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Axis Bank posts 33% rise in net at Rs 1,020 crore
April, 23rd 2011

Axis Bank, the nation's third-largest private sector bank, said quarterly profit rose 33% on higher lending to companies, but pre-tax income from treasury and retail lending plunged. Profitability eroded as it paid more for funds and a proposal to appoint Enam shareholders on its board was turned down by RBI.

The bank said the net profit for the March quarter was Rs 1,020 crore, up from Rs 764 crore a year earlier. The net interest margin (NIM), a measure of profitability, fell to 3.44% in the quarter, from 4.09% a year earlier. Fee income rose and the bank has decided to pay a dividend of Rs 14 a share.

"Our net interest margins will depend on how we manage our cost of borrowing and pass it on to the consumers," said bank executive director and chief financial officer Somnath Sengupta. He said the fall in margins was due to higher cost of funds.

The average cost of funds rose to 5.56%, from 4.54% a year ago. Sustained increase in policy rates by RBI to tame inflation has led to higher borrowing costs in the system. Since banks cannot raise lending rates as quickly as they do with deposit rates, there is a squeeze on their profits during the transition.

In a rising interest scenario, bond values fall, leading to erosion in the treasury income. To diversify income, Axis agreed to buy Enam Financial with a plan to appoint Enam founder Vallabh Bhanshali on its board. The bank's trading profits also fell from Rs 103 crore for the last quarter of 2010 to Rs 58 crore by the end of the fourth quarter of 2011.

In the segment results, another area where bank profits has taken a hit is in retail banking where, on a pre-tax basis, retail profits have fallen to Rs 92 crore as on March 31, 2011 from Rs 239 crore on March 31, 2010. The bank's gross NPAs increased from Rs 1,318 crore in 2010 to Rs 1,599 crore. But the net NPA fell to 0.26% from 0.36% on a yearon-year basis. Net NPAs stood at Rs 410.3 crore as on March 31, 2011, slightly lower from Rs 419 crore in the corresponding period of 2010.

Axis Bank has restructured loans aggregating Rs 108 crore during the fourth quarter of FY11 and the cumulative value of loans restructured stood at Rs 1,930 crore in the January to March quarter. Of these restructured loans, 75% came from large and mid-corporate as well as the infrastructure sectors.

The bank's net interest income grew by 31% YoY to Rs 6,563 crore in Q4 against Rs 5004 crore in the same quarter of FY10. On a YoY basis, the demand deposits or current account and savings account deposits grew 33% to Rs 59,551 crore. The bank's total deposits stood at Rs 1,89,237 crore against Rs 1,41,500 crore in the previous year, of which CASA constituted 41%.

Demand deposits, as a proportion of total deposits, also fell from 41.29% by the third quarter of 2011 to 37.48% in the fourth quarter. Advances grew 36.4% YoY from Rs 1,04,341 crore to Rs 1,42,408 crore as on March 2011 and investments rose 29% to Rs 71,992 crore.

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