Concerns over watchlist of Indian private sector lender Axis Bank
Shares in Axis Bank, the third largest private sector lender in India, fell 6.86% to INR450.50 ($6.61) on 20 January on the back of weak operational performance and asset quality which led to lower-than-expected earnings. Axis Bank's net profit for Q3 2016 came in at INR579.57 crore ($85.1m), down 73% YoY and well below the expected INR830.30 crore forecast by Bloomberg's analyst poll. It is highlighted that INR2,580 crore of the INR4,560 crore slippages were on the watchlist disclosed by the bank, in stressed sectors including iron and steel, textiles and infraconstruction. 

Mumbai: Shares of Axis Bank Ltd on Friday closed down 6.86%—steepest fall in over two months after the bank on Thursday reported lower-than-expected earnings on weak operational performance and asset quality.

The stock declined by 6.86%— its biggest fall since 9 November 2016 and touched a low of Rs450.50 a share.

At 9.40am, Axis Bank was trading at Rs456 on BSE—down 5.7% from previous close, while India’s benchmark Sensex Index fell 0.4% to 27212.23 points.

However, the stock closed down 6.86% at Rs450.50 against the previous session’s closing of Rs483.70.

Net profit for the quarter stood at Rs579.57 crore—down 73% from Rs2,175.30 crore a year ago.

A Bloomberg poll of 22 analysts had forecast a net profit of Rs830.30 crore.

The bank reported Rs4,560 crore slippages of which Rs2,580 crore was from the watchlist while Rs1,980 crore was outside the watchlist against Rs1,480 crore in the second quarter. Total corporate slippages were at Rs3,680 crore of which Rs1, 100 crore were outside the watchlist.

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“This clearly was a negative surprise, especially given the fact that 70% of the slippages came from stressed sectors like iron & steel, infraconstruction and textiles. This clearly reduces the faith on the watchlist that the bank had disclosed, as the same sectors are contributing towards slippages outside of watchlist as well", brokerage firm Nomura said in a note to its investors.

The fact that the non-watchlist slippages were legacy corporate accounts, which the bank should have ideally identified and provided earlier, indicates a serious misstep. The watchlist consists of only corporate accounts and leaves out SME (small and medium enterprises) loans and retail loans.

Here too, the slippages are ticking up, with those in SME loans climbing sequentially to Rs382 crore, Mint reported.

“We note that almost the entire decline in watch list since its constitution has happened by way of slippages which indicates that slippages are going to remain elevated as the bank gets rid of the remaining watchlist. Slippages outside the watchlist also picked up during the quarter," said Antique Stock Broking firm in a note to its investors.

Provisions and contingencies rose 4.78% from a quarter ago to Rs3,795.80 crore while on a year-on-year basis, they surged 433%.

Net interest income (NII), or the core income a bank earns by giving loans, increased just 4.12%

“We lower earnings estimates for financial year 17-19 by 14-18% largely on the back of higher credit costs, although the impact on adjusted book value of equity per share is limited due to the rise in the non performing loan coverage ratio. We expect earnings to decline in FY17 and normalize thereafter," CLSA report said.