Axis Bank Q3 net rises 15%, NPAs rise

Axis Bank logged a tepid 15% growth in its December quarter net profit at Rs 2,175 crore driven by core income, but the third-largest private lender saw a sharp deterioration in asset quality due to action on large accounts as demanded by the Reserve Bank.

The bank had to recognise over Rs 1,000 crore of assets as bad loans due to action recommended by the RBI, and had to dip into a specially created buffer to show profit, the lender said. It warned that it foresees another Rs 1,300 crore loans turning bad in the ongoing March quarter alone.

"The bank has accounted for the full impact of the re-classification and the resultant provisioning based on RBI's systemic asset quality review of portfolios," Chief Financial Officer Jairam Sridharan told reporters this evening.

"The RBI has done a thorough review of the performance of these accounts across all lenders and they have identified a select list of accounts and said even though these accounts might not be irregular, please go ahead and recognise them as NPAs," he said, adding though the bank was given two quarters to recognise the stress, it did so in a single quarter.

"There is a list of accounts which you need to recognise as NPAs on the books even though on payments, they are not 90 days behind on the due dates.

"Correspondingly, the regular NPA provisioning norms kick in which resulted in a hit on the profit and loss account," he said, adding as a result NPAs rose to 1.68% in third-quarter from 1.38% in the previous quarter.

Axis is the first major bank to report third-quarter numbers after the RBI review. According to reports, the RBI has identified 150 select accounts as stressed ones and asked banks to recognise them as NPAs upfront.

Some estimates say banks will have to provide a whopping Rs 70,000 crore due to this exercise, which might result in an erosion of their networth.

Sridharan declined to specify the exact number of accounts it recognised as NPAs under RBI directives, but said a bulk of slippages came from the pharma and power sectors. 

It reported slippages of Rs 2,082 crore, with over half of it coming due to the new RBI directives. Higher slippages will result in bank overshooting its NPA accretion guidance of Rs 6,500 crore for 2015-16 and also the guidance on containing credit costs at 0.85-0.90%, Sridharan said.

Stating that there is more stress beyond the RBI's recommendation which it can foresee, he said he is expecting another Rs 1,300 crore of assets slipping into NPAs in Q4 and it will end the fiscal with credit cost of 1.25%.

To protect its profit growth, the bank utilised Rs 220 crore from the specially created counter-cyclical provisioning buffer and the reserve has now depleted to Rs 180 crore, he said.

The bank has utilised Rs 1,070 crore from the reserve over the past two quarters. 

Sridharan warned the bank will have to dip into the reserve again before times turn good.

Overall provisioning stood at Rs 712 crore in Q3, up from Rs 507 crore a year ago, of which loan loss provisioning was Rs 626 crore as against Rs 352 crore, he said, adding that half of this was due to the RBI review.

Painting a gloomy picture on asset quality, Sridharan said he expects NPAs to rise in mid-term.

During Q3, the lender recast four accounts worth Rs 1,600 crore under the 5/25 scheme and there was one instance of SDR (strategic debt restructuring) worth Rs 500 crore.

The bank seems to be very cautious on the narrative of a resurgence in the economy from a short term perspective.

"While the overall macro picture is strong, at a micro level, the fundamentals have not improved very much. At an operating level for different firms, we are not seeing any pick-up in demand, or in revenue and new investments.

"While we are optimistic in the medium term about the initiatives that RBI and Government are making, and are hopeful that some of the green shoots will bloom, Q4 seems too early to call for the end of turbulent times. We are cautious about what is going to happen in the short term," he said.

Analysts sounded wary on the bank with the brokerage Religare Capital giving a sell call on the scrip. Reliance Securities maintained a neutral call on the stock even though the numbers were in line with its estimates.

The Axis counter ended 1.13% down at Rs 388.65 on the BSE, whose benchmark Sensex tanked 1.71%.

Its core net interest income expanded 16% to Rs 4,162 crore, driven by a 21% growth in advances and net interest margins (NIM) came at 3.79%, while non-interest income rose 15% to Rs 2,338 crore.

Sridharan said dip in NIMs was due to a faster cuts in its interest rates compared to reduction in cost of funds, and added he is confident of maintaining it at the current levels and will meet the guidance of 3.50%.

To protect the quality of its book, the lender is giving loans to better rated corporates which compresses the spread, he said.

The bank is confident of attaining a loan growth of 18-20% for 2015-16 and attributed a lot of the growth to retail loans which grew at a faster clip of 27% in Q3 to inch up to 40% of the book from 38% last year.

Within retail, farm, personal loans, credit cards and mortgages expanded the most, while secured books like home and auto loans grew faster in small towns and cities.