Axis Bank Reports First Ever Quarterly Loss as Bad Loans Pile Up

Mumbai: Axis Bank on Thursday reported a maiden quarterly loss of Rs 2,189 crore for the three months to March on an over Rs 16,000-crore addition to the bad loan pile, driven majorly by regulatory changes in impaired assets recognition and hinted at more pain in the offing.

For the same quarter of FY17, the third largest private sector lender had booked a profit of Rs 1,225 crore, while for the preceding December 2017 quarter, its profit stood at Rs 726 crore. The massive loss in the fourth quarter pulled down its full year earnings to a low Rs 275 crore, against Rs 3,679 crore, the bank said, adding the higher bad loans resulted in a threefold spike in provisioning to Rs 7,179 crore, and losses would have been much higher had it not been for a tax write-back to the tune of over Rs 1,300 crore.

Outgoing managing director and chief executive Shikha Sharma, who was reportedly forced to cut short her fourth three-year term on RBI's unhappiness on ballooning non-performing assets under her leadership, conceded the bank's bets on infrastructure have gone awry. "We made some significant bets on the infrastructure sector, which have turned out poorly in this credit cycle,"

Sharma told reporters in a rare appearance in a post-results press interaction.

Sharma, who will end her nine-year tenure with the bank in December, said she is "disappointed" with the performance of the bank on credit risk. Led by reverses in the power sector and a significant jump because of the February 12 RBI circular overhauling the new NPA resolutions and recognition, the bank saw slippages to the tune of Rs 16,536 crore for the reporting quarter, including a Rs 13,938-crore bulge from the corporate segment.

While the bank refused to disclose the exact impact of the new NPA recognition rules on its books, which ended restructuring of every kind on NPA except through bankruptcy resolution, Sharma termed the new framework as an "important milestone" that will enhance the credit culture. Guiding towards more bad news, Sharma said the worst is not over yet. "Accelerated NPA recognition takes care of much of the possible stress and it will only be in the second half of fiscal 2019 that the credit cost or provisioning will normalise."

It has been a difficult sailing for the bank since RBI started the asset quality review late 2015, after which it has been consistently reporting reverses every quarter as the regulatory oversight on the asset qaulity tightened. The bank was also found to have repeatedly under-reported bad loans with divergences of over Rs 10,000 crore for the past two fiscal years.

However, in the midst of the NPA pain, it successfully raised over Rs 10,000 crore in core capital from existing investors led by Bain Capital and LIC. On a positive side, the watchlist created after the asset quality review, came down to Rs 428 crore at the end of March and the book has been closed to be integrated with the overall one, chief financial officer Jairam Sridharan said.

Gross non-performing assets ratio increased to 6.77 percent of its total loan book, which rose 18 percent for the quarter. Sharma said the bank has strengths like a strong core capital based and an appetite for growth, and laid out a strategy for FY19 that focuses on normalising credit risks and delivering profitable growth.

Sridharan said the current capital buffer is suffice for at least two years, assuming a 20 percent loan growth every year. For the reporting quarter, net interest income was flat at Rs 4,730 crore as a large part of assets did not pay interest, other income was down 7 percent at Rs 2,789 crore given the bloodbath in the bond market, but net interest margin was stable at 3.44 percent.

The resilient retail segment now accounts for 46 percent of the assets of the bank from 20 percent nine years ago when she took over, Sharma said. She also spoke about other strides like a successful integration of the acquired Enam Securities and initiatives on the digital and analytics side.

"Lots of things have gone well. When I look back over the last nine years, I've enjoyed being here and have been very proud of some of the stuff that we have done," she said. In anticipation of results announcement post-market hours, the bank counter slipped 0.77 percent to close at Rs 494.55 on the BSE as against a 0.62 percent gains on the benchmark.