Axis Bank’s overall Q2 provisions jump to ₹2,204 cr on elevated retail slippages

Mumbai: Elevated retail loan slippages and higher contingent provisions led to Axis Bank’s overall provisions nearly trebling to ₹2,204 crore in the September quarter (Q2FY25) from ₹815 crore a year ago.

In the April-June quarter, the Mumbai-based private lender’s overall provisions had stood at ₹2,039 crore, it said in an exchange filing.

Slippages for the quarter were ₹4,443 crore, of which ₹4,073 crore were from the retail loan segment, ₹264 crore from commercial banking loans and another ₹106 crore from wholesale loans, the bank’s chief financial officer Puneet Sharma said in an earnings call. Sequentially, loan loss provisions fell from ₹2,551 crore to ₹1,441 crore in the reporting quarter.

Sharma said that incrementally bulk of the retail slippages have been from unsecured loans. Even so, 71% of the bank’s retail portfolio is secured. Overall gross slippage ratio for the bank improved to 1.76% from 1.97% the June quarter and the net slippage ratio to 0.96% from 1.37%.

Axis Bank also made contingent provisions of ₹520 crore during the quarter for non-NPA (non-performing assets) loans, with the bank saying that these should not be “construed in any manner as the bank’s assessment of its expected asset quality”.

The lender held cumulative provisions of ₹11,815 crore as at the end of 30 September 2024, constituting standard asset coverage of 1.2%. Provision coverage stood at 77% compared with 79% a year ago and 78% a quarter ago.

Axis Bank’s gross NPA ratio improved to 1.44% as of September 30, from 1.54% in the previous quarter. Net NPA ratio at 0.34% was unchanged from a quarter ago. Gross credit cost (annualized) for the quarter was 0.90% against 1.19% in Q1FY25 and net credit cost was at 0.54% compared with 0.97%.

The private sector lender’s net interest income grew 9% year-on-year and 0.3% from the previous quarter to ₹13,483 crore. The bank posted a net profit of ₹6,918 crore for Q2FY25, growing 18% year-on-year and 15% sequentially.

Loan growth, margins

Domestic net interest margin for the bank declined 6 basis points (bps) on quarter and 12 bps on year to 3.99%. Sharma said that the bank’s cost of funds has only moved up by 1 bps on quarter to 5.45% and the residual impact on margins is due to a one-time tax-related gain of over ₹220 crore in the previous quarter. As such, the bank’s core business margins “have remained intact”.

He added that growth in both advances and deposits for Axis Bank has been higher than the industry average, with deposits growing by almost 200 bps higher.

“Current conditions do present variables which are tough. We say we have excess liquidity but on the other side, deposit rates are not coming down, we have clear guidelines on CD ratio, we are seeing some asset quality worsening in unsecured and some of the other asset classes. Further, rates being demanded by good borrowers are also not increasing,” MD and CEO Amitabh Chaudhry said, adding that the bank’s ability to report steady NIMs and better asset quality should be seen in the context of this environment.

He added that RBI has been in discussions with various banks on CD (credit-deposit) ratios and the banks have a clear understanding of what is expected from them, and Axis Bank is working within these guidelines.

Axis Bank’s advances grew 11% year-on-year and 2% sequentially to ₹10 trillion as on September 30. Retail loans were rose 15% to ₹6 trillion, accounting for 60% of net advances. Total deposits grew 14%, of which current account deposits increased 8%, savings account deposits 2% and term deposits by 21%. The share of low-cost CASA deposits was at 41%.