Axis Bank sees bad loans surge on RBI move

Axis Bank Ltd, India's third-biggest private sector lender by assets, reported a surge in bad loans in the December quarter, as the Reserve Bank of India (RBI) asked lenders to reclassify some troubled loan accounts as bad loans.

The bank also said additions to bad loans would be higher than initially expected in the current quarter too.

The RBI has asked banks to treat some loan accounts as non-performing even if they haven't yet delayed payments beyond 90 days, Axis Bank said on Wednesday, declining to name the borrowers or disclose the amount involved.

The RBI has not commented specifically on the direction to lenders but has said it has been in talks with banks over the management of stressed assets. RBI Chief Raghuram Rajan said last month he expected lenders to clean up their balance sheets by March 2017.

Weaker economic growth and stretched company balance sheets have led to a rise in Indian banks' stressed loan ratio to a 13-year high.

Loans that have already been classified as bad and those rolled over, or restructured, total more than $110 billion, choking fresh lending in Asia's third-largest economy where bank loans are the primary source of funding.

"We are cautious about what's going to happen in the short term," Axis Bank finance chief Jairam Sridharan told reporters as the bank reported a nearly 15 percent rise in its quarterly profit.

During the fiscal third quarter to December, Axis Bank added bad loans worth 20.82 billion rupees, roughly half due to the reclassification of accounts as asked by the RBI, Sridharan said.

The bank expects bad loan additions in the March quarter to be a higher-than-forecast 13 billion rupees. It was now looking at a full-year credit cost of about 125 basis points compared with 80-90 basis points guided for previously, he said.

The bank's gross bad loans as a percentage of total loans rose to 1.68 percent at the end of December from 1.38 percent in the previous three months.

Axis Bank is the first major lender to report earnings for the December quarter. Bigger rivals HDFC Bank and ICICI Bank report next week, while market leader State Bank of India will report next month.

"While we are optimistic in the medium term... and hopeful that some of the green shoots that are out there will bloom in the time to come, Q4 seems too early to call the end of the more turbulent time," Sridharan said.