Light at the end of the NPA tunnel for Axis Bank
The tide seems to be turning for Axis Bank Ltd.
India’s third-largest private sector lender saw significant improvement in its asset quality in the December quarter.
Gross non-performing assets or NPAs (as a percentage of gross advances) declined to 5.28% from 5.9% in the September quarter and net NPAs were lower sequentially at 2.56% from 3.12%.
Slippages, which had got out of hand in the previous quarter, declined by 50% sequentially. Fresh slippages fell to Rs4,430 crore in the December quarter from Rs8,940 crore in the three months ended September.
“The worst in terms of fresh slippages is behind us. There has been no material addition to the bank’s stressed assets pool in the recent past. Now, the focus will shift from recognition phase to the resolution phase, be it through NCLT route or any other,” the management said in a post-earnings media conference call. NCLT is short for National Company Law Tribunal.
During the third quarter, Axis Bank recovered a substantial amount in cash from a stressed IT/ITeS (IT enabled services) account and also upgraded one account in the steel sector. These two accounts were part of the nine accounts that were reclassified as NPAs by the bank in the second quarter of the current fiscal year, it said.
As a result, the bank’s recoveries and upgrades stood at Rs4,008 crore, which the management says is the highest in many quarters.
Further, its watch-list exposures also fell. As the accompanying chart shows, the watch-list now constitutes just 1.3% of the bank’s loan book as compared to 6.7% in the March quarter of fiscal year 2016. (FY16). According to analysts, this is an indication that Axis Bank is approaching the end of its stressed loan recognition cycle.
Moderation in the credit cost is another positive. The lender has retained its FY18 credit cost guidance of 220-260 basis points. Also, it aims to maintain the provision coverage ratio in the range of 60-65%. A basis point is 0.01%.
Meanwhile, lower bad loan provisions and higher net interest income pushed its net profit 25% higher on a year-on-year basis to Rs726.4 crore. However, a decline in other income and operating income restricted the improvement and consequently, the profit growth fell short of expectations. A Bloomberg poll of 16 analysts estimated the bank’s net profit at Rs818.70 crore.
Nonetheless, the Street cheered the December quarter earnings. The Axis Bank stock touched a 52-week high of Rs621.35 intraday on BSE on Monday. Analysts see limited upside in the stock from current levels, adding that sustaining the turnaround in asset quality is key for the bank.