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Informist, Thursday, Jan. 16, 2025

NEW DELHI – With the requirement for provisioning eating away Axis Bank's profit pie during the Oct-Dec quarter, the bank's senior management said fresh slippages during the quarter were seen in the agricultural loan segment in the rural portfolio and in the unsecured loan book. The bank's fresh slippages rose 46.2% on year to INR 54.32 billion in Oct-Dec. This is the second straight quarter when the bank's top management is speaking about stress in the unsecured retail portfolio.

The agriculture segment, due to the cyclical nature of its activity, typically sees asset quality worsen across the banking sector in the Oct-Dec quarter, the bank's management said in a post-earnings media call. Axis Bank Thursday posted a mere 3.8% on-year increase in net profit for the quarter ended December. Provisioning for bad loans during the period rose sharply by 109.6% on year to INR 21.56 billion. Sequentially, however, it was down 2.2%.

Shares of the lender ended the day at INR 1,038.00 on the National Stock Exchange, 1.1% higher from Wednesday's close. The results were released after market hours. The private sector bank's net profit for the quarter was INR 63.04 billion, against analysts' estimate of INR 64.43 billion.

Though the bank detailed the rise in bad assets in the agriculture and unsecured segment during Oct-Dec, the bank's management did not spell out the "certain" segments where stress build-up is seen. They repeatedly mentioned that early warning indicators were seen in certain segments where the bank would like to take adequate precautionary measures. Separately, while speaking about the overall risk in the microfinance segment, the leading private sector bank's management said they continue to monitor and be cautious of it.

The bank will continue to monitor the retail loan book, of which around 71% is secured, the management said in the media call. Home loans, which form the biggest chunk of the retail book, was 3% higher year-on-year as of Dec. 31. The lender issued around 700,000 new credit cards in the quarter, with total credit card portfolio rising 8% on year to INR 432.25 billion. In the previous quarter, the bank had said it had already taken action against credit card portfolios where signs of stress were seen.

The issue of stress in the credit card segment is closely intertwined with lending to the unsecured sector, something that the Reserve Bank of India has been cautioning against since March 2023. Sensing a potential build-up of stress, the RBI had announced an increase in risk weights on unsecured lending and exposure to non-banking finance companies in November 2023, which made banks set aside larger amounts of capital on such assets. The bank's management said that as per its precautions now, the bank will try limiting disbursal to the microfinance sector.

The deterioration in asset quality was visible in the bad loan ratios, with the gross non-performing assets ratio edging up sequentially by 2 basis points to 1.46% as of Dec. 31, although it was down from 1.58% last year. The net NPA ratio was up by 1 bps sequentially at 0.35%, but was down from 0.36% last year. The bank's provision coverage ratio was 76% as at the end of December, compared with 77% a quarter ago and 78% a year ago. 

Managing Director and Chief Executive Officer Amitabh Chaudhry said the bank remains focussed on deposit growth, retail asset quality, and cost of funds. On the financial performance of the bank for the quarter, he said the drop in net interest margin was owing to an interest reversal in the previous quarter. Net interest margin for the quarter was 4.06% for the domestic business and 3.93% for overall operations. While the former was unchanged from Jul-Sept, the overall NIM was down 6 bps. "We will continue to monitor the cost of funds in the current macroeconomic scenario," he said. 

The lender's net advances rose 9% to INR 10.15 trillion as of Dec. 31 and only 1% sequentially. The bank's management, however, said that even if it was tepid sequentially, it would grow on a yearly basis. Deposits, on the other hand, were up 9.1% on year at INR 10.96 trillion as of Dec. 31, with the current account, savings account ratio declining to 39% from 41% as of Sept. 30. "Our CASA ratio continues to be better than peers," Chaudhry said. The bank is also well capitalised with a self-sustaining capital structure and adequate liquidity buffers, he said. 

Speaking about the policy environment, he said that the geopolitical landscape continues to be sketchy, with India's growth also slowing down in Jul-Sept. In such an ecosystem, liquidity continues to be tight, he said. While the banker said that he does not think the central bank will cut interest rates in the next monetary policy meet in February, he said it was too early to comment on the impact it may have on margins and liquidity. The RBI has left the policy repo rate unchanged at 6.50% since February 2023. 

For future growth in operations, the bank maintains strong presence in payments and digital banking and will continue to expand in that segment. "We remain open to new partnerships," Chaudhry said in his closing remarks.  End

Reported by Priyasmita Dutta 

Edited by Ashish Shirke

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