Axis Bank Ltd. Earnings Call Nuggets: Loan Book Growth and Power Exposures

Axis Bank Ltd. (532215) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Loan Book Growth

Manish Ostwal – KR Choksey: Congratulations, good set of numbers. My question on loan book growth, during the year, the 60% contribution incrementally came from the retail book and the balance is 40% I think large corporate SME. So going forward, considering the current growth environment in the economy, how do you see the loan book growth in FY ’14, given the very weak projections in the system?

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Unidentified Company Speaker: I think we would still continue to follow the same path we’ve done over the last couple of years. In terms of making sure that the retail portfolio grows at a faster pace compared to the other segments. Our target would be to get the retail portfolio, retail assets as a percentage of overall loan book to about 30%. So, in terms of hierarchical growth rate retail assets will still continue to grow the fastest for the SME and then the corporate bank.

Manish Ostwal – KR Choksey: So, any indicative number versus 16% of growth we have reported this year loan book growth, so any indicative guidance you would like to…

Somnath Sengupta – Executive Director, Corporate Center: We will be above the sector, so it depends upon what rate the sector grows and we will probably be slightly above that.

Manish Ostwal – KR Choksey: Secondly sir, is there any one-off in SA balances during this quarter because the growth in saving bank deposit is very strong as compared to historical trend especially in quarter four number perspective?

Unidentified Company Speaker: Well, we mentioned to you that the year-end growth number for savings bank deposits was 23%. But even if you were to look at the daily average growth of savings bank deposit, it is not very low, it is 20%, so which shows that there is no special volatility or spike in the numbers. There will be some last day inflow, but it is not very high.

Manish Ostwal – KR Choksey: Lastly sir, tax rate during this quarter is low at 29.5% compared to quarter three number’s 31.8%, so any specific reason for that?

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Unidentified Company Speaker: There is no specific reason. Our effective tax rate is 31.4%.

Manish Ostwal – KR Choksey: So during this quarter what mix of revenue change or something like that, what led on to this…?

Unidentified Company Speaker: This is basically, if you will see that provision, there is a growth in the provision which we have made and that’s reducing our tax rate.

Power Exposures

Nilesh – Edelweiss: This is (Nilesh) here. Congratulations on a great set of numbers. Just wanted to get your thoughts on the power exposures. At the last strategy meet last year we had highlighted that about 20% of our exposure, the nonoperational ones, are to get commissioned during the course of FY ’13. Just wanted to get your thoughts qualitatively in terms of the operational performance and on the balance also how are we seeing this portfolio going ahead sir?

Somnath Sengupta – Executive Director, Corporate Center: The portfolio is behaving along expected lines. There could be marginal delays in some of these projects, but the portfolio is behaving on expected lines. And operational projects, as of now would have exceeded more than 30% as of now.

Nilesh – Edelweiss: And in terms of the for FY ’14 and ’15 given that the issues on the linkages, (coal) linkages site is not got resolved as per expectations. How do we see that portfolio in terms of the nonoperational ones going forward?

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Somnath Sengupta – Executive Director, Corporate Center: You are seeing all the debate in terms of fuel as well as in terms of the (NYSE:SAB) restructuring. I presume we’ll come to some conclusion – this debate will come to some conclusion or decisions over the next few months. And hopefully the sector moves forward. But again, we’ll have to take it as it comes, and as of now we are hopeful that some resolution will happen and policy initiatives will take place and the sector should sort of look up and be better off over the next year.

Nilesh – Edelweiss: So just one last question on – over the last couple of quarters, we’ve been creating this contingent provisions and the major one happed this quarter. So, is there a policy in terms of how do we reap this in terms of – as a percentage of stressed assets that you are seeing that will be get created over a period of time or how do we view this?

Unidentified Company Speaker: Not really. I think it is a measure of prudence. So we are creating a contingent provision for exactly the way it is described, for contingencies, but not really against – in that sense, we are not creating NPA provisions against assets which are seemed to be stressed.

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Nilesh – Edelweiss: So utilization of this would happen through…

Somnath Sengupta – Executive Director, Corporate Center: Yeah. Utilization will happen as and when we think that something is slipping into non-performing assets.

Nilesh – Edelweiss: Would you count this as a part of your overall credit costs when you…?

Unidentified Company Speaker: No. it is neither part of our NPA provision nor does it count for your overall listing provision coverage.

Somnath Sengupta – Executive Director, Corporate Center: It is completely outside the provisions.

Nilesh – Edelweiss: So your guidance of – earlier guidance of about 85, 90 bps, the contingent provision will be over and above that, if at all, whenever you create that?

Somnath Sengupta – Executive Director, Corporate Center: Yes.

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