Global rating agency Standard and Poor’s on Tuesday said the fourth quarter and annual results posted by Axis Bank reflect rising risks in the country’s banking system.
“Axis Bank’s results for the year ended March 31, 2020, underscore high levels of stress and uncertainty across the Indian banking system,” S&P Global Ratings said in a statement.
The private sector lender had, on April 28, reported a standalone net loss of ₹1,387.78 crore for the fourth quarter of 2019-20 as against a net profit of ₹1,505.06 crore in the same period a year ago.
For the whole of 2019-20, its net profit stood at ₹1,627 crore versus ₹4,677 crore in 2018-19.
“Axis’ credit costs for the quarter ended March 31, 2020, are higher than we anticipated, but some of it is precautionary, in our view,” S&P said, adding that it expects the bank to maintain its strong market position and adequate capitalisation over the next 18 months.
“Large unanticipated asset quality shocks could result in a downgrade of the bank,” it warned, adding that such a situation could arise if Axis’ stressed assets rise significantly beyond the system average or economic risks in India rise sufficiently for a downward revision of its Banking Industry Country Risk Assessment on the country.
S&P had, on April 17, revised the rating outlook on Axis Bank and ICICI Bank to negative from stable.
“The negative outlook on Axis (BBB-/Negative/A-3) reflects our view that the economic risks for the bank, and the Indian economy at large, remain high,” it said.
More stimulus measures needed
It further noted that systemic pressures for Indian banks could rise owing to the recently announced extension of the nationwide lockdown to check Covid-19 spread, adding that recent measures by the Reserve Bank of India, like open market operations and targeted longer-term refinancing operations as well as the government’s stimulus package, could temper economic risks.
The agency said that a potential increase in the duration of the loan moratorium could also help borrowers suffering from temporary liquidity issues. It also said the government could introduce additional fiscal stimulus measures, which could be broader in scale relative to efforts so far.