S&P Global Ratings on Thursday said that private sector lender Axis Bank is well-positioned to withstand downside risks from tough operating conditions and is likely to outperform public sector banks in terms of growth and earnings.
Its comments come a day after Axis Bank announced its second-quarter results with a net profit of ₹1,628.67 crore as against a net loss of ₹112.08 crore a year ago.
“The bank's results for the quarter ending September 30, 2020 were resilient and in line with our rating outlook,” S&P Global Ratings said in a statement.
It further said that it expects the bank's risk appetite, which has been subdued over the past six months, to grow in line with the system average for the fiscal year ending March 31, 2021.
“Axis Bank's asset quality should also remain better than the system average over the next two years, despite a likely deterioration from the Covid-19 pandemic,” the agency said.
It warned that the overall the banking sector continues to face significant uncertainty over the next six to 12 months amid the pandemic and extraordinary support granted to borrowers.
The restructuring will delay recognition of stressed loans, and the sector could see five per cent to eight per cent of its total loans being restructured by the end of June 2021.
“In addition, nonperforming loans will increase to 10 per cent to 11 per cent of the sector's total loans, from 8.5 per cent as of March 31, 2020,” it said.
For Axis Bank, S&P Global Ratings said it anticipates the lender will have a lower proportion of restructured and non-performing loans compared with the domestic system average, given improvements in its risk management and quality of originations over the past two years.