Axis Bank Results: Q1 net falls 19% on higher provisions, lower other income

As of June 30, 9.7% of the bank’s loan book by value was under moratorium, down from 25-28% earlier.

Private sector lender Axis Bank’s net profit declined 18.8% to Rs 1,112 crore in the June quarter of FY21, as provisions rose 15.8% year-on-year to Rs 4,416 crore and other income fell 33% to Rs 2,587 crore.

The bank said it had taken a conservative approach during the quarter on three counts — changes in the accounting policy, provisioning against standard investments, red-flagged accounts and Covid-related disruptions and conservative interest recognition for the purposes of calculating the net interest income (NII). Amitabh Chaudhry, MD & CEO, Axis Bank, said, “With these changes, we believe we are now at the conservative end of accounting choices. The aggregate impact of the aforementioned changes on the financials of Q1FY21 on pre-provision profit, profit before tax and profit after tax is Rs 307 crore, Rs 660 crore and Rs 513 crore, respectively.”

As of June 30, 9.7% of the bank’s loan book by value was under moratorium, down from 25-28% earlier. The management said that the reduction has come about as a result of a large number of commercial and wholesale customers ceasing to avail of the moratorium in the second leg. A bulk of the book still under moratorium consists of retail loans.

Specific loan loss provisions for Q1FY21 were Rs 3,512 crore, compared to Rs 2,886 crore in Q1 last year and Rs 4,204 crore in Q4FY20. Axis Bank held additional provisions of around Rs 5,983 crore towards various contingencies at the end of Q4FY20. It made incremental provisions aggregating Rs 733 crore in Q1FY21 towards Covid-19. “At June 30, 2020, the bank holds in aggregate additional provisions of Rs 6,898 crore. It is pertinent to note that this is over and above the NPA (non-performing asset) provisioning included in our PCR (provision coverage ratio) calculations, and the 0.4% standard asset provisioning requirement on standard assets,” the lender said in a release.

The bank’s PCR improved to 75% from 69% at the end of March. The overall additional provisions held by the bank towards various contingencies together with the standard asset provisions, translates to a standard asset coverage of 1.56% as on June 30, 2020. “On an aggregated basis, our provision coverage ratio (including specific + standard + additional + Covid provisions) stands at 104% of GNPA (gross NPA) at June 30, 2020,” the bank said.

The bank’s net interest income — the difference between interest earned and interest expended — rose 19.5% y-o-y to Rs 6,985 crore and its net interest margin (NIM), a key measure of profitability, fell 15 basis points (bps) sequentially to 3.4%. The bank attributed the fall in the margin to prudence (5 bps) and surplus liquidity (9 bps). Its operating profit fell 1% y-o-y to Rs 5,844 crore in the June quarter.

The bank recognised slippages of Rs 2,218 crore during Q1FY21, compared to Rs 3,920 crore in Q4FY20 and Rs 4,798 crore in Q1FY20. Slippages from the loan book were at Rs 2,011 crore and that from investment exposures stood at Rs 207 crore. Corporate slippages stood at Rs 1,355 crore. Recoveries and upgrades from NPAs during the quarter were Rs 608 crore, while write-offs were Rs 2,284 crore.

The bank saw an improvement on the asset quality front in Q1, with the GNPA ratio falling 14 bps sequentially to 4.72%. In absolute terms, the gross NPA stood at Rs 29,560 crore at the end of June 2020. The net NPA ratio fell 33 bps to 1.23%.

The bank’s balance sheet grew 16% y-o-y and stood at Rs 8.97 lakh crore as on June 30, 2020. Its advances including targeted long term repo operations (TLTRO) investments grew 17% y-o-y to Rs 5.79 lakh crore. Retail loans grew 16% y-o-y to Rs 2.99 lakh crore and accounted for 53%of the net advances of the bank. The corporate loan book, including TLTRO investments grew by 26% y-o-y.

The total deposits grew by 19% on a quarterly average balance (QAB) basis and by 16% y-o-y on period-end basis. On a QAB basis, savings account (SA) deposits grew 15% y-o-y and 5% q-o-q, current account (CA) deposits grew 8% y-o-y and retail term deposits grew 27% y-o-y. The CASA ratio remained flat on a sequential basis and fell 200 bps to 39%.

The bank’s capital adequacy ratio (CAR) under Basel III rose to 17.29% from 15.82% a year ago. Axis Bank’s shares on the BSE rose 2.86% on Tuesday to close at Rs 446.20. The bank announced its results after the close of trade.