Amitabh Chaudhry, MD & CEO, Axis Bank (Image: PTI)
Axis Bank will now classify home loans of credit card defaulters as non-performing loans. This is being done as a part of its prudent provisioning practice to tackle troubled loans, the bank said. , as per a report by The Times of India.
The move comes even as a Supreme Court order has stayed classification of defaults during the pandemic, the report added.
NPLs from banks’ perspective means a hit on earnings as it will have to provision for the loan while interest payment received on the loan will no longer be income.
For borrowers, the bank can now initiate recovery proceedings at any time to recall even the lump sum amount. Loans are usually classified as NPAs after erring on payment by 90 days.
A spokesperson for Axis Bank told Moneycontrol: "The asset classification per extant applicable income recognition and asset classification regulations, requires every bank to follow asset classification at a borrower level and not at a facility/ product level. We have used the said regulations for determination of our proforma NPA and provisions made in the financial statement for Q3FY21. Hence, the Borrower level classification is a RBI regulatory requirement and not an Axis Bank specific choice. The actual customer classification shall be done only upon final order of the Supreme Court.”
The report noted that, while Axis bank was making provisions from its earnings, proceedings might yet not be initiated due to the SC order.
This was confirmed by Axis Bank CEO and MD Amitabh Chaudhry. While announcing the bank’s results for the quarter ended December 2020, Chaudhry said profits were “adversely impacted due to prudent expense and provisioning charge of Rs 1,050 crore.”
For year-on-year (YoY) from December 2019, profits slumped 36 percent to Rs 1,116 crore in December 2020 from Rs 1,757 crore, while in Q3 Rs 6,736 crore worth of additional loans slipped into default, Chaudhry said.
“We are in the risk-taking business... we have to make prudent provisions. We have provided as though the SC dispensation (barring lenders from classifying loans as NPA) is not there. We have reversed interest earnings and fees from our income on these loans,” he said.