Axis Bank Q2 Results: Lender Returns To Profitability Aided By Growth In Core Income

Axis Bank Ltd. returned to profitability in the quarter ended September aided by an increase in its core income.

The private lender’s net profit stood at Rs 1,683 crore during the three-month period compared with a net loss of Rs 112 crore a year ago. On a sequential basis, profit jumped 51%.

The bank’s net interest income—or core income—rose 20% year-on-year to Rs 7,326 crore. The metric stood at Rs 6,985 crore in the quarter ended June. Analysts polled by Bloomberg had estimated Axis Bank to report a net profit of Rs 1,476 crore and net interest income Rs 6,305 crore.

Asset quality improved in the second quarter, with gross non-performing asset ratio falling to 4.18% from 4.72% in the June quarter. Net NPA ratio fell by 25 basis points sequentially to 0.98%.

The bank said it has followed the Supreme Court interim order in the Gajendra Sharma v/s Union of India case and hasn’t classified certain accounts as NPA starting Aug. 31. If the interim order were not in place, Axis Bank’s gross NPA would have been at 4.28%, while its net NPA would have been at 1.03%, as on Sept. 30.

Axis Bank made cumulative provisions worth Rs 4,580 crore in the three-month period—a 3.7% increase from a quarter ago. While addressing the media during a conference call after announcing the earnings, Amitabh Chaudhry, the lender’s managing director and chief executive, said it had made additional provisions worth Rs 3,143 crore during the quarter.

“Of this, 25% is made toward routine downgrades and the rest toward accounts which may undergo restructuring,” Chaudhry said. “We now hold Rs 10,839 crore worth provisioning buffer against any possible slippages in the future.”

The bank made provisions worth Rs 1,886 crore toward accounts which may potentially be restructured in the future, under the Reserve Bank of India’s one-time restructuring scheme announced on Aug. 6. According to Chaudhry, the restructuring amount was arrived at through internal modelling, however, there were no restructuring requests pending with the bank as of Sept. 30.

“We’re being upfront that we’re expecting restructuring requests to come before December,” Chaudhry said. The deadline for invoking the one-time restructuring scheme ends on Dec. 31, after which, banks have 180 days to implement it.

Axis Bank reported a capital adequacy ratio of 18.92% as compared with 17.47% as on June 30. In August, the bank managed to raise Rs 10,000 crore through a qualified institutional placement. In its analyst presentation, the bank said its capital adequacy ratio rose to 19.38% after the fund raise.

Net advances fell 1.37% year-on-year to Rs 5.76 lakh crore, while total deposits rose to Rs 6.35 lakh crore, up 8.7%. Inclusive of funds extended under the targeted long-term repo operation as investments, total advances stood at Rs 5.94 lakh crore.

Rajiv Anand, executive director of wholesale banking at Axis Bank, said the lender expects loan growth to pick up in the second half of the ongoing fiscal, owing to improvement in the manufacturing sector, with lockdowns being eased in various parts of the country. Additionally, the bank’s more confident about lending to small and medium enterprises, with government guarantees being announced, he said.