Healthy CASA growth; pressure on asset quality increases
Adjusted loan growth at 21% y-o-y vs 30% reported: On a reported basis loan grew 30% y-o-y (flat q-o-q) to R1.7 trillion. However,adjusted for (i) currency depreciation,growth stood at 25% and (ii) on account of lower base (on account of repayment of short term loans),it stood at 21% year-on-year. Retail loan growth was strong at 50% y-o-y and 8% quarter-on-quarter driven by a robust 50% y-o-y growth in mortgages. As a consequence,share of retail loans in overall loans has increased further to 23.7% vs 22.1% in Q4FY12 and 20.5% in Q1FY12. Agricultural and SME loans declined 8-10% q-o-q and their share declined to 9.2% (10.2% in Q4FY12) and 12.8% (14.8% in Q1FY12).
Corporate loan grew 2% q-o-q and 32% y-o-y to R929bn.
Based on the disclosures,proportion of loans to large and mid-corporate segment with rating of BBB and below has increased from 25% in Q1FY12 to 36% in Q1FY13. This was partially led by (i) re-payment of high rated corporate loan,(ii) some downgrades in the existing portfolio and (iii) strong growth in project finance wherein according to internal policy of rating they are rated two notches below the model rating.
Healthy SA deposits growth; however CASA ratio declines 200bp q-o-q: Deposit grew 21% y-o-y. Reported CASA (current account and savings account) declined 5% q-o-q (up +17% y-o-y) led by 14% sequential decline in CA deposits. On an average daily basis CASA deposits grew 16% y-o-y led by strong growth in average daily SA deposits (+22% y-o-y). Growth in customer acquisition remains impressive with number of savings account reporting an increase of 4.3% q-o-q and 25.7% y-o-y.
Margins down 18bp q-o-q led by higher PSL and rising cost of funds: Reported margins declined 18bp q-o-q to 3.37% led by higher share of PSL (priority sector lending) in incremental loans during the quarter and rising cost of funds. Fall in average daily CASA ratio by 200bp q-o-q and strong growth in term deposits led to 25bp increase in cost of funds.
Fee income growth remains moderate-a disappointment: Fee income growth moderated to just 9% y-o-y. This was on the back of sluggish growth in fees from corporate (flat y-o-y),which constitutes 35%+ of the overall fees. Growth in treasury fees remained moderate at 13% y-o-y. However,fees in agri. and SME grew remained strong. Business banking and retail segment grew 15%+ y-o-y.
Trading profits stood at Rs.1.5b (flat q-o-q) as against R702m in Q1FY12.
Slippages on expected line but recoveries and up-gradation disappoints: In Q1FY13,gross slippages stood at R4.5b as compared to R5.1b a quarter ago. However steep fall in recoveries and up-gradations to R620m vs R5.9b in Q4FY12 and R920m in Q1FY12 led to addition of higher stress on the balance sheet. Consequently,GNPA (gross non-performing assets) in absolute terms increased 16% q-o-q. In percentage terms GNPA and NNPA (net NPA) increased 12bp and 6bp q-o-q to 1.06% and 0.31% respectively.
PCR (provision coverage ratio)–including technical write-offremained strong at 79%.
O/s restructured loan at R38.2b i.e. 2.2% of outstanding loans: The bank restructured fresh loans of R6.2bn of loans (including large infra account of R3.3bn) and disbursed R2.4bn to loans already restructured. As a result,cumulative restructured loans increased to R38.2bn i.e. 2.2% of outstanding loans and 1.95% of customer assets. Of the overall restructured loans,R12.3bn has track record of two years or more of repayment. Bulk of the restructured loans are in large and mid-corporate segment,with SME,agri. and capital market related loans forming around 6-7% each. Sector-wise,textile forms 14% of the loan restructured,with petroleum,edible oils and shipping forming 11-12% each. 9% is contributed by infrastructure segment.
Tier I capital (including Q1 profit) at 9.5%: Overall CAR (capital adequacy ratio) of the bank stood at 13.5%,of which Tier-I ratio stood at 9.5%.
Cost to income ratio dips q-o-q: Opex growth moderated to 16% y-o-y led by 17% sequential decline in other opex. Employee expense grew 14% y-o-y and 10% q-o-q. Cost to income ratio stood at 46.5% as compared to 48.9% a quarter ago and 48% a year ago.
Valuation and view: Axis Banks key strength has been its ability to grow CASA deposits. Given its strong and rapidly growing liability franchise,we expect SA growth to remain healthy. However,a structural moderation in CA growth industry wide is likely to keep pressure on CASA ratio. Average daily CASA ratio has already declined from 42% in Q3FY11 to 36% now.
Axis Banks key strength has been its ability to grow CASA deposits (35% CAGR over FY06-12). Given its strong and rapidly growing liability franchise,we expect SA growth to remain healthy. In our view,margin remains one of the key factors for operating profit growth considering the slowdown in fee income growth. Healthy NII (net interest income) and fee income growth coupled with stable cost to income ratio should lead to core operating profit and PAT CAGR ((profit after tax/ compound annual growth rate) of 19% and 15% over FY12-14.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines