Banks fear additional Rs 40,000-cr NPAs as RBI reclassifies Axis' accounts

The banking sector fears accretion of more than Rs 40,000 crore of bad loans to its books following recent classification of eight consortium accounts of Axis Bank as non-performing assets (NPAs) by the Reserve Bank of India (RBI).

The Reserve Bank has directed certain reclassifications in the private sector lender's asset classification and provisioning as on March 2017, subsequent to the annual Risk Based Supervision (RBS) exercise conducted for 2016-17.

As a result, Axis Bank had to reclassify 9 standard accounts into NPAs. Of these, 8 accounts are part of consortium lending, according to the latest quarterly results announced by the bank.

As on June 2017, Axis Bank claimed, these 9 accounts were classified as standard assets across most consortium banks, with only around 6 per cent of their outstanding classified as NPA.

According to estimates, total outstanding loans of these accounts at the end of June 2017 were about Rs 42,000 crore.

This decision has triggered fear among other consortium members about the status of these loan exposure related to these accounts.

"It is going to have an impact on all the consortium lenders. Banks have to reconcile these accounts as NPA sooner or later. Reclassification by others may happen over two quarters," Suresh Ganapathy of Macquarie Capital Securities said.

If they reclassify these assets as NPA, the banks have to make provision accordingly and that could impact their bottomline, he added.

At the same time, banks would become cautious as far as fresh lending to these accounts are concerned because one of the consortium lenders has identified these accounts as NPA, a senior banker said on the condition of anonymity.

Some banks may take the pro-active measure of classifying exposure to these accounts as NPA this quarter itself rather than waiting for the second half, the banker added.

Banks are already saddled with NPAs of over Rs 8 lakh crore and there seems to be no respite from the mounting bad loans as initial second quarterly numbers posted by some banks are not encouraging.

Major contributors to the NPA mess have been power, steel, road infrastructure and textile sectors.

Sectoral distribution of the 9 accounts, as declared by Axis Bank include one account in the steel sector with its exposure of Rs 1,128 crore.

Besides, the power sector has 3 accounts amounting to Rs 1,685 crore as part of consortium lending while 4 accounts comprise a total of Rs 911 crore to various sectors.

As per the RBI inspection, there was a divergence of Rs 5,632.80 crore in gross NPAs of Axis Bank at the end of March 2017. Gross NPA rose to Rs 26,913.28 crore as per the assessment of RBI from Rs 21,280.48 crore reported by the bank at the end of March 2017.