Axis Bank Q3 Results: Higher Operating Expenses Weigh On Profit

Private sector lender Axis Bank Ltd. saw its net profit rose 3.7% year-on-year for the third quarter of fiscal 2024, though it was weighed down by a rise in operating expenses.

Net profit for the quarter was at Rs 6,071 crore, as compared with Rs 5,853 crore a year ago. Analysts polled by Bloomberg estimated a net profit of Rs 6,117 crore for the quarter.

On a sequential basis, the net profit increased 3.5%.

Net interest income, or core income, rose 9.4% year-on-year to Rs 12,532 crore.

Axis Bank Q3 FY24 Highlights

• Net profit: Rs 6,071 crore vs Rs 5,853 crore, up 3.7% (YoY).

• Net interest income: Rs 12,532 crore vs Rs 11,459 crore, up 9.4% (YoY).

• Gross NPA: 1.58% vs 1.73% (QoQ).

• Net NPA: 0.36% vs 0.36% (QoQ).

Operating expenses rose 32% year-on-year to Rs 8,946 crore during the quarter, with non-staff costs rising 39% to Rs 6,234 crore. This includes integration expenses related to Citigroup India's acquisition along with the foreign bank's operating expenses.

According to Puneet Sharma, chief financial officer, the bank is making these investments as part of transforming its business. "This is the right time to be making these investments."

The provisions in the third quarter fell to Rs 1,028.34 crore, down by 28% year-on-year. Out of this, the private bank made provisions of Rs 181.7 crore in the quarter for its exposure to alternative investment funds.

As on Dec. 31, the bank's provision coverage ratio stood at 78%, as compared with 81% a year ago.

The bank reported a net interest margin of 4.01% in Q3, a 10 bps compression from the previous quarter.

The capital adequacy ratio took a hit of 168 basis points on a sequential basis, falling to 14.88% as on Dec. 31. The dip is due to the increase in risk weights for unsecured consumer loans by the Reserve Bank of India in November.

Higher risk weights typically lead to a fall in capital adequacy as the bank has to set aside additional capital against such loans.

The bank's asset quality was largely stable, with gross non-performing asset ratio improving to 1.58% in Q3, from 1.73% in the previous quarter. The net NPA ratio remained flat at 0.36% in the third quarter.

Gross slippage during the quarter stood at Rs 3,715 crore, as compared with Rs 3,254 crore in the previous quarter. In the same period a year ago, gross slippage was at Rs 3,807 crore. While the bank recovered and upgraded bad loan accounts worth Rs 2,598 crore in the reporting quarter, it wrote-off NPAs aggregating Rs 1,981 crore, thereby improving the gross NPA ratio for the December quarter.

Credit costs stood at 0.28% on an annualised basis, down 37 bps year-on-year and 14 bps on a sequential basis.

Cost of funds rose to 5.35% in Q3, from 5.17% in the previous quarter.

The lender's total advances grew 4% quarter-on-quarter, and 22% year-on-year to Rs 9.32 lakh crore for the December quarter. The unsecured lending book accounted for 22% of total retail disbursements.

"We feel comfortable growing our retail unsecured book now: It will give us better risk adjusted NIMs, credit costs standalone will be higher," the bank said in the investor presentation.

On a sequential basis, domestic net loans grew 4%, with retail loans rising 5%. Home loans, which account for 30% of the total book, increased 10% year-on-year, but personal loans grew 28% year-on-year. Of all these segments, credit card advances grew the most, at 92% on a yearly basis.

The lender's rural loan portfolio grew 7% sequentially and 34% year-on-year.

The lender's total business grew 20% year-on-year.

CASA rose 12% year-on-year and CASA ratio stood at 42%, down 2 bps sequentially.

The total deposits grew 5% quarter-on-quarter and 18% year-on-year. Of this, savings account deposits grew 16% year-on-year, current account deposits rose 5% year-on-year and 1% quarter-on-quarter.

Term deposits, however, saw maximum growth with a 24% year-on-year rise and 9% sequentially.

The bank said the pace of its deposit growth has remained within estimated trends. The bank expects deposits and advances growth to eventually converge.

"We believe that deposit growth will be constraining factor to advances growth," Sharma told reporters.