Axis Bank, the country's third largest private bank, plans to close its Rs 9,436 crore watchlist of bad loans by the end of 2018, even as challenges continue into the year ahead.
Watchlist is the potential list of assets or loans likely to turn bad or become non-performing assets (NPAs).
Axis and other banks came out with their own consolidated watchlist of Rs 22,600 crore during the fourth quarter of 2016 - the January to March period last year.
"About 58 percent of our watchlist so far has slipped into NPAs... and 83 percent of our corporate slippages came from the watchlist (during the fourth quarter)," said Jairam Sridharan, Chief Financial Officer of Axis Bank, in a conference call on Wednesday after bank announced its Q4 results. "We do not intend to continue with our watchlist beyond 2018 and the intention of the watchlist was to extinguish it in two years."
The bank's gross addition to NPAs reduced to about Rs 4,800 crore from the peak of more than Rs 8,000 crore in the second quarter.
Hinting at the much talked about stressed account Jaiprakash Associates, Sridharan said that of the Rs 4,800 crore, Rs 1,660 crore was from one cement company loan account. He said Axis Bank has kept this account on the watchlist and made provisions of 25 percent, even while it has maintained the company as a standard asset.
Net addition to NPAs also halved to Rs 2,000 crore.
The bank sold assets with a net book value of Rs 1,828 crore to Asset Reconstruction Companies against net sale consideration of Rs 1,686 crore, comprising Rs 266 crore in cash and Rs 1,420 crore in Security Receipts value. It also made recoveries of Rs 2,800 crore during the quarter.
Sounding a note of caution, Sridharan said, "Worst is behind us but there are some challenging times ahead of us and we should recognise that Q4 does tend to be seasonally pretty strong for recoveries, I would not blindly extrapolate all the outcomes of Q4 into the next year. So we are cautiously optimistic on the outlook for credit as we look at FY18."
The bank's strong point, its corporate portfolio, continued to have a muted growth due to "less opportunities".
Sridharan said, "I think directionally retail will continue to drive the growth. but I am hopeful of some sort of turnaround in corporate credit growth. It may be not a huge growth but one does expect a little bit of activity in large corporate to pick up. There is some level of caution because of the GST rollout that is impending."
He expects an overall bank level loan growth to be 5 percentage points (5 basis points or bps) higher than the system, which is at a multi-year low of less than 5 percent.
Net interest margins (difference between interest paid on deposits and interest earned on loans) for the full year edged down to 3.67 percent from 3.82 percent last year. However, fourth quarter saw an improvement to 3.83 percent.
Looking ahead to the next financial year, Axis Bank continues to expect another 15-20 bps compression in the net interest margin (NIM) led by the fact that "system liquidity continues to be very high and credit growth demand continues to be low".
Amid uncertainties on asset resolution and sectoral challenges especially in the infrastructure, power, metal and other sectors, the bank expects the credit costs to remain high in the 175 -225 bps region.
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