By Nishit Navin and Ashwin Manikandan
(Reuters) -Indian private lender Axis Bank reported a sharper-than-expected fall in quarterly profit on Wednesday, dragged by a drop in trading income at a time when the bank has a backlog of funds kept aside for potential bad loans.
The country’s fourth-largest private lender by market capitalisation said its standalone net profit fell 26% to 50.9 billion rupees ($577.65 million) for the three months to September 30. Analysts had expected a 15% drop in profit, according to data compiled by LSEG.
Income from trading, or treasury operations – a key component of a bank’s balance sheet – dropped 55% to 4.98 billion rupees in the quarter, as the government’s 10-year bond yield jumped 26 basis points.
A rise in funds set aside for bad loans in the April-June quarter, which was carried over, also weighed on the bottom line of the Mumbai-based lender.
Its so-called provisions and contingencies rose 61% year-on-year to 35.47 billion rupees. However, they fell 10% from the June quarter, when the bank missed profit estimates as provisions surged due to what the bank said was a one-time industry benchmarking exercise.
Axis also set aside 12.31 billion rupees for loans issued under two discontinued crop loan products. These provisions will be written back when the outstanding loans are recovered or closed, CFO Puneet Sharma said.
AXIS BANK’S MARGIN SQUEEZE
Meanwhile, the lender’s net interest margin shrank to 3.73% from 3.8% in the previous quarter and 3.99% in the year-ago period, following the central bank’s cumulative rate cuts of 100 basis points this year.
Rate cuts tend to hurt banks in the short term as loans adjust to the new rates faster than deposits, squeezing margins in the interim.
“Our corporate SME (small and medium enterprises) and retail secured book are holding up well, and the retail unsecured book is broadly seeing improvement in stabilization,” CEO Amitabh Chaudhry said.
“Especially, we have seen improvement in cards and stabilization in personal loans.”
The bank’s gross non-performing asset ratio improved to 1.46% from 1.57% three months earlier but was up from 1.44% a year earlier.
Its board on Wednesday approved amendments for granting voting rights to holders of its global depository receipts, subject to regulatory approval, it said in a filing.
($1 = 88.1160 Indian rupees)
(Reporting by Nishit Navin and Ashwin Manikandan, additional reporting by Gopika Gopakumar; Editing by Janane Venkatraman and Mrigank Dhaniwala)
