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Axis Bank's recent Q3 earnings report revealed a significant increase in slippages, primarily driven by the retail segment. The bank's chief financial officer, Puneet Sharma, highlighted during a post-earnings conference call that a staggering 90 percent of the fresh slippages originated from the retail portfolio. This represents a substantial increase compared to previous quarters, with fresh slippages rising by 46 percent year-on-year and 22.3 percent quarter-on-quarter. This sharp increase contrasts with the previous quarter's results, which showed a 36.5 percent year-on-year rise but a 7 percent decrease in slippages. The total value of fresh slippages reached Rs 5,432 crore in the October-December quarter, a significant jump from Rs 3,715 crore during the same period last year. The substantial increase in slippages within the retail sector can be attributed to several factors. Sharma pointed to seasonality within the agricultural portfolio as a contributing factor, coupled with the impact of unsecured loans in the retail segment. This indicates that a combination of seasonal agricultural loan defaults and increased risk from unsecured lending in the retail sector contributed to the elevated slippages.
A more detailed breakdown of the slippages reveals that Rs 4,923 crore came from the retail segment, Rs 215 crore from the SME segment, and Rs 294 crore from the wholesale segment. This underscores the disproportionate impact of the retail sector on the overall slippage figures. The reported net slippages, adjusted for recoveries from the written-off pool, amounted to Rs 2,217 crore. Further analysis shows a breakdown of net slippages by segment: Rs 2,928 crore from retail, Rs 50 crore from the corporate and business group (CBG), and a negative Rs 761 crore from the wholesale segment. The negative figure for the wholesale segment indicates recoveries exceeding new slippages in that area. This highlights a significant contrast in the performance of different segments within the bank's portfolio.
The overall impact of these slippages on the bank's financial health is reflected in its gross and net slippage ratios. The gross slippage ratio increased to 2.13 percent in the October-December quarter, up from 1.78 percent in the previous quarter and 1.62 percent in the same period last year. Similarly, the net slippage ratio rose to 1.4 percent in Q3FY25, compared to 0.96 percent in Q2FY25 and 0.5 percent in Q3FY24. Despite the increase in slippages, Axis Bank reported a 3.83 percent rise in its net profit, reaching Rs 6,304 crore in Q3FY25. However, this positive result needs to be viewed in context of a 9 percent sequential decline in net profit compared to the previous quarter. While the net profit did increase compared to the same period last year, the sequential decline highlights the challenges posed by the increased slippages and overall economic climate. The bank's gross non-performing asset (GNPA) ratio also witnessed a slight increase, rising to 1.46 percent at the end of December, compared to 1.44 percent three months earlier. This slight increase in GNPA reflects the impact of the higher slippages on the bank's overall asset quality.
Axis Bank's financial performance in Q3FY25 presents a complex picture. While the bank achieved a year-on-year increase in net profit, the significant rise in slippages, particularly within the retail segment, raises concerns about the bank's asset quality and future performance. The increase in slippages, primarily driven by seasonal agricultural loan defaults and unsecured retail loans, is a key factor to consider. The bank's management will need to implement strategies to mitigate the risks associated with unsecured retail lending and address the seasonality issues affecting the agricultural portfolio. Going forward, investors and analysts will be closely monitoring the bank's strategies to manage its retail portfolio and maintain its asset quality. The performance of the retail segment will be a critical factor in determining Axis Bank's future financial success, particularly in the context of the overall economic climate and potential challenges within the banking sector.
Furthermore, a deeper dive into the bank's interest income and expenditure provides further context. Axis Bank's interest income for the quarter reached Rs 30,954 crore, a 11 percent increase compared to the same period last year. Simultaneously, interest expenditure increased by 12 percent, reaching Rs 17,348 crore. This increase in both interest income and expenditure reflects the overall activity within the banking sector and the bank's lending practices. The relatively higher increase in interest expenditure compared to interest income might suggest some pressure on the bank's profitability margins. However, this needs to be further analysed in relation to the increase in net profit. In conclusion, Axis Bank's Q3 results highlight a mix of positive and negative trends. While net profit increased year-on-year, the significant rise in slippages, particularly in the retail segment, raises important questions about the bank’s asset quality and requires proactive management to mitigate future risks. This situation warrants continued monitoring of the bank's performance and its strategies to address these challenges.
Source: 90% of slippages came from retail portfolio: Axis Bank’s CFO Puneet Sharma on Q3 results