Axis Bank on Thursday reported a net loss of Rs 2,189 crore for the three months to March after more than doubling provisions, year-on-year, to a sizeable Rs 7,180 crore. This is the private sector lender’s first quarterly loss since it listed on the exchanges in 1998. The bank’s operating profit fell 16% year-on-year to Rs 3,672 crore in Q4FY18.
In Q4FY17, the bank had reported a net profit of Rs 1,225 crore. The loss in the March 2018 quarter came despite a tax writeback of Rs 1,319 crore.
The surge in provisions resulted primarily from slippages to the tune Rs 16,536 crore of which Rs 13,938 crore originated from the lender’s corporate portfolio. The bank said the new Reserve Bank of India guidelines, announced on February 12, had led to more recognition of stress in the restructured loans portfolio.
Asset quality remained poor in Q4FY18 with gross non-performing assets (NPAs) rising 173 basis points (bps) year-on-year and 149 bps sequentially to 6.77%. In absolute terms, gross NPAs stood at Rs 34,249 crore at the end of March 2018 while the watchlist was Rs 428 crore in the quarter. The lender’s managed recoveries and upgrades stood at Rs 3,401 crore, while writeoffs during the quarter were Rs 3,887 crore.
The bank’s net interest income — the difference between interest earned and interest expended — at Rs 4,730 crore was flat both year-on-year and also on a sequential basis. The domestic net interest margin, a key measure of profitability, fell 52 bps year-on-year and 1 basis point sequentially to 3.59%. MD and CEO Shikha Sharma told reporters the recent regulatory framework for resolution of stressed assets is an important milestone in the evolution of credit practices in India. “It allows this acceleration (recognition of bad loans).
It withdraws a variety of restructuring dispensations that existed prior to the guideline and this will materially change credit culture in the long term even if it means short-term pain,” Sharma said.
Sharma admitted that Axis Bank’s bets on the infrastructure sector have not paid off. “One area which has been an area of disappointment for us has been on credit risk. We made some significant bets on the infrastructure sector and that has not turned out well for us in this credit cycle,” she said.
Sharma said the Q4 results indicated the lender was now nearing the end of the recognition process. “We should really start to focus on the resolution process going forward from here,” she said.
According to Sharma, the bank’s bad loan ratios have risen materially over the last two years even though it has been course-correcting in terms of the proportion of corporate lending business. “Since as early as 2013, we have been shifting our business mix away from project finance and more towards the higher rated companies and the working capital business,” Sharma explained.
The bank’s balance sheet grew 15% year-on-year and stood at Rs 6.91 lakh crore as on March 31, 2018. Its advances grew 18% on an annualised basis to Rs 4.39 lakh crore, of which retail loans grew 23% to Rs 2.06 lakh crore over the previous year. Corporate credit grew 12% year-on-year and stood at Rs 1.74 lakh crore.
Its capital adequacy ratio (CAR) under Basel III rose 162 bps year-on-year to 16.57% in Q4FY18. Axis Bank’s shares on the BSE fell 0.77% on Thursday to close at Rs 494.55 each.