The call was addressed by Sanjeev Kumar Gupta, Executive director and V Srinivasan Deputy Managing Director and Jairam Sridhanran, CFO of the bank. .

Highlights of the call

Axis Bank registered a 1% rise in Interest income to Rs 11235.08 crore in the quarter ended September 2017. A 1% fall in interest expenses to Rs 6695.46 crore saw net interest income (NII) grow 1% to Rs 4539.63 crore.

OP fell 8% to Rs 3777.32 crore. Provision and contingencies fell 13% to Rs 3140.41 crore after which PBT jumped 33% to Rs 636.91 crore. Net profit jumped 36% to Rs 432.38 crore.

For the six months ended September 2017, Axis Bank registered stagnant Interest income to Rs 22287.57 crore. A 1% fall in interest expenses to Rs 13131.81 crore saw net interest income (NII) grow 1% to Rs 9155.76 crore.

OP fell 6% to Rs 8068.48 crore. Provision and contingencies fell 4% to Rs 5482.34 crore after which PBT fell 9% to Rs 2586.14 crore. Net profit fell 7% to Rs 1737.98 crore.

Gross NPA stood at Rs 27402.32 crore as of September 2017 quarter against Rs 22030.87 crore in June 2017 quarter and Rs 16378.65 crore as of September 2016 quarter.

In percentage terms, %GNPA stood at 5.90% as of September 2017 quarter against 5.03% in June 2017 quarter and 4.17% as of September 2016 quarter.

Net NPA stood at Rs 14052.34 crore as of September 2017 quarter against Rs 9765.98 crore in June 2017 quarter and Rs 7761.15 crore as of September 2016 quarter.

In percentage terms, %NNPA stood at 3.12% as of September 2017 quarter against 2.30% in June 2017 quarter and 2.002% as of September 2016 quarter.

Banking system credit growth continues to see gradual improvement from the multi-decade lows witnessed in March 2017 quarter and stood closer to 7% in the fortnight ended 29th September 2017.

Axis Bank's aggregate loan growth rebounded strongly during the quarter and stood at 16% YOY.

Loan growth was largely driven by 23% rise in Retail and 15% in SME loans.

The corporate loan growth picked up sharply to 10% in Q2 from 3% in previous sequential quarter, with Working Capital loans growing by 36% YOY.

The low cost deposits franchise had another excellent quarter with Savings Account and Current Account balances growing by 21% yoy and 28% yoy, respectively. The qoq growth in SA and

CA deposits stood at 7% and 11% respectively.

The overall CASA balances grew 24% yoy

CASA share in deposits stood at 50% at the end of the quarter.

CASA deposits on a daily average basis for the quarter grew 24%, and comprised 46% of total deposits.

CASA and Retail Term Deposits continue to form a strong base and stood at 83% of total deposits, up by 224 bps yoy.

Term deposits fell 2%YOY with the wholesale term deposits declining 3%YOY. However retail term deposits (excluding FCNRB deposits), grew by 8%.

NIM for the quarter was 3.45%, with Domestic NIM at 3.71%.

The NIM for the first half was at 3.53% and was lower by 14 bps as compared to FY17 NIM of 3.67%.

The compression in NIM remains in line with expectations. The management reiterated NIM guidance which is expected to moderate by around 20 bps for FY18.

Cost of funds during the quarter stood at 5.18% compared to 5.24% in Q1FY18, and 5.68% in Q2 last year.

Operating expenses growth for the quarter moderated to 13%. The Cost to Average Assets of the Bank was at 2.17% for the quarter. The management expects operating expenses growth to continue to moderate in the second half of the fiscal as well.

The Bank's PCR stood at 60%.

Strong Retail franchise continues to drive financial performance.

The share of Retail loans in the overall loan mix continues to remain on upward trajectory, and stood at 45% as at end of Q2. The Retail loan book too remains well diversified with nearly all major segments contributing significantly.

The share of home loans in overall Retail book has steadily come down from 54% in FY13 to 43% as at the end of Q2FY18 while the share of Personal Loans, Credit Cards, Auto Loans and Small Business Banking has inched up.

Given its internal sourcing strategy, the management believes that branches remain essential for new customer acquisition and hence continue to make investments in developing an extensive branch network.

It opened 100 branches during the quarter; however the newer branches continue to get smaller in size.

Corporate credit growth has been led by transaction and working capital oriented businesses. The working capital loans grew by 36% even as the term loans grew by 3%.

The Bank‟s exposure to top 20 borrowers as percentage of tier 1 capital has been steadily declining and stood at 118% as at end of Q2, as compared to 287% at the end of FY11.

SME loan growth improved during the quarter and stood at 15% YOY.

The focus remains on quality growth, presently, 87% of outstanding standard exposure is to those rated SME3 and above.

The RBI has pointed out certain reclassifications in the Bank's asset classification and provisioning as on 31st March 2017, subsequent to the annual Risk Based Supervision (RBS) exercise conducted for fiscal 2017. The Bank has duly recorded the impact of such reclassifications in the results for the quarter ended 30th September 2017.

A total of 9 accounts were reclassified by RBI. As on June 2017, these 9 accounts were classified as standard assets across most consortium banks, with only around 6% of their outstanding classified as NPA.

As on September 2017, fund-based outstanding on these 9 accounts is Rs 4867 crore, all of which now stands as NPA. Around Rs 2400 crore is from accounts that are either a part of the Bank's watchlist or are restructured as on March 2017.

Around Rs 200 crores has turned into NPA in Q1FY18.

7 of the 9 accounts were rated BB or lower as on June 2017

Sectoral distribution of the 9 accounts is as follows:

One account in the steel sector contributes Rs 1128 crore

The Power sector has 3 accounts amounting to Rs 1685 crore

4 accounts comprise a total of Rs 911 crore

One account in the IT / ITES sector contributes Rs 1143 crore

Axis is the lead banker in only 1 of the 8 consortium accounts. Axis Bank is the sole banker in the IT/ ITES account. It expects a significant part of this account to get repaid in due course, post the sale transaction, for which a binding agreement is already in place.

Total provision of Rs 1,618 crore was created on these accounts during the quarter.

The management estimates the divergence related accounts to consume around 40 basis points of credit costs for the full year. As such post this impact, and after evaluation of the underlying credit trends of the rest of the book, it is updating credit cost guidance to 220-260 basis points.

The management expects to maintain PCR in the 60 to 65% range.

The total slippages from corporate book was Rs 8110 crore out of which 73% came from those accounts which were rated BB& below in the previous quarter.

53% of the slippages were from WL and the various restructuring dispensations.

The Bank has total loan outstanding of Rs 7041 crore against the IBC accounts mentioned in the two lists referred by RBI. The bank has made incremental provisions of Rs 505 crore against these accounts during the quarter taking the total provisioning toward these select accounts to Rs 3,886 crore, and its provision coverage rose to 55%.

The credit cost for the quarter stood at 316 bps. The credit cost for the first half of this fiscal has been 256 bps that includes 73 bps on account of RBS impact and 14 bps on account of additional provisioning that it did for IBC accounts.

The accelerated recognition in the quarter and resultant reduction in the size of stressed asset pool improves its confidence in the trajectory of the Bank‟s credit costs. The management expects normalization by the second half of FY19.

Operating expenses growth has started to moderate and trend should continue.

Outstanding Restructured assets stands at Rs 7390 crore.

Watchlist and restructuring dispensations portfolio have an overlap of 84% with the low rated Corporate portfolio.

High slippages in the quarter were driven by divergence assessment.

Slippages were largely from the low rated pool of stressed accounts.