One-time tax expense hits Axis hard

Profit before tax doubles, but deferred tax asset impact pushes bank into loss

Private sector lender Axis Bank on Tuesday reported a 109 per cent rise in its profit before tax (PBT) for the quarter ended September 30, 2019. But the bank suffered a net loss of ~112 crore for the quarter due to a ~2,138-crore one-off deferred tax asset (DTA). It decided to fully adjust the impact in this quarter itself. But for this, the bank would have reported a profit after tax (PAT) of ~2,026 crore, up 157 per cent year-on-year (YOY).

Net interest income (NII) grew 17 per cent YOY to ~6,102 crore during the quarter, from ~5,232 crore in the corresponding period of the previous year. Net interest margin (NIM) increased sequentially to 3.51 per cent, from 3.40 per cent, which is the highest in the last nine quarters. Last year, the NIM was at 3.39 per cent in the same quarter. Axis said the NIM improved because of a decline in the cost of funds which fell by 8 basis points quarter-on-quarter. Cost of funds stood at 5.62 per cent, compared to 5.70 per cent sequentially.

Domestic loan book grew 19 per cent YOY, retail book by 23 per cent, and domestic corporate loans grew 18 per cent. Fee income grew 11 per cent, led by retail fees, which grew 16 per cent. Total deposits on quarterly average basis grew 23 per cent, and the bank raised equity capital of ~12,500 crore through a qualified institutional placement to enhance its capital adequacy position. Under Basel III, the capital adequacy ratio (CAR) and Tier I CAR stood at 18.45 per cent and 15.25 per cent, respectively.

Kajal Gandhi, vice-president (research) at ICICI Securities, said: “The operational numbers are looking good and the asset quality is also reasonable. I don’t think the Street will react negatively to these set of numbers. The Street can react in a neutral to positive manner.”

The gross and net non-performing assets (NPAS) book fell for the sixth straight quarter. GNPA and NNPA ratios were 5.03 per cent and 1.99 per cent, compared to 5.25 per cent and 2.04 per cent in the first quarter. GNPA and NNPA for the second quarter of 2018-19 were at 5.96 per cent and 2.54 per cent, respectively. Gross corporate slippages for the quarter stood at ~2,862 crore, of which 97 per cent came from ‘BB’ and below-rated clients (loan and investment exposures). The bank also holds ~2,600 crore of provisions towards various contingencies

Commenting on the slippages, Axis Bank Managing Director Amitabh Chaudhry said, “We have recognised that we need to work in some areas. The bank slippage numbers have remained elevated in this quarter, reflecting the situation in corporate lending. Almost all our slippages came from previously disclosed ‘BB’ and below-rated clients.” He said: “We have a residual stock of stress built up over the years. While slippages continue to come from this stock, the current macro environment is not enabling a quick rundown of the pool. We expect the slippages to remain elevated from this stock. There are examples where slippages from this stock are likely to be recovered in the next quarter.”

Regarding retail loan, Chaudhry said, “Consumer debt levels have gone up marginally in recent years, but remain significantly below developing country averages in almost every product category.”

On the liquidity crisis in the non-banking financial sector, Chaudhry clarified in the small and medium business segments, there are some sign of stress due to delayed payments. “We need to remain cautious, as the funding issues in NBFCS could have a bearing on this segment, too,” he said.