Analysts expect no surprises from Axis Bank in the second quarter — loan growth and collections to be slow

• India’s third-largest private sector bank, Axis Bank, is expected to report stable numbers in its second-quarter earnings.
• Analysts expect loan growth to remain slow and collections uncertain.
• Axis Bank’s commentary on moratorium loan repayment and restructuring outlook will be critical.

Axis Bank, India’s third-largest private sector lender after HDFC Bank and Kotak Mahindra, isn’t expected to post any surprises in its second-quarter earnings. In the three months between July to September, analysts forecast lacklustre loan growth momentum and soft collections.

Nonetheless, the second quarter is expected to be an improvement over the last quarter. Analysts expect a quarterly increase in profits and a jump sequentially due to the impact of double taxation last year.

“Amid COVID-19 credit growth is likely to decelerate to 10% year-on-year (YoY) to ₹5.7 lakh crore with corporate growth, which accounts for 37% of the bank’s advances, remaining a dragger,” said ICICI Direct Research in its report.

However, disbursement of credit to micro, small and medium enterprises (MSMEs) could gain traction under the government's Emergency Credit Line Guarantee Scheme (ECLGS) scheme.

The overall balance sheet is likely to remain strong, with healthy growth in deposits.

Q2FY21 earnings estimates

Brokerages on Axis Bank	Expected sequential growth in NII	Expected quarterly growth in PAT
Edelweiss Research	18.1%	53.1%
ICICI Direct	17.8%	-
Prabhudas Lilladhar	17.2%	25.5%
HDFC Securities	15.9%	58.8%
Nomura	17.5%	143%
YES Securities	16%	-6%

With moratorium accounts on hold due to the Supreme Court order, slippages will also remain low with non-performing asset (NPA) ratios remaining more or less stable. At the end of June, around 9.7% of Axis Bank’s loan portfolio was under moratorium — on the low end of the spectrum, especially compared to public sector banks.

The matter around interest waiver on moratorium loans was resolved only this week, with the Reserve Bank of India (RBI) directing banks to comply. According to Axis Securities, the decision will not impact banks because the government will be paying the difference between the compound interest that has been excused and the simple interest that will still come out of pocket for borrowers.

Nonetheless, Axis Bank is expected to continue shoring up provisions owing to stress on asset quality from COVID-19. This will keep credit cost elevated, according to YES Securities. The third quarter will be more telling of how many borrowers will default and how many are opting for restructuring. Any commentary around the same will be key.

High impact sectors	Axis Bank exposure
Retail	₹ 229.43 billion
Non-ferrous metals	₹ 153.07 billion
Textiles	₹ 103.87 billion
Shipping	₹ 53.8 billion
Aviation, tourism, gems and jewelry	₹ 0

Source: Nirmal Bang reported dated 15 September
High impact sectors are those which saw their revenue dip by 80-90% sequentially between April to June.

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