Axis Bank Ltd. has not been prudent in identifying the extent of its asset-quality issues, according to Moody’s Investors Service.
The “bank has been laggard in recognizing its asset quality problems,” and that is credit negative for the lender, the rating agency said in its outlook report.
Axis Bank’s bad loans and provisions rose in the July to September quarter. It also reported a divergence to the tune of Rs 5,633 crore between the internal assessment of bad loans and the judgement made by the Reserve Bank of India in the financial year 2016-17.
On an average over the past five quarters, around 17 percent of the outstanding below-investment-grade loans at the beginning of the quarter became non-performing loans during the quarter, Moody’s added.
The bulk of exposures in the below-investment-grade category are to sectors such as power, iron and steel, construction and roads. The issues in these sectors are largely legacy issues, and not caused by recent developments. Hence, the continued high rate of downgrades into the below-investment-grade category is a delayed recognition of existing credit issues.Moody’s Credit Outlook Report
The private bank still has a Rs 6,052 crore ‘watch list’ of loans running the risk of turning bad. Beginning of this fiscal year had seen loans worth Rs 22,628 crore in the list, out of which 85 percent loans have already turned bad, indicating that the bank has a low stressed assets recovery rate.
Based on the trends observed in the second quarter of current fiscal year, Axis Bank's asset quality is likely to continue deteriorating over the next 12-18 months, Moody’s concluded.