BENGALURU (Reuters) -Axis Bank, India’s fourth-largest private bank by market capitalisation, reported a smaller-than-expected first-quarter profit on Wednesday as higher provisions weighed and margins shrunk.
The Mumbai-based lender’s standalone net profit – which excludes its subsidiaries – rose 4% year-on-year to 60.35 billion rupees ($721.2 million) for the quarter ended June 30.
Analysts had estimated a profit of 64.50 billion rupees, as per LSEG data.
Provisions and contingencies, or funds kept aside for potential bad loans, rose 97% to 20.39 billion rupees. Lenders typically choose how much they want to set aside to cover potential bad loans and against any unforeseen events.
Axis Bank’s gross non-performing assets ratio, a key gauge of lenders’ asset quality, rose to 1.54% at the end of June from 1.43% in the previous quarter, indicating deterioration.
The bank, in an exchange filing, attributed this to higher credit costs due to seasonality and lower recoveries.
Net interest margin (NIM), a key gauge of profitability, shrunk to 4.05% from 4.10% last year, and 4.06% in the previous quarter.
Indian banks have seen consistently strong loan demand, helped by healthy economic growth and urban consumption. However, this also put margins under pressure, with banks having to raise deposits to fund the growth.
Net interest income – the difference between interest earned and paid – rose about 13% to 134.48 billion rupees. Its net loans grew 14% while total deposits rose 13%.
Rivals Kotak Mahindra Bank and Yes Bank also reported contractions in NIM for the first quarter.
Shares of Axis Bank closed 1.9% lower ahead of results.
($1 = 83.6810 Indian rupees)
(Reporting by Dimpal Gulwani in Bengaluru; Editing by Janane Venkatraman)
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