Despite a provision of Rs 225 crore, the new generation bank Axis Bank reported a net profit of Rs 330.14 crore for the first quarter portraying a growth of 88.67%, over the net profit of Rs 174.98 crore during the corresponding quarter last year.

The large provisioning of Rs 225.20 crore was done for the depreciation of the bank?s investment portfolio, on account of weakening financial markets, the bank said.

?We had to make these provisions as our investment portfolio, namely government bonds and corporate bonds witnessed a fall,? said PJ Nayak, CMD, Axis Bank.

Nayak explained that a strong growth in the levels of advances and investments, together with a higher share of demand deposits has contributed to the rise in NII.

While the bank?s net advances have grown to Rs 61,160 crore by end of June 2008 from Rs 41,285 crore as of June 2007, showing a growth of 48%, investments rose to Rs 35,718 crore at the end of June 2008 from Rs 26,656 crore a year earlier, showing a growth of 34%.

?The bank?s credit growth has been widely from the SME section, which has grown by 73% year-on-year basis. Agriculture and retail have grown by 38% and 52%, respectively. We may witness slight dryness on the corporate and retail side owing to higher interest rate scenario,? said Nayak.

He added credit and deposit growth is targeted at 35-45% for the year. Net interest margins have increased to 3.35%, as against 2.56%. However, it is down from 3.93% in the 2007-08 last quarter.

?There has been a QoQ decline in our NIMs on account of rising cost of funds and also due to slightly slower growth in demand deposits. This year, we plan to keep our NIMs stable at 3.25-3.50%, although they will be under pressure,? said Nayak.

At the end of the quarter, demand deposits grew 54% yoy basis, while at end of last quarter of the previous year, demand deposits grew 71%. The daily average cost of funds increased to 6.11% this quarter as compared to 5.82% in the preceding quarter.

Trading income during the quarter stood at Rs 111.04 crore as compared to Rs 96.71 crore, showing a growth of 15%. The share of trading income to operating revenue decreased from 12% to 8%.

The bank has registered a 93% growth (YoY basis) of Rs 810.46 crore, during the first quarter in its net interest income as against Rs 420.91 crore in the previous year.

Talking about non-performing assets, Nayak said that the NPAs stood at 0.47% at the end of June 2008, down from 0.59% at the end of June 2007, but up from 0.36% as at end March 2008.

Pursuant to the implementation of the debt relief scheme, there has been a reduction in gross NPAs of Rs 45.20 crore and a write-back of provision of Rs 8.27 crore during the quarter.

?We have seen a slight increase in our NPAs mainly on the retail side, due to our credit card business. This year, we may see some delinquencies due to higher interest rates, which may have to be kept under control,? said Nayak.

The capital adequacy ratio stood at 13.25% in June 08, as compared to 11.50% as of June 2007.