Axis Bank versus Kotak Mahindra Bank Q1 scorecard: Profit, NII, NPAs compared

The country's third and fourth largest private sector lenders - Axis Bank and Kotak Mahindra Bank reported their first quarter earnings on Saturday, July 18. Axis Bank, the country's third largest private sector lender by market capitalisation, reported a net profit of ₹7,114 crore in April-June period, marking an increase of 23% from ₹5,806 crore in the same period last year.

The bank's profitability in April-June period got a boost from lower provisioning for bad loans as its provisions dropped 45% to ₹668 crore compared with ₹1,208 crore in the year-ago period.

Axis Bank’s net interest income (NII) or the difference between interest earned on loans and expended on deposits rose 8% to ₹14,646 crore in the first quarter compared with ₹13,560 crore in the year-ago period. While Kotak Mahindra Bank's NII rose 9% annually to ₹7,928 crore compared with ₹7,259 crore in the corresponding period last year.

Both banks reported an improvement in asset quality. Axis Bank’s gross non-performing assets, as a percentage of total advances came in at 1.28% compared with 1.57% in the corresponding period last year. Kotak Mahindra Bank’s gross NPAs came in at 1.18% at the end of first quarter compared with 1.48% in the year-ago period.

What global investment firms said on Q1 earnings

Global investment firm Jefferies in a note said that Axis Bank’s Q1 profit was ahead of its estimates with higher NII and lower credit cost. NII growth of 8% was led by loan growth of 19% that made up for 16 basis points (bps) quarter-on-quarter (QoQ) lower net interest margin (NIM), reflecting rise in share of corporate loans and this trend is likely to improve only in the second half of current financial year, Jefferies added.

Bernstein noted that Axis Bank delivered a mixed first quarter earnings with strong balance-sheet growth continuing to be driven by corporate segment.

"While this strategy supported an improvement in NII growth, it came at cost of margin compression, as NIM declined by 16 bps sequentially. A weaker non-interest income weighed on operating performance, disciplined cost management & lower YoY credit costs helped sustain healthy earnings growth of 23% year-on-year (YoY)," Bernstein said.

Bernstein said that Kotak Mahindra Bank delivered a steady quarter, with broad-based loan growth that is no longer outpacing peers and stable asset quality.

"Earnings growth remained healthy, aided by cost discipline and lower credit costs, allowing bank to sustain a return in asset (RoA) above 2%. However, deposit growth lagged peers and elevated capital levels inched up further, constraining return on equity (RoE) and highlighting areas where bank still trails larger private bank peers," Bernstein said.

Jefferies said that profit was ahead of estimates with better NII, fees and lower credit cost.

Loans grew 15% and NII by 9%, deposit growth was at 12% and loan to deposit ratio is now at 89%, Jefferies added.

Kotak Mahindra Bank shares fell as much as 3.55% to hit an intraday low of ₹376 and Axis Bank shares dropped as much as 5.98% to touch an intraday low of ₹1,249 as their earnings failed to impress investors.