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Axis Bank: Provisioning Woes Multiply - Views on News from Equitymaster
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Axis Bank: Provisioning Woes Multiply
Jan 24, 2017

Axis Bank declared the results for the third quarter of the financial year ended March 2017 (3QFY17). The bank has reported 4.1% YoY growth in net interest income while net profits declined 73.4% YoY in 3QFY17. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 4.1% YoY during 3QFY17 on the back of 10.1% YoY growth in advances.
  • Net interest margins (NIM) further declined to 3.4%.
  • Net profits declined by 73.4% YoY in 3QFY17 due to a huge rise in provisions.
  • Both the gross (5.2%) and net NPA (2.2%) levels were higher than 1.7% and 0.7% levels respectively in December 2015.
  • Capital adequacy ratio (CAR) improved to 16.6% at the end of December 2016 as per Basel III norms (Tier 1 capital at 12.9%). During the quarter the bank raised Rs 35,000 million by way of Additional Tier 1 capital.
  • For 9MFY17, Net interest income saw an increase of 8.8% YoY while provisioning jumped up a whopping 275.2% causing the bottom line to decline by almost 60% YoY.

    Financial snapshot
    Rs (m) 3QFY16 3QFY17 Change 9MFY16 9MFY17 Change
    Interest income 101,933 111,010 8.9% 300,891 333,740 10.9%
    Interest expense 60,313 67,673 12.2% 178,087 200,095 12.4%
    Net Interest Income 41,621 43,337 4.1% 122,804 133,645 8.8%
    Net interest margin (%) 3.8% 3.4% 3.8% 3.6%
    Other Income 23,378 34,002 45.4% 66,775 86,782 30.0%
    Other Expense 25,148 30,937 23.0% 72,528 88,329 21.8%
    Provisions and contingencies 7,126 37,958 432.7% 25,415 95,357 275.2%
    Profit before tax 39,851 46,402 16.4% 117,051 132,098 12.9%
    Tax 10,972 2,649 -75.9% 30,942 12,199 -60.6%
    Profit after tax/ (loss) 21,753 5,796 -73.4% 60,694 24,542 -59.6%
    Net profit margin (%) 21.3% 5.2% 20.2% 7.4%
    No. of shares (m)* 2,391.4
    Book value per share (Rs) 227.7
    P/BV (x)* 2.0
    *Book value as on 31st December 2016
  • Axis Bank witnessed growth in both retail and corporate loan portfolios in the third quarter of FY17. The retail advances grew by 19% YoY and represented 43% of the overall loan book. Housing loans comprised 47% of total retail loan book. With branch network of over 3,211 the bank has undoubtedly leveraged its franchise well and has posted robust CASA deposits on the back of the demonetisation drive. CASA deposits improved to 47.6% of overall deposits at the end of December 2016. The growth in CASA deposits continued to grow higher than the growth in term deposits.
  • Demonetisation has also impacted the bank's retail book with property and agriculture related disbursements have been impacted. On the transactions and payments front, Credit and debit card spends rose by a whopping 82% YoY in December 2017 with a good growth in the both credit and debit cards.

    CASA deposits see a robust growth
    (Rs m) 3QFY16 % of total 3QFY17 % of total Change
    Advances 3,153,670 3,471,750 10.1%
    Retail 1,257,960 39.9% 1,495,380 43.1% 18.9%
    Corporate 1,895,710 60.1% 1,976,370 56.9% 4.3%
    Deposits 3,383,430 3,707,900 9.6%
    CASA 1,463,220 43.2% 1,764,510 47.6% 20.6%
    Term deposits 1,920,210 56.8% 1,943,390 52.4% 1.2%
    Credit deposit ratio 93.2% 93.6%
  • While Axis Bank's overall fee income fell slightly by 4% YoY during 3QFY17, the retail fees (45% of fee income source) grew by 8% YoY in 3QFY17 while corporate credit decline by 30% YoY impacting fee income.
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  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
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  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
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