Unexpectedly higher loan growth graces Axis Bank

Thanks to large and mid-corporate growth segment.

India-based Axis Bank experienced higher-than-expected loan growth in 2QFY15, driven by uptick in large and mid-corporate growth segment.

According to a research note from Nomura, corporate loan growth of 8% q-q was driven by largely drawdowns from existing project sanctions and increased working capital needs.

Also, some slowdown in the auto book has been seen, especially in the car portfolio, as system growth has come off – Axis’ auto loan book composition is 60% cars and ~40% CVs.

Here's more from Nomura:

Margins and Liability franchise improves further with ~10bps q/q expansion in

NIMs and CASA ratio improving to 45%: Domestic NIM was 4.3% and overseas book NIM was 1.7% during the quarter-Improvement in domestic NIM was largely led by ~10bps q-q improvement in yield on advances.

Management expects some moderation in NIMs going forward as 80-85% of the domestic loans which is linked to the base rate becomes repriced on a 10bps base rate cut that the bank did this month, as yields may contract by 7-8bps.

Management indicated that the robust growth in retail term deposits of +30% y-y was largely driven by customer pull rather than the company push.

Core fee growth improves as corporate growth picks up: Core fee growth at 11% y-y growth was better than expected primarily due to positive 7% y-y growth in large corporate fees vs contraction in last few quarters and continued momentum in retail fees.

Trading profits in 2Q15 of INR2.7bn were largely by bonds’ gains.

Opex growth adjusted for base was 15% y/y: Opex growth during 2Q15 was up 18% y-y, however, adjusted for some writebacks in employee costs in 2Q14 the growth would have been around 15% y-y. Management guided towards opex growth of ~15% y-y for FY15F.

Asset quality and provisions – Some uptick seen but remains well within guidance: Management maintained credit cost guidance of ~75-85bps and delinquency expectation of INR65bn (Slippages + Restructuring) for FY15F keeping some buffer for 2H15F.

Provisioning during the quarter included INR6.4bn of specific provisions, INR0.7bn of standard and FX exposure linked provisioning.

Slippages of INR9.1bn included INR1.94bn of delinquency from the restructured book. Large write-offs of ~INR6bn driven by tax planning purposes.