Brokerage firm CLSA, in its latest report, has said that Axis Bank is likely to witness higher slippages in the financial year (FY) 2020 against FY19. This, in turn, will keep the credit cost elevated this year, said CLSA.
The brokerage firm, however, said that "a normalisation from FY21 onwards will be key to a rebound in earnings".
Axis Bank posted a healthy set of numbers for the second quarter on Tuesday. Net interest income grew by 17 percent to over Rs 6,100 crore and asset quality also saw an improvement.
The bank, however, reported a net loss of Rs 112.08 crore on a standalone basis for the second quarter due to a one-time tax impact.
“The key relieving trend was that additions to non-NPL (non-performing loans) stressed book was contained, the gross NPL ratio is at 5 percent of loans and total stressed loans are at 8.5 percent," said CLSA.
The brokerage believes that the benefit of capital raise will improve the top-line growth, which along with a lower tax rate should provide headroom for the bank to invest in branches.
Last year, the CASA ratio was diluted by 700 basis points to 41 percent. "Any improvement here will be the key to support the growth and derisking of the asset mix," said the brokerage firm.
It, however, lowered earnings FY20 estimates on higher tax incidence and slightly higher credit costs.
The brokerage maintains a 'buy' rating on Axis Bank with a target price of Rs 900 per share.
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