Axis Bank chief presages 25% rise in bad loans

Axis Bank is expecting a higher-than -predicted stress on its asset quality during the financial year, due to the alleged Deccan Chronicle fraud coupled with a large and ailing corporate book, analysts said.

According to Shikha Sharma, managing director and CEO, total incremental slippages and restructured loans would rise to Rs5,000 crore, or 25% more than an earlier estimate of Rs4,000 crore, for the current fiscal.

She was making a presentation at the Hong Kong Forum organised by CLSA Asia-Pacific Markets.

DNA has reviewed an email from CLSA Asia-Pacific Markets to its clients on the presentation.

An Axis spokesperson refused to comment. However, the bank has asked the brokerage for a clarification regarding this mail, a source said.

Axis has about Rs400 crore worth of exposure to the cash-strapped media company, Deccan Chronicle, which is currently under the scanner as lenders look at getting their loans repaid.

Earlier, the bank’s management broadly indicated that for the current fiscal, slippages and restructuring would record roughly Rs500 crore every quarter, each. That would amount to Rs2,000 crore for the year.

“Our existing estimates built in Rs2,800 crore of slippages in this fiscal. In the first quarter, they recorded Rs450 crore. We don’t have explicit forecasts for restructured assets. However, in April-June they did record Rs650 crore of fresh restructured assets,” Sharma reportedly said.

Last week, Axis Bank was downgraded by Morgan Stanley, citing weaker asset quality.

Axis’s non-performing assets rose to 3.3% of total loans, during the first quarter.

Morgan Stanley expects it to rise to 4% or more next fiscal. “The underlying loan book at Axis appears riskier to us compared with peers,” it said, while slashing the share’s target price to Rs800 from Rs900 earlier.

Following the report, Axis Bank shares tanked 5%, hitting a seven-month low. Analysts believe that the recent dip in the bank’s stock price, may suggest that the market has already factored in a higher slippage estimate.

However, some analysts believe that these problems are not specific to Axis, as the entire banking system seems to be under the higher restructuring stress.

“Axis Bank’s books have a higher concentration of corporate loans, which is why their NPAs will be higher than other private banks and much lower than most public sector banks. We have been predicting that the bank’s slippages will go up by 30 basis points during the fiscal, though this is within manageable levels for the bank,” said Vaibhav Agarwal, vice president- research, Angel Broking.