Axis Bank Q2 net surges 83% as provisions fall

Mumbai: Axis Bank’s net profit rose 83% in the second quarter on strong growth in loans to individuals and small and medium enterprises (SMEs), buttressed by a fall in provisions as additions to bad loans slowed to a three-year low.

Net profit rose to Rs 790 crore, or Rs 3.07 per share, from Rs 432 crore, or Rs 1.80 per share, beating a Bloomberg poll of 22 market participants that had predicted profit of Rs 759 crore. More importantly, slippages fell to Rs 2,777 crore, down 69%, indicating an improvement in credit quality for the lender.

“Slippages have reduced substantially in this quarter. We have seen moderation at an overall level,” said Jairam Sridharan, chief financial officer (CFO) at Axis Bank. “Slippages will never go away but the fact remains that for the first time in many quarters, quarterly slippage is below 1% of loans. We expect to keep it below 1% for the foreseeable future.”

Slower additions to NPAs were the first since the third quarter of fiscal 2016 and come just two quarters after the lender slumped to its first-ever loss in the fourth quarter of FY18. Lower slippages meant lower NPAs, with net NPAs falling 58 basis points on-year to 2.54%.

This helped the bank cut back on provisions to Rs 2,927 crore from Rs 3,140 crore a year ago and down from Rs 3,337 crore in the quarter ended June 2018. The bank recovered Rs 2,100 crore in the quarter.

“We do not want to rejoice just yet. This has been a good quarter with improving asset quality, expanding margins and good loan growth, which will help us tap the opportunities and lay the foundation for the future. We expect to bring down slippages further,” Sridharan said.

Advances rose 11%, aided by a 15% increase in the domestic book. That, in turn, was led by a 20% growth in retail loans and a 14% growth in loans to SMEs.

The bank is working toward reducing its overseas book, which shrunk 12% and move away from long-term loans that contracted 7%. Instead, it expanded working capital loans 21%. Growth in the loan book helped the bank make Rs 5,232 crore of net interest income, up 15%.

Net interest margin (NIM reduced to 3.36% from 3.45% last year, but higher than the 3.29% in the first quarter of the fiscal. Sridharan said the bank expects NIM to inch up to the 3.60% range. Its private-sector peers typically operate with an NIM range of 3-4%.

Analysts said the results indicate a recovery but the bank needs to still keep an eye out for slippages. “There will be a new CEO taking over after three months. Hopefully, we don’t find any new skeletons in the cupboard,” said Lalitabh Shrivastawa, analyst at ShareKhan, an arm of BNP Paribas.

CEO Shikha Sharma announced that her successor Amitabh Chaudhry will join the bank on November 19, about six weeks before formally taking over as the bank’s executive head, to ensure a smooth transition.