Axis Bank on Thursday reported a 73% year-on-year fall in its net profit to R580 crore for the December quarter. Speaking to reporters, CFO Jairam Sridharan said the bank seems to have turned the corner with respect to slippages. Excerpts…
What are the reasons behind the rise in slippages?
In the nine months so far, on a cumulative basis, 85% of the bank’s corporate slippages came from the watch list. So, in many ways, when we came out with the watch list, we shared our perspective that we believe a bulk of the corporate slippages are going to come from the watch list. So, we feel broadly okay with that outcome. The increase of slippages from outside the watch list came from three areas – corporate, retail and SME. In retail and SME, there was a mild increase over Q2 in slippages and some of that was driven by cash and liquidity issues and some are seasonal. But the big increase that you see in non-watchlist slippages in the corporate side essentially came from the iron & steel and construction sectors mostly those that had originated prior to FY11.
What is your guidance on slippages?
The way I would frame it is that if you look at the bank’s total slippages, they seem to have turned the corner. You saw the big number in Q2 and you saw a 48% reduction on that number in Q3. So, overall, looking at what we are seeing right now, it gives a feeling that we have turned the corner with respect to slippages and the peak is behind us. We looked at all the accounts in the watch list but did not upgrade any of them.
Of the Rs 4,560 crore slippages, Rs 2,579 crore is corporate slippages from the watchlist. The rest is either corporate slippages outside the watchlist or retail and SME slippages. Our watchlist only covers the corporate lending segment and retail and SME are not included in it. So by design, all slippages from those two segments will remain outside the watch list.
Any strategic debt restructuring in Q3?
There are two accounts in this quarter that went through some of these dispositions. So, the underlying loans in these two accounts were Rs 501 crore and the bank implemented strategic debt restructuring (SDR) on them. We did not do any 5/25 or scheme for sustainable structuring of stressed assets (S4A) in the quarter.
What was the impact of demonetisation?
There has not yet been any impact of demonetisation on the slippage numbers. The impact, if any, will take some time to flow through the system and show up in different slippage numbers. So, this quarter, I don’t think that any slippage number can be co-related to demonetisation effects. Actually in the short-run you are unlikely to see any impact. In Q4 also, you are unlikely to see much impact because the sectors that are most vulnerable to demonetisation have been given special dispensations by RBI to protect them.