Axis Bank on Wednesday reported a 43% year-on-year (y-o-y) fall in net profit to Rs 1,225 crore for the March quarter. The bank’s watch list has reduced 15% over the previous quarter and stood at Rs 9,436 crore, leading to a rise in bad loans. CFO Jairam Sridharan said the bank is cautiously optimistic about credit growth in FY18. Excerpts…
What kind of slippages you saw in Q4?
While our gross slippage numbers have remained at about Rs 4,800 crore, the net slippage have actually come down quite significantly. This has happened because there is one large account in the cement space which appeared in our gross slippage numbers. It was recovered and regularised in the course of the quarter. So, that account shows up in our gross slippage numbers, but not on our net slippages. While the account has been regularised to a standard asset, we have set aside a provision of 25% on the loan outstanding.
How have the watch list accounts performed?
There were slippages from the watch list and 83% of our corporate slippages came from the watch list and the one account we spoke about happened to be on our watch list. It was on our watch list to begin with and continues to be on our watch list.
There are some challenging times ahead of us and we should recognise that Q4 does tend to be seasonally pretty strong for recoveries, I would not blindly extrapolate all the outcomes of Q4 into the next year. So we are cautiously optimistic on the outlook for credit as we look at FY18.
Is it possible that there would not be a watch list in another year?
The intention when we disclosed the watch list was to create it as a two-year entity. We always intended for the watch list to be extinguished one way or the other within two years. So if your question is at the end of the two-year period would watch list exist in its current form, the answer is ‘no’. The accounts would either have slipped into NPAs or would become part of business as usual. We do not intend to continue with the watch list construct beyond FY18.
Have you sold any loan to ARCs? Have there been slippages outside the watch list?
There was one sale to ARC as we sold a pool with a book value of Rs 1,800-odd crore and a sale consideration of Rs 1,700 crore.
Slippages outside the watch list in the corporate sector moderated quite a bit in Q4 compared to the last quarter. We had seen roughly Rs 1,000 crore slippages in the last quarter in the corporate segment outside the watch list. That number came down to around Rs 220 crore in this quarter. In FY17, the kind of sectors in which we have seen slippages outside the watch list have been sectors like metal, infrastructure, constructions, textiles among others.
What is your exposure to the telecom sector?
Our fund-based outstanding in the telecom sector is Rs 3,982 crore which is just over 1% of our total outstanding loans. Telecom used to be number 10 in our top 10 industry sectors list and in this quarter it actually slipped from the top 10 position and our exposure to the sector is very limited.
What is your outlook on credit growth from corporates?
I think directionally, retail will continue to drive growth and you will continue to see some strong growth from SME. I am hopeful that some sort of turnaround in corporate credit as well, may be not a huge growth but one does expect a little bit of economic activity in large corporates to pick up. There is some level of caution because of the GST rollout that is impending and once that comes in and settles down, one is hopeful that some activity on the corporate side will be seen. I am hopeful of seeing a better year for growth in corporate loans next year. At this point of time, capex recovery in short to medium term looks tough. It is more likely an FY19 event than FY18. So, we are closely watching the working capital part of corporate credit.
Where do you see your net interest margin (NIMs) going ahead?
NIMs have improved by about 40 basis points (bps) Q-o-Q. Of that, 29 bps have come from the fact that interest reversals have been much much lower than compared to last quarter. You saw significant uptick in NIM in the fourth quarter. However, on a full-year basis, our NIM was 3.67%, compared with 3.82% for the full last year. So we had about a 15 bps compression. As we look forward into the next financial year, we continue expect another 15-20 bps compression in NIM led by the fact that system liquidity continues to be very high and credit growth demand continues to be low.