At Axis, Core Performance Picks Up, But Slippages Rise

For Axis Bank, which has been weighed by asset-quality concerns over the past one to two years, its performance in the latest December quarter has been a mixed bag. While the core performance has improved, uncertainty over asset quality is not completely out of the way.

After moderating in the September quarter, slippages have inched up in the December quarter once again. The bank’s still notable lower-rated corporate book (from which the chunk of corporate slippages have happened in the past) may also need some watching in the coming quarters.

The bank has received an indicative list from the RBI pertaining to bad loan divergence for FY18, which appears sanguine and will not have any significant impact on the bank. However, any deviation in the final risk-based supervision report of the RBI for FY18, will need watching.

The bank’s 131 per cent year-on-year growth in net profit in the December quarter has been on a low base, as earnings have shrunk substantially over the past two years.

After Axis Bank reported sharp slippages of ₹16,536 crore in the March quarter, gross slippages fell to ₹4,337 crore in the June quarter and further to ₹2,777 crore in the September quarter. In the latest December, however, slippages have moved up to ₹3,746 crore.

The bank’s BB and below-rated book has also shrunk substantially over the last two years. From a peak level of ₹27,411 crore in the June 2016 quarter, the low-rated book has now reduced to ₹7,645 crore. Given that about 90 per cent of slippages (on an average) in the past several quarters has come from BB and below-rated book, the significant shrinkage in this book is a positive. Ninety eight per cent of the corporate slippages in the December quarter has come from the bank’s BB and below-rated book.

But the low-rated loan book is still a notable figure. Further slippages from this book can keep provisioning high for the bank. Also, after reporting bad loan divergences to the tune of ₹9,478 crore pertaining to FY16, Axis Bank had reported another ₹4,867 crore of divergences pertaining to FY17.

While the indicative list from the RBI for FY18 suggests a much lower ₹225 crore of divergence, any deviation in the final risk-based supervision report may need monitoring.

On the core business front, the pick-up in the bank’s net interest income growth is a positive. From flat to low single-digit, growth in net interest income had inched up to 12 per cent in the June quarter, aided by a one-time impact of interest realisation from recovery on an IBC account. In the September quarter, the bank’s NII grew by a higher 15 per cent (no one-off recoveries). In the December quarter, NII has grown by a healthier 18 per cent.

However, sustainability of this trend will be critical. Also, the growth in domestic advances that slowed in the June and September quarters, has inched up to 18 per cent in the December quarter. But corporate loan growth remains muted at 4 per cent.