MUMBAI: The third largest private sector lender Axis Bank opened the earnings seasons for the June quarter in the financial services space Thursday on a bad note, reporting a 4% decline in net income at Rs 5,806 crore despite a reasonable performance in its core business.
The management said the red mark on the bottom-line is mainly due to a “technical impact” as the bank had a one-time hit of Rs 614 crore related to how it classifies some loans as bad. More importantly, on a sequential basis, net profit fell more sharply to the tune of 18%.
This technical loss came in after the bank recognized some cash credit, overdraft, and settled loan accounts as non-performing assets, which led to higher slippages and provisions. As a result, provisions more than doubled to Rs 3,948 crore in the June quarter from Rs 1,359 crore in the March quarter, Amitabh Chaudhry, the chief executive of the bank, told reporters in the earnings call Thursday.
“Prudent application of technical parameters to recognise slippages and consequent upgrades impacted reported asset quality, including provisions and contingencies. Technical impact is largely restricted to cash credit and overdraft products and one-time settled accounts,” the chief financial officer Puneet Sharma said, adding “without this one-off impact, net profit would have been stronger. The technical impact has adversely impacted net income by Rs 614 crore, RoA by 15 bps and RoE by 1.4%.”
Still, the bank said most of the loans that slipped due to this issue are safe as “80% of individual contracts that slipped because of this technical impact though continue to remain NPAs as of June 30, are fully secured. Hence economic loss due to the technical impact will be minimal over the life of such contract.”
Adjusted for this impact, gross NPAs stand at 1.41%, down 13 bps and net NPAs at 0.36%, up 2 bps, Sharma said.
However, the overall business remained steady with its balance sheet growing 9% to Rs 16.03 trillion, and capital buffers staying strong with the capital adequacy ratio of 16.85.