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NPA woes: Axis Bank results show banks not out of the woods yet

Axis Bank shares fell 8%, their biggest 1-day fall since Aug 24, 2015, while traders sold the stock in the Nov futures anticipating a further slide in the price.

Updated: Oct 27, 2016, 07.54 AM IST
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Axis was the worst performer on the BSE Sensex and dragged its private sector peer ICICI Bank with it.
Axis was the worst performer on the BSE Sensex and dragged its private sector peer ICICI Bank with it.
Mumbai: Despite predictions to the contrary , the Indian banking sector is nowhere close to a recovery as analysts predict a difficult second half of the year because of a rise in nonperforming assets (NPAs).

On Tuesday, private sector lender Axis Bank surprised by adding Rs 8,772 crore of NPAs to its bad loan book after Rs 7,288 crore of the so-called watch list accounts, pushing gross NPAs to 4.17% of its loan book, up from 1.38% last year. Watch list accounts are `22,628 crore worth of loans, 60% of which the bank had predicted will slip into NPAs.

“These results have shocked the street. It was worse than what everyone expected. It means that the problems for the sector have not ended, especially for banks with large corporate exposures like Axis, ICICI and SBI," said S Ranganathan, head of research at LKP Securities.

Axis Bank shares fell 8% on Wednesday, their biggest one-day fall since August 24, 2015, while traders sold the stock in the November futures anticipating a further slide in the price.

Axis was the worst performer on the BSE Sensex and dragged its private sector peer ICICI Bank with it. ICICI, which also has a large corporate book, lost 3.6% while the 10-share BSE Bankex ended nearly 2% lower.

Brokerages took stern action with Macquarie Securities and Jefferies reducing their price target for the stock while Reliance Securities and CLSA asking investors to sell their holding. “On the ground, reality is different from what the markets are implying... This is a reality check...the management clarified that assets this cycle are all large exposures, so it's getting tough to resolve them as is sues are complex and, more importantly , we aren't finding buyers for the assets...therefore loss given defaults this cycle are expected to remain high,“ Macquarie analyst Suresh Ganapathy said on Wednesday in a note titled Where is the Recovery? Besides the fact that NPAs rose, investors have also taken a dim view of the bank's change in guidance. “The expectation now is that close to 80% of the watch list loans cloud slip into NPAs, which is higher than the 60% guidance given earlier. It means that the next two quarters are likely to be tricky and we could see more pain going ahead,“ said Vaibhav Agrawal, head of research at Angel Broking.

Analysts have also pointed out that Axis CEO Shikha Sharma sold 3.5 lakh shares of the bank between July and September for Rs 20.4 crore, ahead of the poor results of the bank. Sharma also bought 2.5 lakh shares in the same period worth Rs 14.5 crore, making a profit of around `6 crore in the period.

Replying to an email query, an Axis Bank spokesperson said, “The sale of the mentioned 3.5 lakh shares has been done in the normal course and the relevant disclosures as required have also been made to the exchanges. The proceeds from the sale of the shares have been used for exercising stock options granted to her by the bank".

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