India’s Axis Bank sees deposit growth catching up with loans

By Siddhi Nayak and Sethuraman N R

MUMBAI/BENGALURU (Reuters) -India’s Axis Bank edged past third-quarter profit estimates on Tuesday and signalled that deposit growth will eventually catch up with loan growth.

The Mumbai-based private bank reported its standalone net profit rose 3.7% to 60.71 billion rupees ($730.19 million) in the three months ended Dec. 31, largely led by healthy growth in loans. Analysts, on average, had expected a profit of 59.91 billion rupees, according to LSEG data.

The standalone numbers do not include the business of the bank’s subsidiaries.

Axis Bank, India’s fifth largest by market capitalisation, said its loans grew 22% year-on-year, while deposits rose by 18%.

In the short-to-medium term, deposit growth will be a “constraining factor” to loan growth rather than the other way around, chief financial officer Puneet Sharma said in a conference call.

Sharma said he expects deposit repricing to continue through this financial year.

The cost of deposits has risen among banks amid tighter banking system liquidity conditions, even as loan growth momentum has continued. Most Indian banks reported a drop in lending margins – a key barometer of profitability – in the fiscal third quarter.

Axis Bank’s net interest margin (NIM) shrunk sharply to 4.01% from 4.26% a year ago and 4.11% in the prior quarter. Last week, HDFC Bank and ICICI Bank – two of India’s largest private lenders – also reported weak margins.

Axis Bank reported a 9.4% year-on-year growth in net interest income – the difference between interest earned and paid out – to 125.32 billion rupees.

Its gross non-performing asset ratio (NPA), a key measure of asset quality, improved to 1.58% as of December-end from 1.73% at the end of the prior three months.

Provisions for bad loans dropped 28.5% year-on-year to 10.28 billion rupees.

The bank has total exposure worth 2.07 billion rupees towards alternative investment funds, which is fully provided for in line with the central bank’s mandate, Sharma said, adding that the bank does not expect any loss from this exposure.

($1 = 83.1430 Indian rupees)

(Reporting by Sethuraman NR in Bengaluru and Siddhi Nayak in Mumbai; Editing by Janane Venkatraman)