Axis Bank Ltd. reported its first ever quarterly loss since listing as the bank accelerated recognition of bad loans, leading to a surge in provisions.
The private lender reported a net loss of Rs 2,188.7 crore in the January-March quarter compared with a profit of Rs 1,225 crore a year ago, according to its exchange filing. Analysts tracked by Bloomberg had estimated a Rs 663 crore profit. The bank also reported tax write-back of Rs 1,300 crore, without which the net loss would have been wider.
Axis Bank’s asset quality has deteriorated ever since the Reserve Bank of India conducted its first asset quality review in October 2015. During the period, the bank’s gross bad loans rose eightfold to more than Rs 32,000 crore.
Its management cited the new bad loan management norms issued by the RBI in February for the jump non-performing assets. The private sector lender took a very conservative view of the regulatory directions and ensured that a large portion of stressed accounts were classified as NPAs, according to Shikha Sharma, its managing director and chief executive officer.
- Gross NPAs rose to 6.77 percent of the total loans at the end of the March quarter, from 5.28 percent in December.
- The net NPA ratio worsened to 3.4 percent from 2.5 percent sequentially.
- Provisions for bad loans jumped to Rs 7,179.5 crore compared with Rs 2,811 crore in the previous quarter.
Slippages of Rs 16,536 crore were recognised during the fourth quarter, said the bank. The power sector alone contributed to about 40 percent of all bad loans generated during the quarter, Chief Financial Officer Jairam Sridharan said at the press conference. In the power sector, 40 percent of the loans have turned sour, he added. Another Rs 13,938 crore worth of slippages came from corporate lending. The bank’s watch-list fell 92 percent to Rs 428 crore.
Most of slippages came from accounts rated BB—the lowest investment grade—or below, according to Sridharan. These now constitute only 1.8 percent of all customer assets.
The outstanding standard loans to the power sector stood at nearly Rs 9,000 crore. Sridharan didn’t rule out further NPAs emerging from this segment.
Net interest income, or the core income, fell 3.6 percent to Rs 4,730 crore, higher than the Rs 4,907 crore estimate. The bank’s net interest margin at the end of financial year 2017-18 stood at 3.4 percent.
The private lender is currently looking for a successor to replace Sharma when she steps down at the end of a shortened second term in December this year. The new leader for the bank is likely to have an “exciting opportunity”, Sharma said.
The outgoing CEO announced a new business strategy for financial year 2018-19 that would focus on normalising credit risk, delivering profitable growth, enhance capabilities and invest in the future.
According to both Sharma and Sridharan, Axis Bank’s asset quality and profitability will improve in the second half of the current financial year. The progress in the insolvency and bankruptcy process, a pick-up in the investment climate and a healthy consumer growth story gave Sharma confidence of a turnaround.
Shares of Axis Bank closed 0.77 percent lower ahead of its earnings compared to a gain of 0.8 percent in the Nifty Bank Index. The stock has fallen 12.6 percent so far this year compared as against a 2 percent decline in the benchmark banking index.