Slippages in retail loans amount to 1.9% of the retail book. Retail GNPAs increased from 90bp to 240bp QoQ. By HSBC Global Research
3QFY21: Conservative provisioning continues, driving PAT miss; net stressed loans at c4% of loans (vs 3.7% QoQ). Focus on liabilities, liquidity and credit risk to navigate uncertainty; additional provisions at 2% of loans. Reiterate ‘buy’; target price (TP) of Rs770 (vs Rs800 earlier) implies 1.8x one-year forward BV for FY23e RoE of 14%.
3QFY21 – elevated provisions and slippages drag down PAT: Axis Bank reported 3QFY21 PAT of Rs11.1 billion (down 36% YoY; 46% below HSBCe). Higher slippages (4.7% of loans; annualised) and elevated provisions (318bp of loans) drove the miss. Stable NIMs (at 3.6%) supported NII growth of 14% YoY. However, muted fee income (+5% YoY) and higher opex (+12% YoY) limited operating profit growth at 6% YoY.
Retail loans drive increase in net stressed assets: In 3QFY21, pro forma (without the Supreme Court exemption on NPA classification) gross slippages increased to Rs67billion of which 84% came from retail loans (equally split between secure and unsecured retail loans). Slippages in retail loans amount to 1.9% of the retail book. Retail GNPAs increased from 90bp to 240bp QoQ. Gross NPAs in the SME and corporate segments, however, declined on a sequential basis. The bank reported pro forma GNPA at 4.6% (vs 4.3% QoQ) and net NPA at 1.2% (vs 1% QoQ). Higher slippages along with higher write-offs (c0.7% of loans) kept the credit costs elevated at 3.2% of loans (annualised). Total net stressed assets — net NPAs, BB and below exposure (2.4% of loans) and restructured book — increased by 34bp QoQ to 4% of loans. Against this, the bank is holding total standard asset provisions of c2% of loans. Collection efficiencies in most of the segments reached to pre-COVID-19 levels.
Loan book growth moderated but deposits performance stays on track. In 3Q21, the loan book (including TLTRO investments) increased 9% YoY (vs 14% in 2Q21) and was largely led by retail loans (up 9% YoY). Management indicated that within wholesale loans (up 2% YoY vs 12% in 2Q), the bank is focusing on growing in margin-accretive segments. Under the ECLGS (Emergency Credit Line Guarantee Scheme), the bank has sanctioned Rs10.6billion (1.8% of loans). On deposits, CASA and retail TD (up 17% YoY; 86% of deposits) continued to grow faster than total deposits (up 11%).
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