Private lender Axis Bank has fixed its big bad loan problems that had dragged it down to a loss making lender a year back.

Its gross bad loan ratio has dropped to 5.26% in March quarter from the peak of 6.77% a year ago. The share of loans rated ‘BB’ and below in the lender’s overall corporate loan book has reduced to just 1.3%, from 7.3% a year back.

But the share of the non-corporate book in fresh slippages is rising and more than 45% of slippages are outside of corporate loans. The management said that most of the slippages are from loans to agriculture and small and medium enterprises (SME).

Concerns over the stress among small borrowers had been raised by the regulator a year ago. A report by TransUnion and SIDBI on such borrowers showed that bad loan ratios are highest among SME borrowers.

For the lender, the share of riskier unsecured loans in the retail book is growing. Besides, the share of safe mortgage loans has dropped.

To be sure, retail bad loan ratios have been ultra low for the lender and for the industry as a whole. In its post earnings call with the media, the management didn’t indicate any worry on its retail portfolio. “Overall performance of the retail portfolio continues to be very strong," said Jairam Sridharan, chief financial officer of the bank.

For the bank now, it is imperative to monitor its non-corporate book and Sridharan said that the lender intends to have a close eye on the portfolio.

Meanwhile, the bank has shown investors in each of last four quarters that incremental corporate loans are going to strong borrowers with better credit ratings.

The bank has upped the ante on insurance against risk too. Its provisions towards bad loans has risen every quarter and the coverage ratio has reached 77% in the fourth quarter. The lender has chosen to make higher provisions over and above regulatory requirement against standard assets too.

In a nutshell, Axis Bank has not only fixed its bruised corporate loan book but it has build a provision moat that protects it from potential risk.

Investors have already rewarded the lender for all the work it did on its asset quality. The stock has gained an impressive 18% this year so far.

The bank has a new leadership and an unshackled balance sheet ready to grow.

Ergo, the fast growth of 17% in its corporate loan book and 18% of overall domestic advances growth should add to delight.

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