Mumbai: Private sector lender Axis Bank Ltd on Tuesday missed the second quarter net profit estimate and increased its credit cost guidance, in an indication that the bad loan stress is likely to continue for a few more quarters.

Credit costs refer to the percentage of provisioning or cover for bad loans against total advances.

The bank reported a profit of Rs432.38 crore, compared with Rs319.08 crore a year ago and Rs1,305.60 crore a quarter ago.

The bank had been expected to post a net profit of Rs1,318.30 crore, based on a poll of 20 analysts by Bloomberg.

Axis Bank’s gross NPAs rose to Rs27,402.32 crore as on 30 September from Rs16,378.65 crore a year ago and Rs22,030.87 crore in June quarter.

The rise in bad loans was due to an annual exercise conducted by the Reserve Bank of India (RBI), that pointed out divergence in asset classification for fiscal 2017.

For Axis Bank, the divergence in gross bad loans, the difference between Reserve Bank of India’s assessment and that reported by the lender, stood at around Rs5,630 crore at end March 2017, while divergence in provisions was at Rs1,318 crore.

Jairam Sridharan, chief financial officer, said that the regulatory exercise was concluded this month and, subsequently, the bank recognized such divergence and reclassified nine accounts with outstanding balance of Rs4,867 crore as non-performing in the fiscal second quarter.

A majority of these accounts were standard for most banks, which were part of a consortium as on 30 June.

Of the nine accounts classified as non-performing assets (NPA), Axis Bank is the sole banker in one account and is expected to get repaid soon because a sale transaction is underway.

Including these nine accounts, a total of Rs8,936 crore of loans slipped into bad loan category, a majority of them big-ticket corporate loans, in the second quarter, higher than Rs3,519 crore a quarter ago.

As the end of September, gross and net NPA ratio stood at 5.90% and 3.12% respectively.

For these nine accounts, Axis Bank has kept aside Rs1,618 crore in the form of provisions.

Separately, it also made an incremental provision of around Rs500 crore against accounts referred under the Insolvency and Bankruptcy Code (IBC).

Accordingly, against a total exposure of over Rs7,000 crore to IBC accounts, the bank has a provision coverage ratio of 55%.

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