Axis Bank More Than Doubles Loan Provisions For Troubled Sectors

Axis Bank is setting aside more capital, more than twice over the regulatory requirements, for loans in sectors it has identified as “stressed”, a senior official has said.

The bank is maintaining a standard asset provisioning of 1 percentage point for bad loans in such sectors, as against the regulatory provision of 0.40 per cent, its executive director Rajiv Anand told PTI.

The move, which is being followed at least since April, comes amid continuing concerns on high quantum of non-performing assets in its book. The high level of NPAs and the ensuing provisioning have impacted the profits of a majority of lenders, including Axis Bank, over the past four years. “In sectors identified as high risk, we have increased the standard provisioning to 100 bps as against the mandated 40 bps to take care of any concerns,” Anand said.

In April 2019, the bank had first disclosed that it had started to provide extra capital, but had not given out the exact levels of the additional provisioning or spelled out the sectors.

When asked if the troubled sectors like real estate or non-bank finance companies (NBFCs) are included on the list, Anand declined to specify the sectors which the bank has identified as stressed. “We have not closed lending to any sector because of the difficulties that it may be going through. In each sector, there are always strong names which is better rated and has a resilient business model,” Anand made it clear.

Concerns on higher capital burn due to policies like these can be placated by ensuring that the lending to a particular sector is not very high, which is decided by an internal team. Anand said the bank has overhauled its risk assessment framework, wherein loan origination is separated from underwriting, and has a chief credit officer reporting directly to the chief executive.

Amid reports of its larger rival ICICI Bank shuttering its project finance, Anand hinted that Axis Bank is also following a similar strategy. “We generally avoid project finance and our focus is now much more towards cash flow generating businesses and look at the relationship in a manner where we can deliver the full capabilities of our group to the customer,” he said.

Anand avoided a direct reply when asked if there is demand from greenfield projects, but said it will not be apt to classify the loans merely as refinance, adding it is witnessing working capital demand as well.

The bank is targeting to grow its overall book 5-8 per cent above the system average, and that private sector banks have been garnering a higher percentage of market share in both loans and deposits lately whereas state-owned banks still are starved of growth capital.

In the comments that come amid difficulties on asset quality or mergers plaguing public sector banks, Anand said over half of the incremental liabilities are coming to the private sector banks, while in loans, the share is at a much higher 75 per cent.

On the macro economic prospects, Anand pins hopes on more monetary easing and growth-enhancing measures put forth by the government, but concedes that the second half will also be difficult. The pick-up will be visible from the first half of FY21, he said, on the back of growth slipping to an over six-year low of 4.5 per cent for the September quarter.

RECENT NEWS

Steeped In Tradition: USAA Kicks Off 124th Army-Navy Game Celebrations In A Massive Way, Honoring 250th Anniversary Of The Boston Tea Party

USAA honors history of rivalry game and the city, bringing giant bag of tea to Boston’s historic sites Read more

USAA Life Insurance Announces New Relationship With Trust & Will

USAA Life Insurance Company, a leading financial services brand for military members and their families, and Trust &... Read more

“Go Beyond Thanks:” New Survey Reveals We Should Do More Than Simply Thank Our Veterans For Their Service

Data Reveals Half of Military/Veterans Surveyed Feel Uncomfortable or Awkward When Someone Says the Phrase “Thank You ... Read more

USAA Expanding Education Program To Include Tuition-Free Support For Employees And Employee Dependents

Company also announces student loan 401(k) contribution match up to 8% Read more

USAA Life Insurance Company Introduces Fixed Indexed Annuity

New product provides tax-deferred growth along with principal protection to help build retirement savings.  Read more

USAA, Truist Settle Remote Deposit Capture Litigation

USAA and Truist Bank have entered into a settlement and patent license agreement that resolves the remote deposit captur... Read more