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The buzz about a possible takeover of Axis Bank by Kotak Mahindra Bank grew louder on Thursday after the former reported its first ever quarterly loss in the fourth quarter of FY2017-18.
Dragged down by a three-fold rise in its provisioning for bad loans, Axis Bank reported a net loss of ₹2,188.74 crore for the quarter to March 31, 2018, against a net profit of ₹1,225.1 crore in the same period a year ago
The bank’s share price was down by less than 1 per cent to close at ₹494 on the Bombay Stock Exchange.
Bad news compounded
The poor quarter compounds the bad news at Axis Bank, which has announced that its Managing Director and CEO Shikha Sharma will step down ahead of her scheduled exit.
According to top banking industry sources, the bad run for Axis Bank could push it towards a merger with Kotak Mahindra Bank. Nomura Financial Advisory Services said in an April 11 report, “With a very short time left in the CEO’s term at Axis Bank, RBI’s pressure on Axis Bank’s management and with an asset quality clean-up exercise continuing, we believe this is the best opportunity for Kotak Bank to acquire or merge with Axis Bank.”
Axis Bank’s net profits for the full year plunged by 92.5 per cent to ₹275.68 crore from ₹3,679.28 crore in 2016-17.
‘NPA recognition speeded up’
“The results this quarter are a reflection of the bank’s desire to accelerate NPA recognition, and get past the asset quality issues as soon as possible,” said Shikha Sharma. She expressed confidence about growth in retail as well as corporate lending.
“The recognition phase of the NPA cycle is nearly complete,” said CFO Jairam Sridharan, adding that the Bank expects new NPA formation to decline significantly in 2018-19.
Bad numbers
For the quarter ended March 31, gross NPAs as a proportion of gross advances jumped to 6.77 per cent from 5.28 per cent in the preceding quarter and 5.04 per cent in the fourth quarter of 2016-17. Net NPAs jumped to 3.4 per cent of net advances in the fourth quarter from 2.11 per cent a year ago. In absolute terms, gross bad loans increased to ₹34,248 crore in the fourth quarter from ₹21,280 crore in the same period a year ago. Net NPAs also doubled to ₹16,591 crore.
“The bank has recognised slippages of ₹16,536 crore during the fourth quarter.There was an accelerated NPA recognition in the BB and Below book, particularly the power sector,” the bank noted. Sridharan said that 65 per cent of the new NPA in the fourth quarter came from the power, infrastructure and iron and steel sectors.
Axis Bank has also earmarked ₹7,179 crore as provisions and net contingences for the fourth quarter, up from ₹2,581 crore in the same quarter of 2016-17.
One of the largest private sector lenders in the country, Axis Bank has seen its gross non-performing assets soar nearly five-fold since March 2017, along with a steady decline in net profits.
The RBI had in March imposed a ₹3-crore penalty on the lender for violating NPA norms.
Upbeat on loan growth
Axis Bank, however, remained upbeat about its loan growth of 18 per cent in 2017-18, inlcuding a 12 per cent increase in corporate lending. It, however, said it is unlikley to pursue long-gestation project loans.
The bank will also not be paying a dividend.
“No profits are available for distribution as dividend... Accordingly. no dividend has been recommended by the Board of Directors for the year ended March 31,2018,” it said in a regulatory filing.
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