By Nishit Navin and Ashwin Manikandan
BENGALURU (Reuters) -Axis Bank, India’s fourth-largest private lender by market value, posted an unexpected drop in first-quarter profit on Thursday as its bad loans surged after a one-time industry benchmarking exercise.
The bank’s gross slippages, or loans classified as bad assets for the first time, ballooned to 82 billion rupees ($953 million) in the April-June quarter, from about 48 billion rupees in both the previous and year-ago quarters.
“As a bank, we do an internal benchmarking exercise to the market best practices annually. (This time) We found an odd bank that was following criteria more stringent than us, and that benchmarking led to the change that we made,” Chief Financial Officer Puneet Sharma said in an earnings call.
He did not name this “odd bank” or give any other details on the benchmarking exercise.
However, he said the new slippages were mostly in the lender’s unsecured retail book, and specifically in its credit overdraft product, and that the impact would be more muted in subsequent quarters.
As a result, Axis Bank’s standalone net profit fell nearly 4% to 58.06 billion rupees last quarter, while analysts were expecting profit to increase about 6% to 63.73 billion rupees, as per data compiled by LSEG.
Its net interest income, the difference between interest paid and earned, rose 1% to 135.60 billion rupees.
However, its net interest margin (NIM) shrunk to 3.8% from 4.05% a year earlier and 3.97% in the previous quarter due to the central bank’s recent interest rate cuts.
While margins would be affected this quarter as well, the bank would be able to maintain a 3.8% NIM for the year, Sharma said.
When rates are lowered , lenders typically pass on the advantage to borrowers first and only later cut deposit rates, which temporarily squeezes their margins.
Axis Bank’s loans increased 8%, led by 9% growth in new loans to corporates. In the medium term, its credit growth is expected to outpace the industry average, CEO Amitabh Chaudhry said.
“The wholesale loan book, which had not grown for a while, has started growing this quarter,” he said.
The amount the bank set aside to cover potential bad loans nearly doubled to 39.48 billion rupees last quarter. Its gross non-performing assets ratio, a key gauge of asset quality, deteriorated to 1.57% at end-June from 1.28% at end-March. ($1 = 86.0330 Indian rupees)
(Reporting by Nishit Navin Ashwin Manikandan; Editing by Mrigank Dhaniwala and Savio D’Souza)
