Axis Bank Misses Profit Expectations Amid Higher Bad Loan Provisions and Slower Loan Growth
India's Axis Bank (AXBK.NS), the country’s fourth-largest private lender by market capitalization, reported a smaller-than-expected rise in quarterly profit, primarily due to slower loan growth and a significant increase in provisions for potential bad loans.
For the three months ending December 2024, Axis Bank’s standalone net profit, which excludes earnings from subsidiaries, rose 4% to 63.04 billion rupees ($728.48 million). Analysts had forecast a profit of 65.16 billion rupees, highlighting the gap between expectations and performance.
Bad Loan Provisions Surge
The increase in provisions for potential loan losses was a major factor affecting the bank's performance. Axis Bank's provisions and contingencies more than doubled to 21.56 billion rupees year-on-year. The bank attributed this to the deterioration of unsecured retail loans, particularly in the microfinance and other unsecured segments, as the economic environment placed stress on borrowers.
CFO Puneet Sharma mentioned that these provisions were largely set aside for unsecured retail portfolios that had underperformed in the current market climate. This decision reflects broader challenges facing Indian lenders, particularly with higher non-performing assets (NPAs) in these segments.
Asset Quality and Loan Growth
Axis Bank's gross non-performing asset (NPA) ratio stood at 1.46% at the end of December 2024, a slight increase from 1.44% in the previous quarter. Despite this, the bank has maintained a cautious approach to loan growth, aligning with its strategy to limit exposure in high-risk segments. Loan growth in the quarter was 9%, slower than the 11% rise seen in the previous quarter. Total deposits also grew by 9%.
The bank's slower loan growth comes amid a backdrop of Indian lenders struggling to keep pace with growing loan demand. Axis Bank’s executive director, Subrat Mohanty, noted that the bank had deliberately calibrated its loan growth, given the stress in certain segments.
Net Interest Income and Margin
Axis Bank's net interest income (NII), which measures the difference between interest earned and interest paid, rose by 9% to 136.06 billion rupees. However, this growth fell short of analysts' expectations, which stood at 137.87 billion rupees.
The net interest margin (NIM), a critical measure of profitability, shrank to 3.93% from 4.01% a year earlier and 3.99% in the previous quarter. This decline underscores the challenges Axis Bank faces in maintaining profitability amid rising loan provisions and slowing deposit growth.
The bank has set a medium-term target for a NIM of 3.80%, signaling its efforts to maintain profitability in a challenging lending environment.
Outlook and Strategic Focus
Axis Bank’s cautious approach to loan growth, combined with its focus on managing asset quality, positions the bank strategically to weather the challenges in the Indian banking sector. With the increasing risks in unsecured lending and microfinance, many lenders are following similar conservative strategies to mitigate potential losses.
As one of India’s most prominent private banks, Axis Bank’s performance will be closely monitored by investors and analysts as it navigates the evolving economic landscape.
Key Takeaways
- 1.Axis Bank's net profit rose 4%, but missed analysts’ expectations.
- 2.for bad loans surged, driven by stress in unsecured retail loans.
- 3.Loan growth slowed to 9%, and deposits grew at a similar pace.
- 4.The bank’s NIM shrank to 3.93%, reflecting challenges in profitability.
- 5.Axis Bank aims for a medium-term NIM target of 3.80%.
Key Financial Highlights:
- Net Profit: Increased by 4% to ₹6,304 crore.
- Net Interest Income (NII): Rose by 9% to ₹13,606 crore.
- Gross Non-Performing Assets (NPAs): Slightly increased to 1.46% from 1.44% in the previous quarter.
- Loan Growth: Slowed to 9% year-on-year, down from 11% in the previous quarter.
- Net Interest Margin (NIM): Narrowed to 3.93% from 4.01% in the same quarter last year.
For more financial updates and insights, stay tuned to our blog for the latest news on the banking sector.
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