demand and therefore we are not very enthusiastic about the fourth quarter.”

The provisions and contingencies also increased to Rs 712.59 crore from Rs 507.15 crore in the October-December quarter of the last financial year. The loan loss provisioning for the third quarter was Rs 626 crore compared to Rs 362 crore during the same period of last year. The bank has used Rs 220 crore for provisioning purpose from its contingency pool.

“We had built up the contingency pool from the profit and loss account over the last few quarters and we have used Rs 220 crore from the pool. The outstanding amount in the pool is now Rs 180 crore,” said Sridharan.

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. The management said the base rate has fallen 65 basis points in the past year, which has led to margin compression.

Advances during the quarter were up by 21 per cent year-on-year to Rs 3.15 lakh crore, driven by domestic retail loans and corporate credit. Growth in advances was led by retail, which grew at 27 per cent, and corporate at 21 per cent. The bank remained well capitalised with a capital adequacy ratio of 15.47 per cent.