Bank Report

Axis Bank’s quarterly results show India’s bad loans problem is worse than banks are letting on

Banks have been massively under-reporting their non-performing assets even as they continue to pile up.

India’s bad loans problem is getting worse but banks are reluctant to even acknowledge it in their quarterly results. Take Axis Bank, one of the country’s major private lenders. According to its latest results released on October 17, the bank’s earnings rose 35.5% year-on-year, yet its gross non-performing assets grew to Rs 27,402 crore in the July-September quarter from Rs 22,031 crore in April-June 2017. Two years ago, its NPAs were only about Rs 4,451 crore.

The bank’s NPA ratio rose to 5.9% in July-September from 5.03% in the preceding quarter. That is, 5.9% of the total money lent by the bank is now bad debt.

A non-performing asset for a financial institution includes loans that may not be repaid, or whose principal or interest amount is not paid on time.

Axis Bank further reported that there was a difference of over Rs 5,600 crore in its calculation of its bad loans and the Reserve Bank of India’s. This is worrying as it means banks are not disclosing their full exposure to stressed assets in their quarterly results.

“In many cases, banks continue the practice of ‘extend and pretend’ – they advance loans to defaulters, sometimes for working capital, sometimes to the company’s subsidiary and sometimes to the company to service the old debt or interest payments thereon,” said Radhika Pandey, a consultant at the National Institute of Public Finance and Policy.

It is only when the Reserve Bank audits such banks that this practice comes to light, Pandey added. In Axis Bank’s case, the audit found it had under-reported its gross non-performing assets by Rs 5,632 crore in the financial year ended March 31, 2017. Accounting for this, Axis Bank’s profit for 2016-17 falls by as much as 31%. Indeed, the bank said in a statement this week, it has “duly recorded the impact of such reclassifications in the results” for the quarter ended September 30.

Although Axis Bank did not name its defaulters, it mentioned that nine of its NPA accounts were held by a consortium of banks that owe it Rs 4,867 crore. “According to the Axis management, only 6% of this account is classified as stressed,” Anil Gupta, vice president of the credit rating agency ICRA, pointed out. “As and when asset quality check happens in other banks by the RBI, this account will come up and push the divergence numbers upwards.”

This is not the first time the Reserve Bank has found banks under-reporting NPAs. In March this year, the central bank estimated that IDBI Bank, a public lender, had underestimated its gross NPAs for 2016-17 by Rs 6,816 crore. For the same year, the privately-owned YES Bank under-reported its NPAs by Rs 4,176 crore – the bank had stated its gross NPAs stood at Rs 748.98 crore as on March 2016 but it turned out the actual sum was more than five times higher at Rs 4,925.68 crore. Axis Bank similarly underestimated its NPAs by 155.7% while ICICI Bank under-reported by 19.5%.

Together, in the financial year ended March 2017, Indian banks under-reported their non-performing assets by Rs 44,463 crore, according to Gupta.

“We were hopeful that after a year of huge divergences being reported by all major banks, we won’t see divergence this time around but it is a surprise that banks and the RBI still differ on how they classify assets [loans],” he said.

Worse to come

In its results, Axis Bank said it is maintaining a “watch list” of loans worth Rs 6,052 crore that are at the risk of turning bad. At the start of this year, the bank had identified loans worth Rs 22,628 crore that were at risk. Of those, loans worth Rs 19,340 crore have turned bad so far, according to BloombergQuint, suggesting that the recovery rate is low.

ICRA has estimated bad loans to touch a high of Rs 8.8 lakh crore to Rs 9 lakh crore by March 2018 and the gross NPA ratio across banks to cross 10%. “As the RBI also said in its Financial Stability Report, the worst is yet to come,” Gupta said. “Bad loans have just started getting revealed and in a slowing economy, the situation can get much worse than it is right now.”

In the Financial Stability Report published in June, the Reserve Bank estimated that the average gross NPA ratio of all scheduled commercial banks could rise from 9.6% in March 2017 to 10.2% by March 2018.

We welcome your comments at letters@scroll.in.
Sponsored Content BY 

Virat Kohli and Ola come together to improve Delhi's air quality

The onus of curbing air-pollution is on citizens as well

A recent study by The Lancet Journal revealed that outdoor pollution was responsible for 6% of the total disease burden in India in 2016. As a thick smog hangs low over Delhi, leaving its residents gasping for air, the pressure is on the government to implement SOS measures to curb the issue as well as introduce long-term measures to improve the air quality of the state. Other major cities like Mumbai, Pune and Kolkata should also acknowledge the gravitas of the situation.

The urgency of the air-pollution crisis in the country’s capital is being reflected on social media as well. A recent tweet by Virat Kohli, Captain of the Indian Cricket Team, urged his fans to do their bit in helping the city fight pollution. Along with the tweet, Kohli shared a video in which he emphasized that curbing pollution is everyone’s responsibility. Apart from advocating collective effort, Virat Kohli’s tweet also urged people to use buses, metros and Ola share to help reduce the number of vehicles on the road.

In the spirit of sharing the responsibility, ride sharing app Ola responded with the following tweet.

To demonstrate its commitment to fight the problem of vehicular pollution and congestion, Ola is launching #ShareWednesdays : For every ​new user who switches to #OlaShare in Delhi, their ride will be free. The offer by Ola that encourages people to share resources serves as an example of mobility solutions that can reduce the damage done by vehicular pollution. This is the fourth leg of Ola’s year-long campaign, #FarakPadtaHai, to raise awareness for congestion and pollution issues and encourage the uptake of shared mobility.

In 2016, WHO disclosed 10 Indian cities that made it on the list of worlds’ most polluted. The situation necessitates us to draw from experiences and best practices around the world to keep a check on air-pollution. For instance, a system of congestion fees which drivers have to pay when entering central urban areas was introduced in Singapore, Oslo and London and has been effective in reducing vehicular-pollution. The concept of “high occupancy vehicle” or car-pool lane, implemented extensively across the US, functions on the principle of moving more people in fewer cars, thereby reducing congestion. The use of public transport to reduce air-pollution is another widely accepted solution resulting in fewer vehicles on the road. Many communities across the world are embracing a culture of sustainable transportation by investing in bike lanes and maintenance of public transport. Even large corporations are doing their bit to reduce vehicular pollution. For instance, as a participant of the Voluntary Traffic Demand Management project in Beijing, Lenovo encourages its employees to adopt green commuting like biking, carpooling or even working from home. 18 companies in Sao Paulo executed a pilot program aimed at reducing congestion by helping people explore options such as staggering their hours, telecommuting or carpooling. After the pilot, drive-alone rates dropped from 45-51% to 27-35%.

It’s the government’s responsibility to ensure that the growth of a country doesn’t compromise the natural environment that sustains it, however, a substantial amount of responsibility also lies on each citizen to lead an environment-friendly lifestyle. Simple lifestyle changes such as being cautious about usage of electricity, using public transport, or choosing locally sourced food can help reduce your carbon footprint, the collective impact of which is great for the environment.

Ola is committed to reducing the impact of vehicular pollution on the environment by enabling and encouraging shared rides and greener mobility. They have also created flat fare zones across Delhi-NCR on Ola Share to make more environment friendly shared rides also more pocket-friendly. To ensure a larger impact, the company also took up initiatives with City Traffic Police departments, colleges, corporate parks and metro rail stations.

Join the fight against air-pollution by using the hashtag #FarakPadtaHai and download Ola to share your next ride.

This article was produced by the Scroll marketing team on behalf of Ola and not by the Scroll editorial team.