Axis Bank reported its first ever loss of ₹2,189 crore in the quarter ended March 31, due to an almost threefold increase in provisions. This is the private sector lender’s maiden quarterly loss since its incorporation in 1993.
During the same period of the previous year, the lender posted a net profit of ₹1,225 crore. Fresh slippages to non-performing assets during the quarter was ₹16,500 crore, of which about ₹13,900 crore came from the corporate loan book.
The power sector contributed 41% of the slippages, while another 14% was from infrastructure and construction. Provisions during the quarter increased from ₹2,581 crore to ₹7,180 crore.
Gross NPA as on March 31 was 6.77% of the gross advances, widening from 5.04% a year earlier.
MD and CEO Shikha Sharma said that the bank’s performance with regard to credit risk was disappointing.
“We made some significant bets on the infrastructure sector, which have turned out poorly in this credit cycle. Consequently, our NPA ratios have risen materially over the last two years,” she said, adding that the bank was correcting its course since 2013 by re-orienting the corporate lending business towards working capital loans. “This journey continues,” said Ms. Sharma, who has decided to step down from the helm at the end of December.
Chief Financial Officer Jairam Sridharan made it clear that the bank would stay away from project loans.
“We are not likely to pursue long gestation project loan type products as much in the future given what we have seen. Our corporate credit strategy is all towards working capital to higher clients, transaction banking and liabilities oriented business,” Mr. Sridharan said during the post earnings conference call.
NPA recognition
The bank, however, asserted that the asset quality recognition cycle was nearing an end after it significantly accelerated NPA recognition in the fourth quarter. “Much of the NPA came from BB [rating] and below book,” Mr. Sridharan said.
“The BB portfolio reduced by 44% in the fourth quarter and down from ₹16,500 crore to ₹8,900 crore. This now forms 1.8% of the customer assets,” he said, adding that the below investment grade book was now one-fourth of its peak.
Mr. Sridharan said for the last multiple quarters, all new NPAs were coming from the same pool which were BB and below assets.
“So, as long as the pool is coming down, the stock or the fountain head from where these new NPAs are coming is getting smaller and smaller. That’s what gives me confidence in saying if this is the place where all NPAs are coming and it is one-fourth of what it used to be seven quarters ago, that probably is a strong indicator that most of it has been recognised [as NPA],” he added.
While making significant provision for NPAs, the bank maintained a healthy provision coverage ratio of 65%.
