Axis Bank Non-Performing Assets

REPORT ON NON PERFORMING ASSETS OF AXIS BANK 2012 M.COM FIRST YEAR 2012 ELSON ANTONY PAUL. C
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Axis Bank was formed as UTI when it was incorporated in 1994 when Government of India allowed private players in the banking sector. The bank was sponsored together by the administrator of the specified undertaking of the Unit Trust of India, Life Insurance Corporation of India (LIC) and General Insurance Corporation ltd. and its subsidiaries namely National insurance company ltd., the New India Assurance Company, the Oriental Insurance Corporation and United Insurance Company Ltd. However, the name of UTI was changed because of the disagreement on terms and conditions of the bank authority over certain stipulations including royalty charged over the name from UTI AMC. The bank also wanted to have a new name from its pan-Indian as well as international business perspective. So from July 30, 2007 onwards the UTI bank was named as Axis Bank. Axis Bank Limited (BSE: 532215, LSE: AXBC) is an Indian financial services firm that had begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the Specified Undertaking of the Unit Trust of India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance Corporation Ltd., National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United India Insurance Company UTI-I holds a special position in the Indian capital markets and has promoted many leading financial institutions in the country. As on the year ended 31 March, 2012, Axis Bank had an operating revenue of13,437 crores and a net profit of 4242 crores. [1]Axis Bank (erstwhile UTI Bank) opened its registered office in Ahmedabad and corporate office in Mumbai in December 1993.The first branch was inaugurated in April 1994 in Ahmedabad by Dr. Manmohan Singh , then the honorable Finance Minister . The Bank, as on 31st March, 2012, is capitalized to the extent of Rest . 413.20 crores with the public holding (other than promoters and GDRs) at 54.08%.

Strong Operating Performance on all parameters: Advances increased by a robust 27.9% yoy and 23.1% sequentially to Rs1,04,343cr, while Deposits increased to Rs1,41,300cr, a growth of 20.4% yoy and 24.1% sequentially. The CASA ratio of the bank improved to 46.7%, from 45.6% in 3QFY2010 and from 43.1% in 4QFY2009. During the quarter, the daily average balances of Savings deposits grew by 40% yoy and those of Current account deposits grew by 42% yoy. This, coupled with the Rs3,800cr of equity capital raised during October 2009, was reflected in an uptick in the reported NIMs of the bank to the 4.1% level (against 4.0% in 2QFY2010 and 3.4% in 4QFY2009). The gross slippages during the quarter stood at Rs247cr as against Rs Rs421cr during 4QFY2009. Hence, the NPA provisions were lower sequentially at Rs180cr in 4QFY2010 (v/s. 360cr in 3QFY2010). On the back of the strong advances growth, the Gross and Net NPA ratios of the bank were stable at 1.1% and 0.4%, respectively. During 4QFY2010, the bank added another 86 branches and 238 ATMs, taking the network size to 1,035 branches and 4,293 ATMs. Axis Bank, Indias third largest private sector lender, reported a higher-than-expected net profit in April-June but the banks provisions and non-performing assets rose.

The banks net profit for April-June was up 22 percent on-year to Rs 1,153 crore as against a CNBC Awaaz poll estimate of Rs 1128 crore. Its net interest income-- the difference between interest earned and paid out rose 26.5 percent to Rs 2180 crore. The banks provisions rose to Rs 259 crore from Rs 176 crore a year ago. However, the net non-performing assets (NPA) and the gross NPA witnessed an increase as of June 30. Net NPA stood at 0.31 percent against 0.25 percent the quarter earlier and gross NPA at 1.06 percent as against 0.94 percent. The banks shares declined over 2 percent reacting to the earnings, as investors sold seeing the increase in provisions and NPAs. A poll by CNBC-Awaaz estimated Axis Banks net profit to rise 20 percent to Rs 1,128 crore. The net interest income or was seen at Rs 2,138.51 crore, up more than 24 percent. The banks shares have declined nearly 18 percent over the last one year as compared with a 5 percent fall in the broader index Bank Nifty. Concerns over the banks exposure to small and medium enterprises the category most vulnerable in a slowing economy was the main reason for the underperformance, say analysts.

shares of Axis Bank , country's third largest private sector lender, slipped as much as 2.3% intraday on Tuesday after higher provisions and non-performing assets in Q1 compared to a year ago period.

First quarter (April-June) net profit rose more than 22% year-on-year to Rs 1,150 crore and net interest income of the bank spiked 26.5% to Rs 2,180 crore during the same period. Analysts on average had expected net profit at Rs 1,112 crore and net interest income of Rs 2,139 crore.

The bank made a provision of Rs 259 crore that was quite higher as compared to Rs 176 crore in the corresponding quarter of last fiscal.

Gross non-performing assets (NPAs) moved up by 12 basis points to 1.06% in the quarter ended June 2012 as against 0.94% in a year ago period. Net NPAs too increased at 0.31% versus 0.25% during the same period.

At 13:57 hours IST, the share was trading at Rs 1,031.90, down 1.28%. Its trading volumes increased 82% to 4,66,797 equity shares as compared to its 5-day average of 2,56,937 shares. Market capitalisation of the company currently stands at Rs 42,750.68 crore.

The result was announced during trading hours today, 17 July 2012. Meanwhile, the BSE Sensex was up 52.25 points, or 0.31%, to 17,155.56. On BSE, 4.65 lakh shares were traded in the counter as against an average daily volume of 6.59 lakh shares in the past one quarter. The stock hit a high of Rs. 1,061.50 and a low of Rs. 1,021 so far during the day. The stock had hit a 52-week high of Rs. 1367.10 on 1 August 2011. The stock had hit a 52-week low of Rs. 784.50 on 2 January 2012. The stock had outperformed the market over the past one month until 16 July 2012, gaining 1.26% compared with the Sensex's 0.91% rise. The scrip had, however, underperformed the market in past one quarter, sliding 12.67% as against 0.28% fall in the Sensex. The large-cap private sector bank has an equity capital of Rs. 414.29 crore. Face value per share is Rs. 10. Axis Bank's ratio of gross non-performing assets (NPA) stood at 1.06% as on 30 June 2011. Axis bank's ratio of net NPA increased to 0.31% as on 30 June 2012 from 0.25% as on 31 March 2012. The figure stood at 0.31% as on 30 June 2011. Axis bank's net profit rose 22.41% to Rs. 1153.52 crore on 29.24% increase in total income to Rs. 7,818.37 crore in Q1 June 2012 over Q1 June 2011. The bank's capital adequacy ratio (CAR) stood at 13.03% as on 30 June 2012, lower than 13.66% as on 31 March 2012 and higher than 12.53% as on 30 June 2011. Axis Bank provides commercial banking services which include merchant banking, direct finance, infrastructure finance, venture capital fund, advisory, trusteeship, forex, treasury, investment banking, insurance, credit cards, mortgage financing, depository services and other related financial services.

Axis Bank reported 22% increase in its first quarter net profit. However, its nonperforming assets are showing signs of deterioration which is a serious concern Axis Banks net profit during the quarter ended June 2012 rose to Rs1,154 crore, registering a growth of 22% year-on-year (y-o-y). The banks net interest income rose 26% y-o-y to Rs2,180 crore during Q1FY13 from Rs1,724 crore during the same period last year. The net interest margin was 3.37% in Q1FY13, slightly higher compared to 3.28% during Q1FY12. However, over the last few years, its net interest margin has been flat and hardly making significant upwards movement. However, one concern the bank needs to deal with is its rising non-performing assets, which has increased from the previous quarter. Its operating profit rose 26% y-o-y to Rs1,964 crore during Q1FY13 from Rs1,558 crore during Q1FY12, which is more than its three-quarter y-o-y average growth rate of 21%. It has disappointed on the revenue front, after seeing it grow only 29% to Rs7,818 crore, whereas its three-quarter y-o-y growth rate is 35%. Even though its return on equity is high (20%), its valuation low compared to its bigger peers (i.e. ICICI Bank and HDFC Bank) at an operating profit quoting at little more than five times its market capitalisation. Its low valuation, while cheap, is a cause for concern. One nagging concern is the non-performing assets. Gross non-performing assets (Gross NPAs) as a proportion of gross customer assets stood at 0.94% as on 31st March 2012. However, this increased to 1.06%, while net non-performing assets stood at 0.31%, up from 0.25% quarter-on-quarter. However, this number is more or less constant when compared to the same period last year, indicating banks difficulty in curtailing it. During the quarter, the slippages were recorded at Rs456 crore which resulted in a closing position of Rs2,092 crore of Gross NPAs as on 30th June 2012, as against Rs1,573 crore as on 30th June 2011. Despite this, the banks capital adequacy ratio (CAR) has improved by 50 basis percentage points (bps), to 13.03%, for the current quarter, from corresponding period last year. It is pertinent to note that the current account portion of the current account savingsaccount (CASA) has been steadily declining, which actually increases the cost of the bank. It has declined by more than 700 bps, or seven percentage points, from 50% it recorded in the 200809 fiscal to 43% at the close of the 2011-12 fiscal. According to the companys press release, the daily average balances, both the current account and savings account put together grew

16% y-o-y, buoyed up by 22% increase in savings bank deposits. If more savings accounts are opened, it means banks will have to spend more money and its costs of funds will increase. The banks loan book grew 30% y-o-y from Rs1,31,900 crore as on 30 June 2011 to Rs1,71,146 crore as on 30th June 2012. However, normalised y-o-y growth in advances would be 21%, adjusting for currency depreciation of roughly 25% during the year and a relatively lower base caused by run-offs in short-term loans in the previous period ended 30 June 2012, said the press release. While its overseas total assets increased by 27% to $6.15 billion, it puts itself more under the risk of exchange rate fluctuations. One of the major events that took place this quarter was the approval of the demerger of the financial services business from Enam Securities Pvt Ltd. According to the press release, it said, During the current quarter, pursuant to the order passed by the High Court of Gujarat at Ahmedabad, the equity shareholders and unsecured creditors of the Bank have at their meetings held on 23rd June 2012, approved the Scheme of Arrangement in respect of the demerger of the financial services business from Enam Securities Private Limited to the Bank and a simultaneous sale of such businesses to Axis Sales & Securities Limited, a wholly owned subsidiary of the Bank, with effect from 1st April, 2010. The Bank is now awaiting the necessary approvals under applicable law from various regulatory authorities to the Scheme of Arrangement and consequently, no effect of the acquisition has been given in the results for the current quarter. Earlier, Enam Securities sold itself to Axis Bank.