Axis Bank expects downgrades in FY21; key highlights of concall

Private sector lender Axis Bank on April 28 posted net loss of Rs 1,387.78 crore for January-March quarter 2020, largely impacted by spike in provisions. However, higher other income, pre-provision operating profit and NII limited the loss.

The bank had reported a profit of Rs 1,505.06 crore in the same quarter the previous year and Rs 1,757 crore in the previous quarter.

Net interest income during the quarter rose 19.3 percent to Rs 6,807.74 crore compared to the corresponding period last year.

Axis Bank expects fee income growth to slow down and provisions to increase in FY21. "Further downgrades are expected in BB & Below book during FY21."

Advances grew 15 percent YoY to Rs 5,71,424 crore as on March 2020, while retail loans rose 24 percent YoY to Rs 3,05,400 crore (which accounted for 53 percent of the net advances) and corporate loan book growth at 11 percent YoY to Rs 2,04,103 crore.

Here are the highlights from the Axis Bank's Q4FY20 earnings call as compiled by Narnolia Financial Advisors:

Management Participant: Amitabh Chaudhary - MD & CEO

Customers opting for moratorium currently are around 10-12 percent in number and by value approximately 25-28 percent. The 2/3 unsecured retail customers have enough money to pay but they are conserving liquidity.

During the quarter, the bank has made provisions of Rs 7,730 crore including Rs 3,000 crore of contingent provisions related to COVID-19; taking the overall additional provisions held by the bank in the balance sheet to 5,983 crore.

If the moratorium was taken only on NPA the provision on moratorium required would only be Rs 73 crore, if taken at all greater than 0 days overdue requirement would be Rs 560 crore. The cumulative COVID-19 provision was Rs 3,000 crore in additional to that Rs 475 crore provision was on account of not taking RBI dispensation OF June 7 circular.

Due to RBI relaxation on asset quality standstill slippages were Rs 691 crore lower, provisions were Rs 340 crore lower, GNPA/NNPA were lower by 11 bps/6 bps.

Retail unsecured portfolio stands at 20 percent of the retail book out of which 82 percent is from salaried segment which has very low default rate and 80 percent of the borrowers are existing customers of the bank. 67 percent of the salaried customers are from premium multinational companies, corporates.

All of the incremental wholesale book growth in FY20 has come from the AAA and AA rated clients and book has also been diversified with loans to outside top 10 sectors. 80 percent of the wholesale book now has rating of A- and better, the 95 percent of the incremental advances last year were in the A- and above category. Exposure to top 20 borrowers as percentage of tier 1 capital has come down to below 90 percent.

In respect to commercial banking portfolio 85 percent of the portfolio is secured and majority of the balance is supply chain finance to well rated corporate. Book is spread across 120 locations and 35 broad sectors.

Fee income growth is expected to slow down and provisions are expected to increase and further downgrades are expected in BB & Below book during FY21.

The deal between the bank and the Max Financial is subject to approval of regulatory authority.

Bank has reviewed its international book and has identified some stressed assets there, but all the exposure is part of BB and book. Bank over last one year has either shutdown or is in process of shutting down the Hong Kong, Shanghai, Colombo and now in process of shutting UK office.

Bank has not given moratorium to any NBFC nor has it been approached barring MFI classified as NBFC.

On the SME side 85 percent of the book was SME 3 or better.