Axis Bank laggard, non-prudent in recognising NPAs: Moody's

Mumbai: Days after the third largest private sector lender reported a sharp rise in dud loans, global ratings agency Moody's on Thursday blamed Axis Bank for being a "laggard" and non-prudent in recognising asset quality stress and termed it as a credit negative.

"We believe that the bank has been laggard in recognising its asset quality problems, a credit negative for its credit quality," it said in a note.

At its earnings update on October 17, Axis Bank, which is rated Baa3 with a stable outlook by Moodys, reported a 24 per cent quarter-on-quarter increase in NPAs driven largely by a Rs 8,100-crore fresh slippages in the corporate front. Because of the lower base, it could report a 36 per cent surge in profits as compared to the year ago period.

The bank expanded its credit costs guidance, which denotes a jump in provisions it expects, by 0.35 per cent and also said that it will take at least two more quarters for things to normalise on asset quality front.

"The extent of deterioration in the bank's asset quality over the next 12-18 months may be more than what we previously expected," Moody's warned on Thursday.

It said only half of the nine accounts identified by the RBI for "divergence" find a mention in the bank's "watchlist" of accounts that can slip into NPA.

Moreover, there is also a trend of continuing material downgrades below investment-grade in its loan book, it said.

"The bank has not been prudent in identifying the extent of its asset-quality issues," it said.

Elaborating on the non-prudence, the rating agency said bulk of exposures in the below-investment-grade category are to sectors such as power, iron and steel, construction and roads, which are largely legacy issues, and not caused by recent developments.

"Hence, the continued high rate of downgrades into the below-investment-grade category is a delayed recognition of existing credit issues," it said.

It said Rs 2,300 crore of loans got migrated to below investment grade in the September quarter and 3.9 per cent of the loan book is now to the below investment grade category of borrowers.

This 3.9 per cent of the loan book is double that of the watchlist which narrowed down to Rs 6,000 crore as of September from the Rs 22,000 crore on March 2016.

"On average over the past five quarters, around 17 per cent of the outstanding below-investment-grade loans at the beginning of the quarter became NPAs during the quarter," it added.

The Axis Bank scrip was trading 2.37 per cent up at Rs 483.90 a piece on the BSE at 1336 hrs, as against a 0.09 per cent gains on the benchmark.