The private bank said it has made specific loan loss provisions for Q2 at Rs 588 crore. The bank held additional provisions of around Rs 6,898 crore towards various contingencies at the end of Q1.
“Axis Bank beat expectations with improved business momentum and a more resilient asset book. The bank continued to make excess provisions to safeguard against all future probable stresses. Hence, incremental stress pool originating from over dues as well as probable restructuring accounts appears adequately provided for,” said Santanu Chakrabarti of Edelweiss Securities.
The focus on being prepared for contingencies comes on the back of improving asset quality. As of September-end the bank’s gross NPA and net NPA levels were 4.18 per cent and 0.98 per cent, respectively, as against 4.72 per cent and 1.23 per cent in June-end.
Mahrukh Adajania of Elara Capital estimated the maximum stress pool at Rs 20,600 crore, which includes the BB portfolio, the potential non-BB corporate restructuring and potential retail restructuring.
“The maximum stress pool accounts for 2.8 per cent of total exposure and 3.6 per cent of net loans. Against this, the bank already holds provisions of 1.9 per cent of loans or a PCR of >50 per cent, which is strong considering that the entire pool will not slip,” he said. Adajania has a target of Rs 625 on the scrip, which means a potential upside of 24 per cent.
He highlighted that there has been a sharp increase of 39 per cent in the BB pool. Three-fourth of the increase in funded BB is driven by downgrade of accounts, which are likely to apply for restructuring, and 25 per cent is on account of internal reviews. Total BB book including non-funded has risen from 1.5 per cent to 2.05 per cent, he added.
Besides strengthening its arsenal, the company also saw strong operating profit growth, led by robust NII growth, a sequential rebound in core fees, and controlled operating costs.
“On the business front, loan growth picked up, led by higher disbursements in the SME portfolio under the Emergency Credit Line Guarantee Scheme. Retail growth also showed signs of improvement,” said analysts at Motilal Oswal, who see the scrip move to Rs 650 from current levels in 12 months, meaning a potential upside of 29 per cent.
The company also saw sharp improvement in fee income, which forms a chunk of its revenue at Rs 2,752 crore. Retail fees (62 per cent of overall fees) grew 82 per cent QoQ, aided by material recovery in all fee streams (cards, distribution, assets‐related, etc.).
Commenting on the future outlook of the company, Chakrabarti said Axis Bank’s performance has been volatile on the asset front, despite significant liability gains. “Overdue retail/SME accounts and performance of corporate assets will, therefore, be keenly monitored. However, excess provisioning and capital raise will go a long way in increasing equity sanctity,” he added.