For Axis Bank, retail focus, lower provisioning help, but margins remain a concern

The December quarter results of Axis Bank are similar to those of its peers. Lower provisioning and rise in retail lending led the bank to deliver a 19% year-on-year increase in net profit.

The bank's focus on retail lending has helped it maintain an above average growth in loan assets. Retail loans, which constitute 30% of the total loan assets, grew 33% y-o-y during the quarter. On the other hand, corporate loan assets grew just 3%. Overall, its loan book grew 18% during the quarter, higher than the industry average of 15%. In addition, a 21% increase in retail deposits was a comforting factor. Higher retail deposits will reduce the volatility in cost of funds in future. The bank's net interest income grew 20% y-o-y.

Higher retail lending, however, has come at the cost of lower net interest margins (NIMs). In the quarter to December, the bank's NIMs contracted by eight basis points to 3.71% when compared with the preceding quarter. This is because yields on retail loans such as home loans, the bank's major lending segment in retail, were lower compared with mid and small corporate loans.

The rise in stressed assets for the bank is nearly in line with its peers. Lower provisions led to a substantial rise in net non-performing assets (NPAs) during the quarter. While gross NPAs increased 10% Q-o-Q, net NPAs grew 20% to Rs 1,003 crore. However, the bank's net NPAs stand at 0.42% of its total assets, which, given the weak macro environment, appears decent. Another positive was the marginal rise in restructured assets. The bank's outstanding restructured assets grew 2% to Rs 4,900 crore.