The non-watchlist stress emanated from over five year-old loans in the iron and steel, infrastructure and construction sectors.
Heavy loan losses continued to impact Axis Bank's profitability, with a 73 per cent decline in December net at Rs 580 crore but the third largest private sector lender said the "peak of the pain" is done with.
The Shikha Sharma-led bank had posted a net profit of Rs 2,175 crore (Rs 21.75 billion) in the year-ago period.
Even though down 48 per cent from the preceding September quarter, the fresh slippages came at Rs 4,560 crore (Rs 45.6 billion), with over Rs 1,600 crore (Rs 16 billion) coming from accounts which were not in a 'watchlist' of stressed assets.
The bank's deputy managing director and chief financial officer Jairam Sridharan said the non-watchlist stress emanated from over five year-old loans in the iron and steel, infrastructure and construction sectors.
Sridharan said 85 per cent of the slippages this fiscal have come from the watchlist, which has now gone down to Rs 11,091 crore (Rs 110.91 billion) now and the bank has no plans of reviewing the list despite two consecutive quarters of stress flow from outside the list.
He said accounts in the retail and SME segments totalling Rs 650 crore (Rs 6.5 billion) also contributed to the slippages in the reporting period, but refused to fully attribute it to the demonetisation exercise.
The impact of the demonetisation on its asset quality can be felt only in the next fiscal.
Sridharan, however, said that the peak of asset quality stress is behind the bank, which has been reporting a jump in bad loans since the RBI-imposed asset quality review.
"On an overall level, looking at what we are seeing right now, it gives a feeling that we have turned the corner with respect to slippages and the peak is behind us," he said.
The provisions rose over five times to Rs 3,795 crore (Rs 37.95 billion) during the quarter primarily on the new slippages and also a four percentage point increase in provision coverage ratio to 64 per cent.
Sridharan said increasing the PCR by one percentage point requires a provision of Rs 230 crore (Rs 2.3 billion).
There were two accounts with an outstanding of Rs 501 crore (Rs 5.01 billion) that went to strategic debt restructuring, while there were no 5/25 or S4A accounts.
The bank's core net interest income was up 4 per cent to Rs 4,334 crore (Rs 43.34 billion), while the non interest income helped the bottomline with a 45 per cent growth at Rs 3,400 crore (Rs 34 billion), supported largely by treasury performance in a declining interest rate environment.
The bank's global net interest margin contracted to 3.43 per cent from 3.79 per cent year ago and the preceding quarter's 3.64 per cent.
Sridharan attributed the contraction to a 0.10 per cent hit from a change in the balance sheet structure, where the rise in deposits coupled with a slowdown in credit demand resulted in more investments in low-yielding G-secs, and a 0.23 per cent impact on interest reversals in SDR and S4A proposals that did not go through.
He said the bank is confident of ending the fiscal with a NIM of 3.60 per cent.
The net advances grew by only 10 per cent led by retail's 19 per cent surge, but Sridharan acknowledged that this is lower than expected and the bank may have to review its FY17 target of an advances growth in higher teens.
The bank said a report on the probable misdeeds by a section of its employees during the demonetisation exercise, which has seen quite a few arrests and some suspensions, is expected in the next few days.
It, however, refused to give details of the amount of scrapped currency notes which were received as deposits or exchanged over the counter.
The bank scrip shed 0.95 per cent to close the session at Rs 483.70 a piece on the BSE, as against a 0.19 per cent gains in the benchmark.
