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Axis Bank: Higher Provisioning Eats into Bank's Profitability - Views on News from Equitymaster
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  • May 12, 2017 - Axis Bank: Higher Provisioning Eats into Bank's Profitability

Axis Bank: Higher Provisioning Eats into Bank's Profitability
May 12, 2017

Axis Bank declared the results for the fourth quarter of the financial year ended March 2017 (4QFY17). The bank has reported 3.9% YoY growth in net interest income while net profits declined 43.1% YoY in 4QFY17. Here is our analysis of the results.

Performance summary
  • Net interest income grew by 3.9% YoY during 4QFY17 on the back of 10.1% YoY growth in advances.
  • Net interest margins (NIM) further declined to 3.8% for FY17.
  • Net profits declined by 43.1% YoY in 4QFY17 due to a huge rise in provisions.
  • Both the gross (5.0%) and net NPA (2.1%) levels were higher than 1.7% and 0.7% levels respectively in March 2016.
  • Capital adequacy ratio (CAR) improved to 14.95% at the end of March 2017 as per Basel III norms (Tier 1 capital at 11.87%).
  • For FY17, Net interest income saw an increase of 7.5% YoY while provisioning jumped up a whopping 226.6% causing the bottom line to decline by 55% YoY.

    Financial Snapshot
    Rs (m) 4QFY16 4QFY17 Change FY16 FY17 Change
    Interest income 108,990 111,682 2.5% 409,880 445,422 8.7%
    Interest expense 63,464 64,396 1.5% 241,551 264,490 9.5%
    Net Interest Income 45,526 47,286 3.9% 168,330 180,931 7.5%
    Net interest margin (%) 4.0% 3.8%
    Other Income 26,940 30,132 11.8% 93,715 116,913 24.8%
    Other Expense 28,481 33,670 18.2% 101,008 121,999 20.8%
    Provisions and contingencies 11,683 25,813 120.9% 37,099 121,170 226.6%
    Profit before tax 43,985 43,747 -0.5% 161,036 175,845 9.2%
    Tax 10,759 5,684 -47.2% 41,701 17,883 -57.1%
    Profit after tax/ (loss) 21,543 12,251 -43.1% 82,237 36,793 -55.3%
    Net profit margin (%) 19.8% 11.0% 20.1% 8.3%
    No. of shares (m)* 2,395.1
    Book value per share (Rs) 232.8
    P/BV (x)* 2.3

    *Book value as on 31st March 2017

  • Axis Bank continued to report a robust growth of 21% Y-o-Y in its retail advances vis-a-vis a 10% Y-o-Y in the SME segment. The retail advances represented 45% of the overall loan book. With branch network of over 3,304 the bank has undoubtedly leveraged its franchise well and has posted robust CASA deposits. CASA deposits further improved to 48.6% of overall deposits at the end of March 2017. The growth in CASA deposits continued to grow higher than the growth in term deposits.
  • Cards and mobile banking spends in Q4FY17 rose 83% YoY and 80% respectively. Share of digital transactions further improved to 66% from 58% in Q3FY17.

    Growth in Advances and Deposits Better Than Banking System
    (Rs m) 4QFY16 % of total 4QFY17 % of total Change
    Advances 3,387,740 3,730,690 10.1%
    Retail 1,385,210 40.9% 1,679,930 45.0% 21.3%
    Corporate 2,002,530 59.1% 2,050,760 55.0% 2.4%
    Deposits 3,579,380 4,143,790 15.8%
    CASA 1,694,450 47.3% 2,130,500 51.4% 25.7%
    Term deposits 1,885,230 52.7% 2,013,290 48.6% 6.8%
    Credit deposit ratio 94.6% 90.0%
  • Axis Bank's overall fee income rose by 8% YoY during 4QFY17, retail fees constituted around 46% of total fee income source. For FY17, fee income grew 5% YOY primarily driven by 15% YOY growth in Retail fee and 11% YOY growth in Transaction Banking.
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