Axis Bank, the third largest private sector lender, today negatively surprised the markets with a 1 per cent drop in March quarter profit at Rs 2,154 crore on higher provisions and it proactively set aside money in a buffer expecting a deterioration in asset quality in future.
For the full year, the Shikha Sharma-led bank reported a post-tax net profit of Rs 8,349 crore, up 12 per cent.
“Our asset quality was stable compared to the preceding quarter, but we have an outlook of elevated stress…the threats remain elevated,” Chief Financial Officer Jairam Sridharan told reporters on a call.
The bank guided toward a further pressure from the credit costs basis, expecting it to go up to even 1.50 per cent in a worst case scenario and 1.25 per cent conservatively from 1.11 per cent in 2015-16, which saw the asset quality review by the Reserve Bank that led to a spurt in reporting of asset quality stress being reported by banks across the system.
To cover up for future stress, the bank set aside Rs 300 crore into a countercyclical buffer taking the overall contingency assets provisions to Rs 480 crore, which had been used up in the last two quarters.
Net interest income was up 20 per cent at Rs 4,553 crore, driven primarily by a retail fuelled credit growth of 21 per cent and also an expansion in net interest margin to 3.97 per cent from the 3.80 per cent in the year ago period.
Sridharan said the other income grew only marginally to Rs 2,694 crore and explained that last year there were higher gains from treasury operations which had lifted the other income line.
Retail credit grew 24 per cent to now form 40 per cent of the overall advances, he said, adding that unsecured products like personal loans and credit cards was one of the biggest reasons for the strong retail performance.
On the asset quality front, the bank witnessed fresh slippages of Rs 1,474 crore as against the Rs 2,082 crore in Q3, when it recognised maximum stress owing to the RBI mandated asset quality review.
Total slippages in 2015-16 touched Rs 7,345 crore, but the bank management declined to give a guidance on the same in 2016-17. The gross NPA ratio was almost stable at 1.68 per cent, while during the quarter, it sold assets of Rs 349 crore to asset reconstruction companies for Rs 110 crore.
In a note, brokerage Emkay Global said the numbers are below its estimate, primarily due to lower other income and higher operating expenses and higher prudential provisions.
The brokerage said the provisions swelled to Rs 1170 crore against it estimate of Rs 1010 crore, while its net profit estimate was Rs 2,470 crore. It however, noted that fresh slippages were below its estimate sequentially.