Axis Bank more than doubles loan provisions for problem sectors

Mumbai, December 1 () The third largest private sector lender, Axis Bank, is reserving more capital, more than double the regulatory requirements, for loans in sectors that it has identified as stressed, said a senior official.

The bank maintains a standard asset provision of 1 percentage point for bad loans in these sectors, compared to the regulatory provision of 0.40 percent, said its executive director, Rajiv Anand.

The measure, which has been followed at least since April, occurs amid continuing concerns about the large amount of unprofitable assets in his book. The high level of NPA and the consequent provisioning have impacted the profits of a

Most lenders, including Axis Bank, in the last four years.

In sectors identified as high risk, we have increased standard provisioning to 100 bp compared to the 40 bp required to address any concerns, Anand said.

In April 2019, the bank revealed for the first time that it had begun to provide additional capital, but had not given the exact levels of the additional provisions or explained the sectors.

When asked if problem sectors such as real estate or non-bank financial companies (NBFC) are included in the list, Anand declined to specify the sectors that the bank identified as stressed.

We have not closed loans to any sector due to the difficulties it may be going through. In each sector, there are always solid names that are better qualified and have a strong business model, Anand made clear.

Concerns about increased capital burning due to policies such as these can be placated by ensuring that loans to a particular sector are not very high, which is decided by an internal team.

Anand said the bank has reviewed its risk assessment framework, in which the origin of the loan is separate from the subscription, and has a credit director who reports directly to the executive director.

Amid reports that his biggest rival, ICICI Bank, is closing the financing of his projects, Anand hinted that Axis Bank is also following a similar strategy.

In general, we avoid project financing and our focus is now much more towards cash flow generating companies and we look at the relationship so that we can deliver all of our group's capabilities to the customer, he said.

Anand avoided a direct response when asked if there is demand for new projects, but said he will not be able to classify loans simply as refinancing, adding that he is also experiencing a demand for working capital.

The bank aims to increase its general book between 5 and 8 percent above the system average, and that private sector banks have been obtaining a higher percentage of market share in both loans and deposits lately, while state banks are still deprived of growth capital.

In the comments that arise amid difficulties in asset quality or mergers that affect public sector banks, Anand said that more than half of the incremental liabilities are reaching private sector banks, while in Loans, participation is 75 percent much higher.

On the macroeconomic outlook, Anand is confident in the hopes of greater monetary easing and growth improvement measures presented by the government, but acknowledges that the second half will also be difficult. The rebound will be visible from the first half of fiscal year 21, he said, because growth fell to a minimum of more than six years of 4.5 percent for the September quarter. AA BEN BAL