Axis Bank surprises on margins but asset quality pressures remain

 

 

 

Axis Bank Ltd reported strong margins despite a weak economy. Net interest margin, the difference between interest earned on loans and interest paid on deposits, relative to the amount of its interest-earning assets was the highest in some four years at 3.89% in the March quarter, buoyed by growth in low-cost current account and savings account (Casa) deposits, which continued to see steady momentum.

Axis Bank was able to maintain its Casa ratio. The money raised from foreign currency deposits last year helped in bringing down the cost of funds. The growth in net interest income remained unchanged at 19% compared with the December quarter.

Asset quality improved slightly in the March quarter. Gross bad debt was marginally lower at 1.22%, helped by higher recoveries and upgrades. Addition to stressed assets remained at the same level as the December quarter. The slippages halved in the reporting three months but recast loans increased by two-thirds, on expected lines, analysts say.

The lender is seeing stress in the corporate segment and asset quality environment in the current fiscal year will be same as 2013-14, executive director and head of corporate centre Somnath Sengupta said in a conference call. The management expectsRs.6,500 crore of stressed assets in 2014-15, slightly higher than a year ago.

Axis Bank reported a higher non-interest income, which grew over 10% compared with 2% growth in the previous quarter on the back of strong contribution of fees from retail and corporate banking. It also saw a six-fold jump in trading profit compared with the December quarter. Like ICICI Bank Ltd, Axis Bank too is calibrating—going slow on its corporate loan book because of the subdued economic environment.

The bank continued to maintain loan growth at around 17%, with domestic retail advances growing at a robust pace of 31% from a year ago, accounting for over a third of the banks lending. Sengupta said it will continue to see pressure on products like car loans and real estate. Commercial vehicle loans will pick up once the economy improves. The management expects gold loan and credit card business to do well. Deposit growth was also higher at 11% compared with the previous quarter.

 

Axis Bank shares have outperformed the banking index in the past three months and are trading at 1.7 times price to book ratio for 2014-15. Further upside will be limited unless the economic cycle turns.

md.aquil alam

pgdm 2nd semester 

source. live mint