The Axis Bank stock has underperformed the benchmark substantially in the past year, rising 3% versus a 12.8% increase in the Nifty.

Shikha Sharma’s exit, NPA resolution could bring Axis into play.

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The Axis Bank stock has underperformed the benchmark substantially in the past year, rising 3% versus a 12.8% increase in the Nifty.

There has been plenty of talk around the stock: Rumours of being acquired by a rival, mounting pressure on asset quality culminating in asset quality divergence highlighted by RBI, a successful capital raising and, finally, the early exit of high-profile CEO Shikha Sharma. So the question arises, how should investors read these conflicting signals in the current volatile environment of Indian banking?

 

Asset quality woes could be bottoming out.

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Asset quality woes will linger on for a couple of more quarters especially after the February 12 RBI circular that closed the door on all existing categorisation of standard stressed assets. For large accounts with aggregate exposure of over Rs 2,000 crore, the failure to resolve within 180 days from March 1 would warrant taking the cases to the Insolvency and Bankruptcy Code (IBC) as well.

Axis that saw its gross non performing assets

FY17 was a difficult year for Axis that saw its gross non performing assets (NPAs) rise from 1.67% to 5.04% with a gross slippage of Rs 21,781 crore. The moderation of slippage in the first quarter of FY18 was followed by gross slippage climbing in the second quarter thanks to the asset quality divergence pointed out by Reserve Bank of India (RBI).

Image result for axis.bank image

FY17 was a difficult year for Axis that saw its gross non performing assets (NPAs) rise from 1.67% to 5.04% with a gross slippage of Rs 21,781 crore. The moderation of slippage in the first quarter of FY18 was followed by gross slippage climbing in the second quarter thanks to the asset quality divergence pointed out by Reserve Bank of India (RBI).

While gross and net NPA stood at 5.28% and 2.56%, respectively, at the end of December 2018, we feel the pain is not yet over.

 

 

 

 

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