Source: The Times Of Economic
Axis Bank’s share dropped 2.4% on Monday, hitting an intraday low of ₹1,072.60 on BSE, following the bank’s first quarter FY26 results that were weaker than expected. The net profit of ₹5,806 crore was down 4% year-on-year, and was lower than what the market was hoping for.
The primary reason for the decline in profits was a sizable increase in provisioning for bad loans. Provisions are funds the Bank intends to use if any of the loans it has made fails. The increased provisions followed a recent review and determination by the (RBI) as to how the Bank should identify, and manage its risk regarding loans considered bad.
RBI Review Initiates Course Correction
According to CNBC-TV18, the RBI conducted a supervisory review of Axis Bank’s lending practices. During the supervisory review, according to sources the RBI found that Axis Bank’s internal policies were too lenient especially in determining non-performing assets (NPAs) in its retail and small business unsecured lending books.
Though the bank had followed official RBI rules on paper, the RBI believed regional checks at Axis Bank were insufficient and the bank did not recognize or delay their recognition of bad loans in the previous quarters.
Pursuant to RBI advice, Axis Bank modified its loan classification rules in the June quarter. The resulting effect was a significant increase in the number of loans tagged stressed or non-performing with an accompanying increase in bad loan provisions. The bank stated this correction had a “technical impact” of ₹614 crore in its quarterly profit
Effect on Investors and the Market
The news caused concerns from investors and as a consequence, the stock price declined.
Response of the Bank and Future Prospects
Axis Bank has stated that it is taking measures to improve its credit assessment systems and align its operations with best practices in risk management. Although this affects short-term profitability it believes this will aid a healthier loan book in the long term.
While some experts believe that Axis Bank will struggle with pressure in upcoming quarters as it transitions to new practices, the vast majority view this as a beneficial move that will enhance the longer-term performance and viability of the bank.
Disclaimer: The views and opinions shared by experts or third-party sources do not reflect those of this publication.
