Axis Bank has been aggressive in making provisions on potential NPA losses. That’s a comfort for investors but the quantum of loans that will ultimately go for restructuring and performance of low-rated exposure will be key.
If one read between the lines, this doesn’t mean that there are no restructuring requests so far. The bank only said that it hasn’t granted any. It may have received requests and the final restructuring figures will be clear by the end of December.
What do the bad loan figures look like at the end of Q2? The gross non-performing assets (GNPAs) has been reported at 4.18 per cent as against 4.72 per cent in the preceding quarter. The NPA figures appear lower as the bank has followed the Supreme Court’s interim order that says borrowal accounts that are standard as on August 31 cannot be tagged as NPAs (Non-performing assets) till final order.
If that part is adjusted, the bank's gross NPAs would have been 4.28 per cent. The bank has signaled caution on the growth in unsecured portfolios and has said that it will continue to look to grow both retail and corporate books. The share of secured loans was 80 per cent with home loans comprising 36 per cent of the retail book.
The bank has said 82 percent of Corporate book is now rated A- and above with 95 percent of incremental sanctions in H1FY21 being to corporates rated A- and above.
But if one takes a closer look at the BB and below rated exposure, there has been a sequential increase in Q2. Fund based exposure now stands at Rs9118 crore as against Rs6420 crore in the first quarter. According to Anand Dama, analyst at Emkay Global Securities, BB and Below rated corporate pool of Axis Bank increased to 2.3 percent of loans.
What is important to watch now is the chunk of loans that will go for restructured loans. Dama points out that Axis expects the overall restructuring pool to be lower at 1.6 percent of loans, for which it has already made 20 per cent provisioning.
The bank has been aggressive in making provisions on potential bad assets. That’s a comfort for investors. But, the quantum of loans that will ultimately go for restructuring and performance of BB and below rated will be key going ahead. Loan growth is modest at 11-12 per cent. Though the bank has indicated that it will look at opportunities across retail and corporate to grow the book, all depends on economic recovery.Covid-linked stress across various segments continues to a large extent although there has been some improvement in the second quarter with gradual opening up of the economy. But, as the RBI consumer surveys and various macroeconomic indicators continue to point out, there aren’t signs of any early revival yet. Covid-19 uncertainty will likely continue through early next year, further putting pressure on banks.