Axis Bank Ltd reported an 83 percent dip in second-quarter net profit, owing to a sharp rise in bad loans. This incident provides more evidence of how India’s banks are struggling to cope with a $138 billion distressed loan burden. State banks account for the bulk of the troubled loans, while among the private sector banks, ICICI Bank and Axis Bank account for the biggest chunk. The bad loans are mainly due to corporate loan defaulters.
Axis Bank said its bad loans increased to 4.17 percent of total loans as on September – end from 2.54 percent in June, this year. Axis bank had previously prepared a ‘watch list´ in which companies who were unlikely to repay the loan were listed. The total loan given to all the companies in the watch list amounts to Rs. 720 crores. “This quarter (the second quarter), all the companies in the watch list turned to non – performing assets”, Axis bank’s CFO, Jairam Sridharan told. Its net profit has come down to Rs. 30 crores, for the three months till September 30th, when compared to its net profit of Rs. 160 crores last year. The bank will raise provisions in the second half of the fiscal year, keeping credit costs high for the fiscal year till March. But Mr. Sridharan saw the current year as the ‘likely peak‘ for bad assets.
By comparison, Axis bank’s rival, HDFC Bank Ltd, which is more focused towards retail clients, said second-quarter profits rose by about a fifth to Rs. 3,400 crores. Its bad loans reduced sharply from the previous quarter. Kotak Mahindra Bank, the fourth-biggest private sector bank in India by assets, said its second – quarter net profits increased by 43 percent to Rs. 813 crores. Its bad loans also reduced to 2.4 percent in September – end from 2.5 percent in June this year.
The banking business is a very risky business indeed where people or banks can either succeed immensely or suffer heavy loses. While it’s true that banks need to think twice and do a thousand checks before giving loans, it’s also true that there is no guarantee that a company which has taken a loan will succeed because business demands, environment and trends change continuously. The government of India needs to give financial backup or financial security and recognition or awards to banks which come forward to give distress loans so that other banks get encouraged and follow suite. Read more on Startups