The banking sector fears accretion of more than ₹40,000 crore of bad loans to its books following recent classification of eight consortium accounts of Axis Bank as non-performing assets (NPA) by the RBI.
The central bank has directed certain reclassifications in the private sector lender’s asset classification and provisioning as at March 2017, subsequent to the annual Risk Based Supervision (RBS) exercise conducted for 2016-17.
As a result, Axis Bank had to reclassify nine standard accounts into NPAs. Of these, eight accounts are part of consortium lending, according to the bank.
As at June 2017, Axis Bank claimed, these nine accounts were classified as standard assets across most consortium banks, with only about 6% of their outstanding classified as NPA.
According to estimates, total outstanding loans for these accounts at the end of June 2017 were about ₹42,000 crore. “It is going to have an impact on all the consortium lenders. Banks have to reconcile these accounts as NPA sooner or later. Reclassification by others may happen over two quarters,” Suresh Ganapathy of Macquarie Capital Securities said.
