1. Failure of governance at Axis Bank is now absolute, India’s sixth largest bank has been caught lying again

Failure of governance at Axis Bank is now absolute, India’s sixth largest bank has been caught lying again

On Tuesday evening, the Indian lender reported that the central bank wasn't happy with its classification of nine large corporate accounts as standard assets.

By: | Published: October 18, 2017 2:17 PM
axis bank, india, bank, corporate accounts, central bank, india banking, banking and finance, banks in india, axis bank accounts, largest bank, modi government, banking news, india news It’s the second time this year that Axis has had to bump up its bad-loan count under pressure from the Reserve Bank of India. (Reuters)

On Tuesday evening, the Indian lender reported that the central bank wasn’t happy with its classification of nine large corporate accounts as standard assets. As a result, the non-state-owned bank, the country’s sixth-largest by market value, has decided to rebrand the entire $750 million as nonperforming. It’s the second time this year that Axis has had to bump up its bad-loan count under pressure from the Reserve Bank of India. In May, it reported a previously undisclosed soured asset of almost $1.5 billion. That time around, it wasn’t the only financial institution to try and hide a bad egg. ICICI Bank Ltd. and Yes Bank Ltd. made similar disclosures, prompting me to coin a new metric to value Indian banks: the price-to-truth ratio. If Axis had diligently followed the RBI’s asset classification norms, as much as 24 percent of its $565 million profit for the last full year would have vanished into thin air. (The lender’s shares plunged as much as 9.4 percent on Wednesday morning.)

Even now all Axis has to say in its defense is that it’s not the only one lying: Most other banks that have exposure to these nine firms, which include three unidentified power producers and one steelmaker, are also carrying the advances as standard assets on their balance sheets. What makes this new mea culpa all the more galling is that just three months ago, CFO Jairam Sridharan was busy telling the world that credit costs, which had risen from an annualized rate of 1.73 percent during the March quarter to 1.95 percent in June, had only inched higher because of a seasonal blip. He said things were looking so under control management might even consider paring its guidance of 1.75 percent to 2.25 percent in full-year credit costs. (Axis’s fiscal year runs from April to March.)

Axis Bank 2Q net income: 4.3 billion rupees

Just as he was making that cheery prognosis, shareholders came to know Axis had reappointed CEO Shikha Sharma for another inning, giving her a clear runway until 2021. The board announced its decision with almost a year to go in Sharma’s current term because there was speculation she might leave for the Tata Group. Would that have been such a bad thing? Sharma, who came to the bank as CEO in 2009, has overseen shareholder returns of 252 percent, less than the country’s Bankex index at 270 percent. On her watch, $250 million of bad loans has swelled to more than $4 billion, even as total assets merely tripled. Now, after the September quarter, annualized credit costs have ballooned to 3.16 percent. That includes a 1.42 percentage point bump due to the $250 million provision management had to make after the central bank caught its lie. As for that full-year credit-cost guidance, which the CFO was planning to lower in July, it’s now been raised to between 2.2 percent and 2.6 percent.

Whichever way you look at it, the failure of governance at Axis is now absolute. That other banks will also be admitting to having similarly lied about their nonperforming loans can’t be an excuse. If the non-executive directors of Axis, including the former bureaucrat who chairs it, feel even a modicum of responsibility toward shareholders, they should quit, and leave it to a new board to deal with management and its fibs.

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    RADHAKRISHNAN L
    Oct 21, 2017 at 6:26 am
    Its a pity that India follows Global NPA norms without realising that even the GOVERNMENT Payments to Suppliers takes more than six to nine months. Bureaucratic delays in getting licences, clearances from various Government agencies are very well known even to a common man. In most large advances the main culprit of the account becoming NPA is Governmental delays which results in escalation in costs and extension of COD. Delays not only affect the Commencement of Commercial Operations date but also increased interest costs. Poor Bankers who do not continue in the same place for more than two years will find it difficult to understand the position of the Project delays and delayed decisions for supporting the Projects at right time leads to accounts becoming NPA. High time the Chambers of Commerce who are mostly dormant take up the issue of Classification of NPA norms with the appropriate authorities in an aggressive manner to redress the malady.
    Reply
    1. Jayesh Sheth
      Oct 19, 2017 at 5:52 pm
      My personal opinion is that wait for result of 2 private and 1 PSU major bank.So the real position come on the board that every one knows anout stressed assett because nearly 90 stressed from corporate sector and if this trend will continue for anothe bank then problem arise and it will spread out on retail sector also.Because in 2008 when u.s.a. household crises arise the retail position also remain the same in india.So i feel that wait for result of major private bank and 2 big psu bank.
      Reply
      1. A
        Adil
        Oct 19, 2017 at 5:07 pm
        The author certainly seems miffed with Axis. Instead of delivering prognosis he’s behaving like someone who lost money on Axis shares and now writing this article.
        Reply
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          N Srinivasan
          Oct 19, 2017 at 2:20 pm
          Top Banks means that they are KING banks. Questioning them is totally wrong, coz, they believe in the concept KING CAN DO NO WRONG
          Reply
          1. N
            N Srinivasan
            Oct 19, 2017 at 2:19 pm
            Top Banks means they are to be seen and honoured as Kings. And they firmly believe in the concept KING CAN DO NO WRONG.
            Reply
            1. H
              hemant gandhi
              Oct 19, 2017 at 1:17 pm
              The Top Management has once again stood up to their image and been successful in misguiding the hapless stake holders...The irony is that both the banking regulator and the board of the bank have been indirectly supportive of the decisions (showing NPAs as PAs Q after Q)....The asset quality trend is indicative of the credit decisioning quality of the bank..Only some change in the management can spill the beans..Till then the shareholders would continue to bleed and find surprises...Past CFOs left the scene prematurely since they could not take the anymore.. God save the bank...
              Reply
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                J R Mohandas
                Oct 18, 2017 at 5:57 pm
                feedback expressindia This has reference to your report(...) in FE dated Oct 18, 2017. The management of the Bank has continuously been fooling investors , regulators and public by falsifying its accounts. RBI has always in the recent past commented on its asset quality and Axis Bank started a new practice of declaring watch list to divert attention while NPAs are mounting in other portfolio also. The MD CEO was given extension of term one year advance for reasons known only to the Board of the bank . A forensic audit of accounts for last three years should be ordered by RBI and the top management which has been getting huge increase in remuneration , variable pay and ESOPs based on inflated profits should be asked to surrender the same
                Reply
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