Axis Bank shares came under selloff pressure on Wednesday, following the private lender's warning about higher bad loans in FY17. Shares of other big lenders - ICICI Bank and State Bank of India - were also hit as asset quality fears returned back to haunt investors. Banking shares have been under pressure over the last two quarters, after an RBI-mandated asset quality review led to a surge in bad loans. It now seems that the problem will linger for longer than earlier estimates, traders said.
Here are 10 things to know about Axis Bank's Q4:
1) Axis Bank's new bad loans increased by Rs 1,474 crore in the March quarter, but gross non-performing assets (as a percentage of total loans) were nearly flat at 1.7 per cent on a sequential basis in Q4.
2) In a surprise move, India's third largest lender by assets put corporate loans worth about Rs 22,600 crore under a "watch list", saying 60 per cent of these loans (or Rs 13,560 crore) could turn bad (non-performing) in two years. Half of the slippages could come between April-September 2017.
3) Around 50 per cent of Axis Bank's stressed loans under watch are in iron and steel and power sectors; most of the loans in the watch list were likely sanctioned in FY10-FY12.
4) The loans under Axis Bank's "watch list" account for just 13 per cent of its corporate loans and 4 per cent of its overall loan portfolio. However, as these loans become non-performing, Axis Bank will have to provide for them, which will impact credit cost.
5) Axis Bank expects its credit cost to rise to 125 basis points in FY17 from 111 basis points in FY16. In worst case scenario, credit cost could rise to 150 basis points.
6) The overall slippages, from corporate loans not under watch and small and medium enterprise (SME) and retail segments, could be much higher. According to Nirmal Bang Securities, Rs 16,000 crore of loans could turn bad over the next two years. In FY16, loan slippages stood at Rs 5,300 crore.
7) Axis Bank's performance in FY17 would be extremely weak, said Kotak Institutional Equities. "We do not see earnings growth for the first time in the past two decades," the brokerage added.
8) Kotak said portfolios of the large three private banks are likely to remain broadly similar over the next few years with the exception of HDFC Bank, which does not have a large exposure to housing loans.
9) Axis Bank, which had come in for criticism about is disclosure norms last year, was praised by analysts for the early warning about potential bad loans.
10) Most brokerages remained positive on Axis Bank despite the stressed loan warning. Nirmal Bang Securities retained its "accumulate" rating on Axis Bank (price target of Rs 470). Kotak also maintained its "buy" rating on the stock (target Rs 530). However, Religare maintained its "sell" rating (target Rs 415) on the stock, saying asset quality would be a key overhang on Axis Bank.
Axis Bank shares closed 3 per cent lower at Rs 465.50, underperforming the broader Nifty, which closed 0.22 per cent higher.
Here are 10 things to know about Axis Bank's Q4:
1) Axis Bank's new bad loans increased by Rs 1,474 crore in the March quarter, but gross non-performing assets (as a percentage of total loans) were nearly flat at 1.7 per cent on a sequential basis in Q4.
2) In a surprise move, India's third largest lender by assets put corporate loans worth about Rs 22,600 crore under a "watch list", saying 60 per cent of these loans (or Rs 13,560 crore) could turn bad (non-performing) in two years. Half of the slippages could come between April-September 2017.
3) Around 50 per cent of Axis Bank's stressed loans under watch are in iron and steel and power sectors; most of the loans in the watch list were likely sanctioned in FY10-FY12.
4) The loans under Axis Bank's "watch list" account for just 13 per cent of its corporate loans and 4 per cent of its overall loan portfolio. However, as these loans become non-performing, Axis Bank will have to provide for them, which will impact credit cost.
5) Axis Bank expects its credit cost to rise to 125 basis points in FY17 from 111 basis points in FY16. In worst case scenario, credit cost could rise to 150 basis points.
6) The overall slippages, from corporate loans not under watch and small and medium enterprise (SME) and retail segments, could be much higher. According to Nirmal Bang Securities, Rs 16,000 crore of loans could turn bad over the next two years. In FY16, loan slippages stood at Rs 5,300 crore.
7) Axis Bank's performance in FY17 would be extremely weak, said Kotak Institutional Equities. "We do not see earnings growth for the first time in the past two decades," the brokerage added.
8) Kotak said portfolios of the large three private banks are likely to remain broadly similar over the next few years with the exception of HDFC Bank, which does not have a large exposure to housing loans.
9) Axis Bank, which had come in for criticism about is disclosure norms last year, was praised by analysts for the early warning about potential bad loans.
10) Most brokerages remained positive on Axis Bank despite the stressed loan warning. Nirmal Bang Securities retained its "accumulate" rating on Axis Bank (price target of Rs 470). Kotak also maintained its "buy" rating on the stock (target Rs 530). However, Religare maintained its "sell" rating (target Rs 415) on the stock, saying asset quality would be a key overhang on Axis Bank.
Axis Bank shares closed 3 per cent lower at Rs 465.50, underperforming the broader Nifty, which closed 0.22 per cent higher.
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