Axis Bank expects more bad loans in FY17 as Q4 profit falls

MUMBAI (Reuters) - Axis Bank Ltd, India's third-biggest private sector lender by assets, said it expected bad loans to rise in the current financial year and credit costs to be sharply higher, after reporting a fall in fourth-quarter profit.

Indian banks' bad loans have surged in the past six months after an asset quality review ordered by the central bank as part of a clean-up exercise.

Mumbai-based Axis Bank expects more bad loans in the financial year that began in April, finance chief Jairam Sridharan said, although he expected "some remission" towards the end of the year.

The bank's credit cost could increase to 125 basis points in 2016/17 financial year from 111 basis points in the last financial year, Sridharan said, adding in the worst case credit cost for the current financial year could be as high as 150 basis points.

"Our outlook with respect to asset quality...continues to remain cautious," he said on a conference call.

Axis Bank has prepared a "watch list" of about 226 billion rupees worth of loans, or 4 percent of its assets, that could potentially become troubled, the bank said separately in an investor presentation.

It expects 60 percent of those loan accounts to become bad loans over the next eight quarters, the bank said.

Axis Bank's net profit fell 1.2 percent from a year earlier to 21.54 billion rupees ($324 million) for its fiscal fourth quarter to March 31, missing analysts' estimates of 24.19 billion rupees.

The bank added 14.74 billion rupees in new bad loans in the fourth quarter, although gross bad loans as a percentage of total loans were little changed from the previous three months at 1.67 percent.

IDFC Bank, one of India's two newest banks, on Tuesday reported net profit of 1.65 billion rupees for the three months to March. Its gross bad loans ratio widened to 6.16 percent from 3.09 percent in the December quarter.

($1 = 66.4295 Indian rupees)

(Reporting by Devidutta Tripathy; editing by Susan Thomas)