Private sector lender Axis Bank’s rating will not be impacted due to the high losses it posted in its fourth quarter results, global rating agency Standard and Poor’s (S&P) said on Thursday.

“The results do not affect our BBB-/A-3 rating on Axis because we anticipated higher non-performing loans (NPLs). Moreover, we expect the Indian bank’s financial results to improve over the next two years as it resolves problem loans,” S&P said in a release.

Axis Bank had on April 26 posted a 78.6 per cent fall in profits with a net loss of ₹2,188.74 crore. With a sharp increase in its provisioning, its net profits for 2017-18 had also plunged by 92.5 per cent to a mere ₹275.68 crore.

S&P also gave a thumbs up to the bank’s strategy to enhance risk management and compliance for the new fiscal.

“A smooth transition in leadership when the CEO steps down later this year, and continuity in management, will be important for the bank over the coming year in our view,” it further said.

With the RBI’s new guidelines for recognising stressed assets, the rating agency said it expects banks to post weak financial results for the quarter ended March 31, 2018.

“We expect most stressed loans in India’s banking sector will be recognised as non-performing as of March 2018. This will lead to weak financial results over the short term, but is critical to cleaning up bank balance sheets for long-term prosperity,” said S&P Global Ratings credit analyst Michael Puli.

Moody’s Investor Service had also echoed similar thoughts, saying recognition of bad loans by banks will reduce their profitability in the short term but will be beneficial in the long term.

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