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    Axis Bank Q2 FY25 earnings call

    AXISBANKGood
    Financial Services·17 Oct 2024
    Management Summary

    Axis Bank delivered a strong Q2 FY25 with best-in-class return ratios and robust operating performance. Asset quality improved sequentially across all metrics. The bank successfully completed Citi consumer business integration and became the leading UPI PSP. While unsecured retail showed early signs of stress industry-wide, management took proactive risk actions and added Rs 520 crores to prudent non-NPA provisions. Focus on RAROC-driven selective growth continued.

    Highlights

    8

    • Consolidated ROA at 1.92%, up 9bps YOY and 22bps QOQ; ROE at 18.08%, up 140bps QOQ

    • Operating profit up 24% YOY and 6% QOQ; PAT up 18% YOY

    • NII grew 9% YOY; NIM at 3.99% with 20bps cushion over through-cycle guidance

    • GNPA at 1.44%, down 29bps YOY and 10bps QOQ; NNPA at 0.34%; PCR at 77%

    • Deposits grew 14% YOY and 2% QOQ, outpacing industry by ~200bps

    • Advances grew 11% YOY; SBB+SME+Mid-Corporate at 22.2% of total loans, up 800bps in 4 years

    • Net credit cost at 0.54%, down 43bps QOQ; gross slippage ratio at 1.78%, down 19bps QOQ

    • Became #1 UPI Payer PSP with 30.87% market share; Citi integration completed successfully

    What Changed2

    vs Q3 FY25

    Tone shiftMixed → GoodRisks discussed5 → 4 (-1)

    Key financials

    Single quarter

    08 metrics
    1. 01NII—+9%YoY
    2. 02NIM4.0%
    3. 03GNPA1.4%
    4. 04NNPA34%
    5. 05ROA (consolidated)1.9%

    Guidance & targets

    3
    CategoryTargetPriority
    NIM
    Through-cycle NIM
    3.80%
    		High
    Asset Quality
    RIDF rundown
    Rs 2,000-2,500 crores rundown over next 4-5 quarters
    		High
    Deposits
    Deposit growth vs industry
    Better than industry (~200bps above)
    		High

    Risks & concerns

    6
    RiskSeverity

    Unsecured retail stress emerging - cards and PL showing early signs of indebtedness and over-leverage

    Industry-wide phenomenon. Bank taking proactive policy actions on scores, limit curtailment. Early signs of improvement from corrective actions. — Both acknowledged

    medium

    MFI portfolio deterioration across industry, though small for Axis (sub 2% of loans)

    Disbursals reduced, area-wise exposure caps maintained. Operating below industry delinquency levels. — Both acknowledged

    low

    Cost of funds stability may be challenged if rate environment changes

    COF stable at 5.43-5.45% for 3 quarters. Not in the price game for deposit garnering. — Analyst downplayed

    low

    RBI draft circular on bank subsidiaries and forms of business

    Bank reviewing implications. Too nascent to comment. Will act in shareholder interest. — Analyst acknowledged

    low

    Areas of Evasion(2)

    • Specific CD ratio target from RBI
    • Segmental delinquency numbers not shared

    Q&A highlights

    4

    “Gross NPAs have declined sequentially and YOY. Net slippages improved from 1.37% to 0.96%. Asset quality at Axis Bank isn't deteriorating.”

    CFO pushback on negative narrative - all metrics improving sequentially despite macro concerns

    asked by Saloni Shukla (Economic Times)

    1 min read5 chapters

    Detailed Narrative

    01

    Best-in-Class Return Ratios

    Consolidated ROA at 1.92% (up 9bps YOY, 22bps QOQ) and ROE at 18.08% (up 140bps QOQ) were strong. PAT grew 18% YOY. Operating profit surged 24% YOY driven by 9% NII growth and moderating opex (9% YOY growth). Fee income grew 11% YOY with granular fees at 92%. H1 FY25 operating profit at Rs 20,819 crores, up 19% YOY.

    02

    Asset Quality Improving Despite Macro Headwinds

    GNPA at 1.44% (down 29bps YOY, 10bps QOQ). NNPA at 0.34%. Gross slippage ratio improved 19bps QOQ to 1.78%. Net slippage ratio improved 41bps QOQ to 0.96%. Net credit cost at 0.54%, down 43bps QOQ. Bank prudently added Rs 520 crores to non-NPA provisions (total Rs 5,012 crores). Loan loss provisions actually reduced Rs 1,100 crores QOQ.

    03

    RAROC-Driven Selective Growth

    Advances grew 11% YOY with focus segments (SBB+SME+Mid-Corporate) at 22.2% of total loans. SBB grew 23% YOY. Deposits grew 14% YOY, 200bps above industry. CASA best among large private peers. In constrained environment, bank prioritized assets with highest RAROC over sheer volume growth.

    04

    Digital and Payments Dominance

    Achieved #1 UPI Payer PSP position with 30.87% market share. Largest merchant acquirer with 20% market share. 15 million monthly active users on app. Credit card CIF market share at 14%. Launched UPI-ATM for cardless cash. Citi consumer integration completed in July with improved digital activity from migrated customers.

    05

    Proactive Risk Management on Unsecured

    Identified industry-wide stress in unsecured retail from credit hungriness and over-leverage. Took proactive actions: tightened scorecards, curtailed limits, reduced card acquisition from 1.2M to 700-800K per quarter. CRO confirmed actions across all products on unsecured side. MFI exposure small at sub-2% of loans. Early signs of improvement from corrective actions visible.

    This is an AI-generated summary of a publicly available earnings call transcript.