Mumbai: Axis Bank Ltd rose the most in six months as an unprecedented recognition of bad loans prompted investors to overlook the Indian lender’s first-ever loss.

Provisions climbed to Rs7,180 crore ($1.1 billion) in the three months ended March from Rs2,810 crore the previous quarter as an additional Rs16,500 crore of fresh defaults were identified after the implementation of tighter regulations, the bank said in an exchange filing late Thursday. The Mumbai-based bank reported a loss of Rs2,190 crore, the first in data going back to 2006, and compared with a Rs662 crore profit predicted in a Bloomberg survey of 15 analysts.

With this, the recognition of bad loans in this cycle is “nearly complete," said outgoing chief executive officer Shikha Sharma. The lender’s so-called watchlist shrank to 0.1% of its total loan book from 1.3% the previous quarter and 2.5% the previous financial year.

“The worst seems to be over for Axis Bank," Gaurang Shah, head investment strategist at Geojit Financial Services Ltd in Mumbai, said by phone. “We expect the lender to step up stressed loan recovery after recognizing the stressed assets this quarter."

‘Return to normalcy’

Bad-loan formation will be lower in the year through March 2019 and resolutions of stressed accounts should be expected in the first half, analysts at Prabhudas Lilladher, led by R. Sreesankar, wrote in a note. “Margins look bottomed out."

The Mumbai-based brokerage cut its target price on India’s third-largest private bank to Rs585 from Rs621 with a recommendation to buy the stock. Emkay Global Financial Services Ltd cut its target to Rs560 from Rs591 with a recommendation to accumulate. BOB Capital Markets cut its forecast to Rs595 from Rs660 with a call to add.

Axis’s CEO Sharma will step down at the end of 2018, more than two years before the proposed end of her term, after the regulator reportedly question the lender’s performance.

“Currently, we do not factor any disruptions due to change in management and shall wait for the event to play out," Ravikant Bhat, an analyst in Mumbai at Emkay Global Financial Services Ltd, wrote in a note. Despite the bank’s upfront recognition of stressed assets, “residual pain is still left" and he expects Axis “to return to earnings normalcy" in the year ending March 2020.

Axis Bank shares fell as much as 3% early on Friday before rebounding to trade 5% higher at Rs518.55 as of 9:58am in Mumbai. It was the most traded Indian stock by value and volume, and the best performer on the nation’s main equity indexes. Axis Bank saw 1.02 million shares change hands in single block on the National Stock Exchange. Bloomberg

Close