Oct 31, 2013, 12.38 PM IST
Bulk of the restructuring has happened over the last four-six quarters. So whatever plays out is going to play out in 2015-16 and Srinivasan Varadarajan, ED, Axis Bank believes that around 25 percent of restructured loans slipping into NPAs is something which is realistic to assume.
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25% of sector's rejigged loans can slip into NPAs: Axis Bk
Bulk of the restructuring has happened over the last four-six quarters. So whatever plays out is going to play out in 2015-16 and Srinivasan Varadarajan, ED, Axis Bank believes that around 25 percent of restructured loans slipping into NPAs is something which is realistic to assume.
Like this story, share it with millions of investors on M3
25% of sector's rejigged loans can slip into NPAs: Axis Bk
Bulk of the restructuring has happened over the last four-six quarters. So whatever plays out is going to play out in 2015-16 and Srinivasan Varadarajan, ED, Axis Bank believes that around 25 percent of restructured loans slipping into NPAs is something which is realistic to assume.
Banks have been the primary lenders over the last few months when extraordinary measures have been put in place in terms of money market conditions.
V Srinivasan
ED
Axis Bank
Also Read: S&P sees no end to banks' woes; pegs NPAs at 4.4% by Mar'15
But there is still a silver lining. Loan growth this year has been surprising on the upside, says Varadarajan. Around 18 percent credit growth is higher than what one could have anticipated in the current environment, he says.
Below is the verbatim transcript of Srinivasan Varadarajan's interview on CNBC-TV18
Q: Just to come to your sense of bad loans first, most of the private banks did not have the scare of bad loans that we had maybe two quarters ago, do you think that scare is over or can we still see something come up like power companies not being able to generate and the date of commencement now getting past one year or past two years?
A: As far as the asset quality issue is concerned again this is something, which we need to keep in mind that this phase of slow growth and slightly elevated credit cost is happening over a longer period of time and if you see whether it is public sector banks or private sector banks, costs have been more elevated than in the past for almost now four-six quarters and it looks likely that it will stay this way for the next few quarters.
So it is not that you are going to see a lot of stress happening all in a single window of one-two quarters but we have seen this phase being longer than what one had anticipated. That is how the problem is playing out as far as asset quality is concerned. So even if you look ahead, I do not think that we can say that we have seen the bottoming out on in terms of asset quality and things are going to look much better. Things are going to stay this way. The macro looks like it is improving but things are more likely to stay this way for the next few quarters.
Q: Curious about restructured loans, I get a lot of questions from international clients on this. The trend has been that restructured loans have been rising for the industry in general and there is a degree of suspicion around the governance of what exactly a restructured loan is, is it a hidden NPL, what is your perspective on this?
A: If you look at the last cycle and what we have seen even over the last couple of years, typically if you look at our track record, anywhere between 20 percent and 25 percent of restructured loans can slip into NPAs and that has been the evidence we have seen in the past. We believe around 25 percent going forward in the future is also something which can slip from restructured portfolio into non-performing assets. Our bulk of the restructuring has happened over the last four-six quarters and the seasoning on that is still too early. So whatever plays out is going to play out possibly in 2015 to 2016 and we believe that the numbers they are talking of around 25 percent of restructured slipping into NPAs is something which is realistic to assume.
Q: What about growth, ultimately India is a growth story, it is not a quality story, nobody is going to buy our banks because they have good quality assets but whether they are growing, what is the sense you are getting in terms of loan growth this year and next?
A: If you look at the loan growth this year, it is clearly surprising us on the upside. If you look at somewhere close to 18 percent year-on-year (Y-o-Y) credit growth, it is clearly higher than what one would have anticipated in the current environment. That has also been helped by a whole lot of factors such as tight liquidity and liquidity moving away from everyone else except banks. So banks have been the primary lenders over the last few months when extraordinary measures have been put in place in terms of money market conditions.
So that has caused loan growth as far as banks are concerned to see a sharp uptick and that would reverse itself to some extent as money market conditions ease but from where we thought 15 percent credit growth this year is going to be a tough ask. It looks broadly possible in the current context.
On October 31, 2013, Axis Bank closed at Rs 1222.90, up Rs 0.95, or 0.08 percent. The 52-week high of the share was Rs 1549.00 and the 52-week low was Rs 764.00.
The company's trailing 12-month (TTM) EPS was at Rs 120.92 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 10.11. The latest book value of the company is Rs 705.65 per share. At current value, the price-to-book value of the company was 1.73.
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