KOLKATA: On Monday, India’s 3rd largest bank, Axis Bank, reported its Q4 earnings for the fiscal year 2019-20. Industry analysts are baffled to grasp that the results indicate a loss of ₹1,388 Crore despite provisions, tripling on-year. The private-sector financial institution seems to be depicting a rather prudent image even though they lack a concrete assessment of the current market scenario, they said.
For context, India is currently reeling under a 40-day nationwide lockdown that is set to extend more, to curb the spread of coronavirus. This move, by the government, had led to the halt of all non-essential economic activities. Now, however, the centre is in the process of lifting those restrictions.
The analysts’ estimates were tracked by Bloomberg. Its consensus pegged Axis bank’s net profit margin at ₹1,478 Crore. They had taken the bank’s reported profit of ₹1,505 Crore in the same year-ago period, into account in their estimates. The bank also reported a rise in the net income from interest collection at 19.3%, amounting to ₹6,808 Crore.
In his statement, The bank’s CEO, Amitabh Chaudhry sounded wary. He said, “The nationwide lockdown and the resultant economic slowdown is widespread and will take time to normalise.”
Furthermore, Chaudhry stated,”We expect the fee-income growth to slow and provisions to increase materially. The COVID-induced slowdown will delay the normalisation of our corporate stressed pool and we expect further downgrades into our below investment grade pool in FY21.”
During the post-earnings call, Chaudhry told the press, “We will be required to recalibrate the timeline for our strategic targets and (Return on Equity) RoE target of 18%. Things are still uncertain right now and we will have to relook at them internally.”
Axis Bank’s RoE declined to 2.34% in FY20 from 8.09% in March 2019. Industry experts are saying that the huge provisions, nearly trebling on account of the lockdown, would likely cause the bank’s timeline for expected RoE to slip.
Provisions and contingencies nearly trebled on account of the lockdown. It set aside ₹7,730 Crore as provisions, out of which ₹3,000 Crore was set aside anticipating the impact of COVID-19. The bank’s provision coverage ratio improved to 69%. Slippages or the fresh formation of bad loans rose to ₹3,920 Crore, a fall of 40% sequentially. The below-investment grade book increased 19% sequentially to nearly ₹11,000 Crore. On a positive note, the bank’s gross bad loan ratio improved to 4.86% against 5.26% in March, last fiscal.
Siddhart Purohit, analyst, SMC Institutional Equities acknowledged,” It’s a prudent move by the bank to take additional COVID-related provisions, maybe they have sensed some trouble.”
However, he argues, “One should not go by the growth and asset quality numbers in the March quarter, as there is a possibility that asset quality will materially deteriorate in the June and September quarters.”
The bank also reported a decent credit growth figure in its quarterly earnings. They announced that the overall loans grew 15%, while retail loans grew 24% and corporate loans 11%. Total deposits also rose 19% over last month.
With this report, Axis Bank joins the rank of other private-sector banks with dismal reports. Banking conglomerates, like JPMorgan, ICICI and IndusInd Bank, have all, over this month, successively announced severe profit declines over the last quarter and the ongoing one.