Axis Bank’s pain shows no end in sight yet
Axis Bank Ltd has been mired in controversies for the most part of 2016-17 and its quarterly performance has added to the pain. The fourth quarter (Q4), however, could be viewed as a mild improvement on the disastrous asset quality numbers that the bank reported in the previous quarters.
The lender saw both its gross and net non-performing assets (NPAs) decline as a percentage of its total loan book. Its gross NPA ratio dipped to 5.04%, while the net ratio fell to 2.11%. But in the words of the management itself, extrapolating Q4’s relatively better ratios to future earnings expectations would not be wise.
Fresh slippages haven’t abated, rising to Rs4,811 crore in the March quarter, although much of it has been from the watchlist this time. The watchlist stood at Rs9,436 crore as of March-end, after having shrunk 58% since it came into existence. Axis Bank’s chief financial officer Jairam Sridharan has said that the watchlist will cease to exist by the end of 2017-18 as accounts will either slip or be classified as standard loans.
The problem is that the management has refused to give guidance on future slippages from the watchlist. About Rs16,311 crore, or 71% of the watchlist, has already slipped. While the lender had guided that 70% of the list will slip, in the December quarter it said that the proportion could be higher. Further, the loan account of a cement company belonging to a major group is part of the watchlist. This account (outstanding of Rs1,660 crore) had slipped during the quarter and is part of the gross slippages of Rs4,811 crore. But it has been upgraded to a standard account. Nevertheless, the bank has made a 25% provisioning against this account and this could only mean that it expects stress to emerge again.
To add to future pain, around 60% of the watchlist is now made up of power loans. The resolution of stress in the power sector is moving slowly.
What saved the day for Axis Bank was its stellar retail loan growth which helped it hold up its 10% overall loan increase.
Its core income growth remained sluggish and net profit fell 43% to Rs1,225 crore.
The Axis Bank stock has underperformed the sector index and rightly so despite the more than 14% rise since it announced its third quarter results. Since much of the rise has been on rumours of Kotak Mahindra Bank buying a stake, the stock is yet to find favour among investors.