Axis’ earnings reflect banking stress: S&P

Indian economy to achieve a ‘powerful’ recovery by March 2022

Axis Bank’s January-March earnings in which it reported an almost ₹1,400 crore loss on higher provisioning reflects stress and uncertainty of the Indian banking system, rating major S&P said.

Axis had identified more than 10% of its customers (25% of its loan book by value) as at April 25, 2020, who had availed a payment moratorium offered by the Reserve Bank of India (RBI).

The bank’s additional bad-loan provisioning of ₹7,700 crore, including ₹3,000 crore related to the COVID-19 pandemic, led the lender to report a loss.

The rating major said Axis’ credit costs for the quarter were higher but some of them was precautionary. “Prudent provisioning will certainly help the bank take care of the future credit costs. The significant number of the bank’s borrowers opting for moratorium could be partly due to some of the stronger borrowers also opting to conserve liquidity in these tough times,” S&P said.

“The negative outlook on Axis reflects our view that the economic risks for the bank, and the Indian economy at large, remain high. We expect the bank to maintain its strong market position and adequate capitalisation over the next 18 months,” it said, adding large unanticipated asset quality shocks could result in a downgrade of the bank which could happen if the bank’s stressed assets rise significantly beyond the system average or economic risks in India rise sufficiently for a downward revision of S&P’s Banking Industry Country Risk Assessment on the country.

It said India’s fiscal position had been weak for a long time. “This, along with the country’s high general government debt, constrains our sovereign credit rating on India,” it said. S&P expects the Indian economy to achieve a ‘powerful’ recovery in the fiscal year ending March 2022, assuming general containment of the global pandemic and a significant improvement in global economic conditions.

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