Axis Bank woes pile up with first quarterly loss
Mumbai: Axis Bank Ltd on Thursday posted a shock loss of Rs2,189 crore in the January-March quarter, its first quarterly loss ever, as the private sector lender made heavy provisions against bad loans. The bank, though, said asset quality is expected to normalize in 2018-19.
A Bloomberg poll of 15 analysts had expected a net profit of Rs662.30 crore.
Bad loans ballooned as the bank speeded up recognition of bad assets, as well as due to new central bank rules on handling stressed assets. In a post-earnings call with reporters, Axis Bank chief financial officer Jairam Sridharan said that with this, the current cycle of asset recognition is nearing an end and bad loan formations in fiscal 2019 will be lower than the previous year. The accelerated recognition was particularly stark in the power sector.
Sridharan also said the new regulatory norms on bad loan resolution drove recognition in the restructured book.
In the March quarter, Axis Bank added Rs16,536 crore to the bad loan category, sharply higher than Rs4,428 crore added in the December quarter. Accordingly, total gross non-performing assets (NPAs) rose to Rs34,249 crore at the end of March from Rs25,000 crore three months ago.
Gross NPAs as a percentage of total advances stood at 6.77% in the March quarter compared with 5.28% in the December quarter and 5.04% in the year-ago March quarter.
According to the lender, over Rs13,900 crore of slippages came from its corporate loan book, and 90% of these accounts were lower-rated (BB & below). Accordingly, the pool of such loans fell to Rs8,994 crore.
Separately, stressed accounts under its so-called watch list also fell to Rs428 crore in fourth quarter from Rs5,309 crore a quarter before. The list was at Rs22,628 crore when the bank first revealed it in April 2016. The bank said the provision coverage ratio has been retained at 65%.
Axis Bank managing director and chief executive Shikha Sharma said the bank’s NPA recognition phase of this credit cycle is now nearly complete and the focus shifts to resolution.
Sharma’s term will end in December, after the board accepted her request to reduce her latest three-year term.
“Axis is a great institution with a very promising future, and I am confident that our board will find the right person to lead this institution in its next phase. While we go through that process, I am fully committed to maintain high performance levels at the bank. The four pillars of delivery that we have set out for the bank for FY19 are normalize credit risk, deliver profitable growth, enhance capabilities and invest in the future,” she said.
According to Sridharan, with a much smaller pool of potential stress and high provision coverage, credit cost is expected to normalize, especially in the second half of the current fiscal. The bank, however, did not give any guidance on credit costs. Sridharan said this is because the lender wants to see how the impact of RBI’s recent circular, particularly on the disclosure of default on the first day itself, plays out.
Provisions in the quarter rose almost three-fold to Rs7,179.53 crore from Rs2,581.25 crore a year ago. In the October-December quarter, the bank had set aside Rs2,811.04 crore in provisions.