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Axis Bank's recent financial report revealed a modest increase in its net profit for the quarter ending December, falling slightly short of market expectations. The bank's standalone net profit climbed by 3.8% to reach ₹6,303.77 crore, compared to ₹6,071.1 crore in the same period last year. This relatively small increase is attributed to a slowdown in loan growth and a significant rise in provisions set aside for potential bad loans. While interest income saw a robust 10.7% growth to ₹30,954 crore, highlighting the bank's continued activity in the market, the net interest income increase of 8.6% to ₹13,606 crore was less impressive in the context of the overall financial landscape. The net interest margin for the quarter remained at 3.93%, a stable figure but potentially indicative of a need for strategies to enhance profitability in coming quarters.
The report further detailed a considerable slowdown in the growth of both advances and deposits, marking the lowest growth in fifteen quarters. Deposits increased by 9% to ₹10.95 lakh crore, showing a meagre 0.84% sequential growth. Similarly, advances rose by 8.8% year-on-year to ₹10.14 lakh crore, with sequential growth at only 1.46%. This sluggish growth in deposits and advances raises important questions about Axis Bank's overall market position and its competitive strategies in the near future. The management, however, emphasized efforts to enhance the quality and cost-effectiveness of deposits while acknowledging the need for improved growth in this sector. The focus on strengthening the new-to-bank acquisition engine for the savings franchise signals a strategic shift towards attracting new customer segments.
A deeper look into the performance reveals that the retail segment contributed the majority of fresh slippages during the third quarter. Approximately 90% of the total fresh slippages, which amounted to ₹5,432 crore, originated from this sector, reflecting increased risk within the retail loan portfolio. This figure is significantly higher than the ₹3,715 crore reported in the same quarter the previous fiscal year. The management’s explanation for the slower growth in loan portfolio, coupled with increased slippages, will require more in-depth analysis to determine whether it represents a long-term trend or a temporary fluctuation. The rise in provisions and contingencies to ₹2,156 crore (compared to ₹1,028 crore in Q3 FY24) further underscores the bank's cautious approach in anticipation of potential loan defaults. Despite this increased provision, the GNPA ratio only increased marginally, rising 2 basis points to 1.46%, while the NNPA ratio decreased 1 basis point to 0.35%. This suggests that while potential risks exist, the bank is actively managing these through a prudent approach to provisioning.
Despite the subdued growth in overall advances, certain segments exhibited stronger performance. Retail loans saw an 11% year-on-year increase, reflecting continued demand in the consumer credit space. Loans to small and medium enterprises (SMEs) experienced even more robust growth, rising 15% year-on-year. The bank's strategic focus on SMEs and mid-corporate loans, which constituted 22.7% of the total advances, seems to be paying off in terms of growth, providing a counterbalance to the comparatively weaker performance in other loan categories. The steady growth in the corporate loan book indicates a balanced portfolio approach. While these positive trends are evident, the overall slower growth necessitates a careful evaluation of market conditions and potential adjustments to business strategies. The bank's continued focus on garnering deposits, as highlighted by the management, is a clear indication of their preparedness for sustained growth in the longer term.