Net profits for a clutch of 11 private sector banks have stayed flat for the three months to September partly because Axis Bank reported a steep 83% (y-o-y) drop in net profit to R319 crore. Profits for the sample rose just 0.1% (y-o-y) to R6,996.3 crore as gross non-performing assets (GNPAs) more than doubled necessitating a 162.4% (y-o-y) jump in provisions. If not for IDFC Bank, which started operations in October, 2015, the bottom line would have been lower in Q2FY17 than in Q2FY16. The growth in the top line was strong at 22.2% (y-o-y) while other income jumped 29.6% (y-o-y).
Kotak Mahindra Bank led the way with a 42.8% (y-o-y) jump in net profit to R813.3 crore on the back of a 18.9% (y-o-y) rise in NII, 35% (y-o-y) rise in other income and just a 12.1% (y-o-y) rise in provisions. The lender’s net interest margin (NIM) rose to 4.47%. Dipak Gupta, the bank’s joint managing director, said margins would hover in the range of 4%-4.5% for the rest of the year. “Thanks to the asset mix and especially growth in CASA, we have been drawing in a lot of benefit,” Gupta said.
Analysts, however, were not impressed with the bank’s loan book growing at just 12.9% (y-o-y) — the second lowest among the 11 banks. Some, however, are betting on the bank’s management’s guidance that loan growth will pickup in H2FY17 and that it would end the full year with a growth of 20%. “We largely retain estimates expecting management deliver to guidance which were baked in our estimates earlier barring a marginal uptick in fee growth expectations,” analysts at Jefferies noted.
Axis Bank said provisions for NPAs jumped 71% (y-o-y) to R3,623 crore as R8,772 crore worth of loans turned non performing during the quarter. The bank’s management said 83.1% of the fresh slippages in Q2FY17 came from the ‘watch list’ it had earlier created. Jairam Sridharan, CFO of Axis Bank, said slippages from the watch list — R22,600 crore — were more than the 60% originally envisaged. “A materially higher portion of the watch list could turn NPA by the end of FY18,” Sridharan said adding that the bank was watching the operating environment closely and looking for some of the resolution mechanisms to kick in. The bank had earlier guided that a maximum of 60% of the watch list will slip into NPAs.
Disappointed with the bank’s results, analysts at Jefferies pushed up their estimated credit costs for the bank to 317 bps for FY17 and now expect weaker profitability over the next two quarters. “We forecast R8,000 crore in additional slippage in H2FY17 and as was our practice continue to factor 50% haircut across 5:25, restructured and SRs while calculating the adjusted book value,” they noted.
Deposits growth for the sample was impressive clocking 21% y-o-y. Indusind Bank, which reported a 38.9% (y-o-y) rise helped the lender post a 4% net interest margin (NIM) mark for the first time ever. Romesh Sobti, Indusind Bank’s MD & CEO, obserbed CASA grew by almost 46% and SA by 37%. “This is creating a good mix of deposits and together with strong advances is contributing to the NIM. There is nothing to prevent the NIM from moving in the same trajectory,” Sobti said.
The best performer in advances growth amongst the larger private sector banks in Q2FY17 was Yes Bank, which saw its advances grow 37.7% (y-o-y).
India’s most valuable bank HDFC Bank had another stable quarter in Q2FY17 notching up an over 20% (y-o-y) profit growth yet again, despite just a 18.1% growth in advances and GNPAs staying at over one percent for yet another quarter. Interestingly, the bank’s top management said that less than one percent of GNPAs was probably an aberration and they are likely to remain above one percent of advances in the future as well. “If you look at our average NPA level over the last 20 years or 21 years that we’ve been around, the average comes to about 1.3%. In fact, in the last few years, with all that’s happened in the environment and what’s happened to systemic peers, I would have myself expected that we should have been closer to the average, if not higher than the average. So, to my mind, if we remain below our historical average, we should be doing fine,” Paresh Sukthankar, Deputy Managing Director of HDFC Bank, said. He, however, clarified that his statement should not be seen as a guidance.
The recently listed RBL Bank, too, impressed the street with a 34.3% (y-o-y) jump in net profit on the back of a 59.5% (y-o-y) rise in NII and a 50.6% (y-o-y) jump in other income. In fact, if not for exceptional item — provision of R28.5 crore towards depreciation of its 9.88% stake purchase in Utkarsh Micro Finance — RBL Bank’s bottom line would have grown by 76.9%. Satisfied with the bank’s performance in the first quarter after it was listed.