Axis Bank Cost of Funds and Liability Profile

ASSIGNMENT 4 Group 4

Prateek Rastogi 1121028 Dhruv Chopra 1121030 Harsh Cariappa 1121031

About Company
Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. The Bank as on 30th June, 2012 is capitalized to the extent of Rs. 414.29 crores with the public holding (other than promoters and GDRs) at 54.24%. The Bank's Registered Office is at Ahmadabad and its Central Office is located at Mumbai. The Bank has a very wide network of more than 1600 branches (including 169 Service Branches/CPCs as on 30th June, 2012). The Bank has a network of over 10000 ATMs (as on 30th June, 2012) providing 24 hrs a day banking convenience to its customers. This is one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally in order to achieve excellence. VISION 2015:

To be the preferred financial solutions provider excelling in customer delivery through insight, empowered employees and smart use of technology

Core Values

Customer Centricity Ethics Transparency Teamwork Ownership

AXIS BANK ANNOUNCES Q1FY13 NET PROFIT OF `1,153.52 CRORES, UP BY 22% YOY

Results at a Glance Net Profit during Q1FY13 rose to `1,154 crores from `942 crores in Q1FY12, registering a growth of 22% YOY. Demand Deposits grew 17% YOY from `74,414 crores as on 30th June 2011 to `86,942 crores as on 30th June 2012. Savings Bank deposits in the same period grew 23% YOY. Current and Savings Bank deposits were 39% of aggregate deposits at the end of June 2012. Net Interest Income and Other Income for Q1FY13 registered a growth of 26% and 14% respectively. Net Interest Margin for Q1FY13 was 3.37% compared to 3.28% in Q1FY12. Operating profit for Q1FY13 grew 26% YOY. Asset quality was healthy with Net NPA at 0.31%. The Bank is well-capitalized with a Capital Adequacy Ratio of 13.51% (including net profit for Q1) as at the end of Q1FY13 compared to 13.01% (including net profit) as at the end of Q1FY12. Tier-I capital was 9.49% (including net profit for Q1) of risk weighted assets at the end of Q1FY13, compared to 9.84% (including net profit) as at the end of Q1FY12. Balance Sheet: As on 30th June 2012 Capital and Shareholders Funds The shareholders funds of the Bank were `24,253 crores as on 30th June 2012 growing 21% YOY from `20,017 crores as on 30th June 2011. The Capital Adequacy Ratio (CAR) for the Bank was 13.03% (excluding net profit for Q1FY13), as on 30th June 2012, compared to 12.53% (excluding net profit for Q1FY12) as on 30th June 2011. The Tier-I capital adequacy ratio was 9.02% (excluding net profit for Q1FY13) as on 30th June 2012, compared to 9.36% (excluding net profit for Q1FY12) as on 30th June 2011. The profit of Q1 for both financial years has not been reckoned for computation of Tier-I capital, as stipulated by Reserve Bank of India. If the net profit of `1,154 crores for Q1 this year is included, the total CAR and Tier-I CAR as on 30th June 2012 would be 13.51% and 9.49% respectively

Key Business Variables Demand deposits grew 17% YOY from `74,414 crores as on 30th June 2011 to `86,942

crores as on 30th June 2012. On a daily average basis, demand deposits constituted 36% of total deposits during Q1FY13, as against 37% in Q1FY12. The daily average balances in CASA deposits during the quarter grew 16% YOY, buoyed up by Savings Bank deposits which grew 22% over the year. At the end of the quarter, Current Account and Savings Bank deposits together accounted for 39% of the total deposits of the Bank. The Banks advances grew 30% YOY from `1, 31,900 crores as on 30th June 2011 to `1, 71,146 crores as on 30th June 2012. However, normalised YOY growth in advances would be 21% adjusting for currency depreciation of ~25% during the year and a relatively lower base caused by run-offs in shortterm loans in the previous period ended 30th June 2012. Investments rose to `87,986 crores from `75,307 crores over the same period, registering a growth of 17% YOY. Investment Portfolio Of the Investment book, share of government securities was 65%. Investments in other securities such as corporate bonds, equities, preference shares, mutual funds etc accounted for the balance. 78% of the government securities have been classified in the HTM category while 97% of the Bonds & Debentures portfolios have been classified in the AFS category. The distribution of the investment portfolio in the three categories as well as the modified duration as on 30th June 2012 in each category was as follows:

NPAs and Restructured Assets Gross NPAs as proportion of gross customer assets and Net NPAs as a proportion of net

customer assets were unchanged vis--vis previous year and stood at 1.06% and 0.31% respectively for the period ended 30th June 2012. The Bank held provision coverage of 79% as on 30th June 2012 (as a proportion of Gross NPAs including prudential write-offs). The provision coverage (as a proportion of Gross NPAs) before accumulated write-offs was 90%.

During the quarter, the Bank added `456 crores to Gross NPAs. Recoveries and upgrades of `62 crores and write-offs of `108 crores during the quarter resulted in a closing position of `2,092 crores of Gross NPAs as on 30th June 2012, as against `1,573 crores as on 30th June 2011. The Bank restructured assets aggregating `628 crores during Q1FY13. The cumulative value of assets restructured till 30th June 2012, rose to `3,827 crores (1.95% of gross customer assets). Of the outstanding pool, assets amounting to `1,231 crores have displayed a satisfactory repayment track-record of two years. Adjusting for these assets, restructured assets would constitute 1.32% of gross customer assets. The segment-wise break-up of restructured assets as on 30th June 2012 is as follows:

LIABILITY PROFILE

Liability Profile Cont.

Cost of Funds
Axis Bank Ltd. Mar-09 Mar-10 15519.9 17169.5 7149.27 6633.53 46.07% 11.49 92% 8% 1.21 16.68% 43.7% 38.64% 8.81 90% 10% 1.14 16.12% 36.3% (Rs Crore) Mar-11 Mar-12 26267.9 34071.7 8591.82 13976.9 32.71% 9.96 91% 9% 1.19 16.52% 31.2% 41.02% 9.65 91% 9% 1.19 16.52% 38.7%

Borrowings Interest expenditure Cost of debt Total debt/equity ratio Debt weightage Equity weightage Beta CAPM (Ke) WACC

Mar-08 9053.4 4419.96 48.82% 9.99 91% 9% 1.01 15.08% 45.8%

Assumed: Market Return Risk free return

15% 7%

Through this weighted average cost of capital (WACC) computation it can be analyzed that the cost of fund hovers in the range from 31% to 45% from year 2008 to 2012. This cost of fund has taken into consideration both the cost of capital and the cost of debt in it. Because it being majorly a lending organization the debt to equity ratio is quiet high which proportionally highlights the heavy debt weight age in the computation of the cost of fund.

There are few assumptions which were taken into consideration while calculation the cost of fund, which are as follows: For the Capital Asset Pricing Model (CAPM) the risk free return has been assumed at around 7% p.a., and The Market Return is estimated around 15% p.a

References:
http://www.axisbank.com/investor-corner/annual-reports.aspx http://www.axisbank.com/download/press-release/Press-Release-Q1FY13.pdf CMIE prowess