Axis Bank's Q4 loss reflects rise in systemic risks in banking sector: S&P

Rating agency Standard and Poor’s (S&P) said today that private sector lender Axis Bank Ltd's results for the year ended March 31, 2020, underscore high levels of stress and uncertainty across the Indian banking system. Lender reported loss of Rs 1,400 crore in the fourth quarter as bank made a higher provision for bad loans including those relating to Covid-19 pandemic.  

Axis' credit costs for the quarter ended March 31, 2020 are higher than anticipated, but some of it is precautionary. Prudent provisioning will certainly help the bank take care of future credit costs, S&P said.

Axis identified that more than 10% of its customers (25% of its loan book by value) as at April 25, 2020, availed a payment moratorium.

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. “We will compare the proportion of customers availing the moratorium to see if Axis is an outlier to peers”, it added.

The negative outlook on Axis (BBB-/Negative/A-3) reflects 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 capitalization over the next 18 months”, S&P said.

The systemic pressures for Indian banks could rise owing to the recently announced extension of the nationwide lockdown to check the Covid-19 spread.

The Reserve Bank of India's (RBI) open market operations and targeted longer-term refinancing operations, the government's Rs 1.7 trillion aid package for the poor, and the relaxation of lockdown restriction in some districts could temper economic risks. A potential increase in the duration of the loan moratorium could also help borrowers suffering from temporary liquidity issues.