The country’s third-largest private lender by assets reported its first-ever quarterly loss of Rs 2,189 crore for the fourth quarter of FY18 as against a profit of Rs 1,225 crore in the same period the previous year. The loss could largely be attributed to the significant jump in provisions owing to higher slippages; provisions spiked to Rs 7,180 crore in Q4, up nearly three times from Rs 2,581 crore in the previous year. In terms of asset quality too, the numbers seemed to disappoint. Slippages came in at Rs 16,536 crore during the fourth quarter of FY18.
The bank attributed a significant part of the spike in slippages to the recent changes in regulatory framework with respect to NPA recognition. On February 12, Reserve Bank of India (RBI) said in a circular it was scrapping the existing restructuring tools such as SDR, S4A and Joint Lenders Forum. In addition, RBI directed banks to recognise borrowers who fail to service the loan within 91 days as defaulters, and put a resolution plan in place within 180 days. This particular change in NPA recognition norms caused quite a stir among banks, who lamented that small delays due to temporary liquidity mismatches would also have to be classified as defaults going forward.
However, the bank’s management claimed that the worst was behind them when it came to bad loan recognition. Speaking to the media this evening, Axis Bank’s MD & CEO, Shikha Sharma said, “The Q4 numbers are a reflection of our desire to complete the NPA recognition process. During this quarter, we took a conservative view of the regulatory changes.”
She added that the NPA recognition process was nearly complete and the bank will focus on resolution in FY19. The management also said that a large portion of the new NPAs created in Q4 came from the power sector.
To instill confidence among investors, Axis Bank CFO Jairam Sridharan said, “We believe new NPA formation will be significantly lower in FY19 as against FY18.” He went on to say that he expects loan growth and deposit growth to touch the high teens this year, and that the bank is targeting a return on equity of above 18% in the medium term.
The weak set of numbers is only the latest in a long list of unflattering news involving Axis Bank in recent months. The bank has been pulled up by RBI for a wide divergence in its NPA reporting, and Sharma has been summoned by the Serious Fraud Investigation Office in the fallout of the alleged diamantaires Nirav Modi-Mehul Choksi bank loan fraud.
Moreover, after ICICI Bank’s CEO Chanda Kochhar found herself in the eye of the storm after allegations were made that her husband Deepak Kochhar may have benefited from loans disbursed to Videocon’s Venugopal Dhoot, reports emerged that RBI had asked Axis Bank to reconsider Sharma’s term. In light of this, Sharma had requested the board to cut her term at the helm short. Speaking today, Sharma confirmed that a change of guard was due in December 2018.
Axis Bank’s shares have fallen nearly 12% since the beginning of 2018. At the Bombay Stock Exchange (BSE) the stock closed at Rs 494.55 on Thursday, down 0.77%,.
Meanwhile, YES Bank’s profit for Q4 FY18 rose 29% on a YoY basis to Rs 1,180 crore. This growth in profit came on the back of healthy rise in the net interest income, which came in 31% higher at Rs 2,154 crore. The bank’s asset quality showed steady improvement, with gross NPA ratio at 1.28% compared to 1.72% in the previous year.
YES Bank’s stock closed 8.26% in the green on the BSE on Thursday at Rs 352.05.