The recurring question in Axis Bank’s conference call after the announcement of fourth-quarter results on April 28 was about the management’s view on the impact of Covid-19 on business. And the answer from the top executives was largely the same throughout the call. “If you look out of the window, all you can see is that the economic activities have come to a standstill. We need to see how long this situation continues.”
Expecting bad days ahead, the bank has made a substantial provision of Rs 7,730 crore in the fourth quarter, of which Rs 3,000 crore is marked to cover the COVID-19 shock. Is this provision sufficient? The management is not committing to this question since it doesn’t know what lies ahead. The impact, the management said, depends on how soon the lockdown ends and economic activities resume. This view is largely similar across banks.
The COVID-19 has caught everyone by surprise. The extent of the impact is not known to the financial world. But analysts are curious. “The fact that the bank has made substantial COVID-19 provision in Q4, which was largely unaffected by the virus, itself shows that bank may be expecting a substantial impact in the fourth quarter,” said Siddharth Purohit, an analyst at SMC Global Securities.
That apart, a quick reading of Axis Bank’s fourth-quarter numbers shows a healthy report card. The bank has steered the ship through tumultuous waters fairly well. Bad loans have come down in the March quarter compared with the preceding three months. That the bank has posted a net loss for the quarter at Rs 1,388 crore from Rs 1,505 crore shouldn’t be a surprise given the fact that overall provisions have jumped to Rs 7,730 crore from Rs 3,471 crore in the previous three months. Of this, Rs 3,000 crore is to cover the COVID-19 shock. Look at the loan growth in deposits and loans, the figures are impressive. A 15 percent overall advances growth contributed by 24 percent jump in retail loans and a 19 percent growth in deposits augurs well for the bank. Retail loans account for more than half of the total loans (53 percent). Of the total retail loan book, only about 20 percent is unsecured book. In Q4, the total fresh slippages of the bank stood at Rs 3,920 crore from Rs 6,214 crore in the preceding quarter.
Axis Bank doesn’t worry about the Franklin Templeton meltdown. It has covered for this as part of this larger corporate loan book. About 10 percent of Axis’ customers, in terms of number, has opted for loan moratorium facility offered by the RBI as part of COVID-19 package, and 25 percent in terms of value. The growth trend in loans and deposits is largely comparable with that of HDFC Bank, which announced results last week. HDFC too had posted a healthy set of numbers logging an impressive 24.3 percent jump in its deposits and a 21.3 percent increase in advances on a year-on-year basis. The non-performing assets (NPAs) came down over the quarter.
But for banking analysts, Q4 numbers aren’t that important. All eyes are on the April-June quarter when the world will emerge out of the 40-day-long lockdown. That is when the RBI relief for borrowers, in the form of moratorium and liquidity stimulus, will come to an end. What remains healthy on the books of banks post the lockdown and what doesn’t will decide the future course for banks. Economists expect a large-scale impact on the Indian economy on account of COVID-19. The economic impact of a sharp, painful slowdown will be felt on cash flows of companies. Watch out for the Q1 numbers.