Reality Check: Axis Bank’s asset quality improves

Axis Bank reported a substantial fall in slippages in the latest December quarter. This led to lower provisioning, aiding the bank’s earnings. But sustainability of asset quality performance, meaningful recovery in the bank’s core net interest income and pace of recoveries and upgrades in NPAs in the coming quarters, will be imperative for the bank to draw investor interest.

Moreover, after reporting sharp bad loan divergences pertaining to FY-17 in the September quarter to the tune of ₹4,867, steep fall in slippages in the December quarter is not altogether surprising. While the bank has indicated that the focus, going forward, will be on resolution rather than on recognition of bad loans, it needs to be seen how the pace of recoveries pans out. Also, shift in loan portfolio to better rated corporates and reset of loan rates (lower) pegged to MCLR have impacted the bank’s net interest margin (NIM).

 

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