The average of the estimates of seven brokerages polled by Moneycontrol had forecast the net profit for the December quarter at Rs 5,321.5 crore.
Axis Bank reported a net profit of Rs 5,853 crore for the December quarter (Q3FY23), a growth of 62 percent year-on-year, beating street estimates comfortably.
The private sector lender’s net interest income rose 32 percent year-on-year to Rs 11,459 crore on the back of a strong 15 percent loan growth and an expansion in net interest margins.
The average of the estimates of seven brokerages polled by Moneycontrol had forecast the net profit for the December quarter at Rs 5,321.5 crore. Net interest income (NII), the core income a bank earns through lending, was expected to grow 25 percent to Rs 10846 crore, the poll showed.
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Axis Bank’s margins rose as the lender was able to pass on policy rate hikes onto its loans through lending rate hikes as 68 percent of its loan book is priced at a floating rate. Within this, 22 percent is priced on marginal cost-based lending rate (MCLR) while the rest is linked to external lending benchmarks such as the repo rate.
The bank in its earnings presentation highlighted that its margin expansion is also driven by structural drivers such as improved loan mix towards small and medium enterprises (SME) loans and retail, improvement in the composition of low-cost current and savings account (CASA) deposits and reduction in the share of low-yielding RIDF bonds.
Banks are mandated to invest in these bonds to make up for their shortfall in priority sector lending. The bank’s CASA deposits grew by 10 percent and the share of CASA deposits in overall deposits rose marginally to 44 percent for the December quarter. Overall deposits grew by 10 percent for the bank.
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Loan growth boost
The bank reported a healthy loan growth of 15 percent to Rs 7.62 lakh crore with the main drivers being loans to retail and small businesses. SME loans grew the fastest at 24 percent and retail expanded at 17 percent. Within retail, home loans grew the slowest at 9 percent but had the largest share in the total retail book at 35 percent.
Other segments such as business banking loans, rural loans, and credit card outstandings showed double-digit growth. Axis Bank’s credit card outstanding grew by 39 percent and formed 4.8 percent of the total retail loan book.
The lender has 1.04 million cards in force as of December. To be sure, the bank’s market share in credit card spends has slipped to 8.9 percent from 9.6 percent in the previous quarter. The bank is in the process of completing its acquisition of Citibank’s credit card business which would boost the share of credit card loans significantly.
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Corporate loans grew by a modest 8 percent for the bank. The BBB and below-rated corporate loans now form only 11 percent of the bank’s corporate loan pool, a sign of reduced risk. Axis Bank has also witnessed a reduction in stress during the quarter.
A fall in gross bad loan ratios for the fourth straight quarter shows that the bank has a good grip on stress and a high provision coverage ratio ensured provisioning needs are reduced thereby boosting the bottom line. Gross non-performing assets fell to 2.38 percent of the loan book from 3.17 percent a year ago.
The gross bad loan pile stood at Rs 19,961 crore as of December, a year-on-year decline of 14 percent. Fresh slippages too declined year-on-year to Rs 3807 crore from Rs 4147 crore in the December quarter of the previous year.
However, fresh slippages showed a marginal increase sequentially. While stress may have reduced, the bank has not had enough luck with getting its money back from defaulters during the quarter. Recoveries and upgrades were lower at Rs 2,088 crore.
The bank’s provisions rose for the quarter to Rs 1,341 crore, almost double that of the previous quarter. Despite this, the net profit growth was a sharp 62 percent owing to operating profit growth of a healthy 51 percent.
The bank’s operating profit was Rs 9,277 crore, helped by a modest 8 percent growth in operating expenses against a 32 percent increase in NII and a 23 percent rise in fee income.