Forget growth, Axis Bank will be happy if more borrowers don't take moratorium

• While the growth in deposits may be steady, loan growth is likely to be tepid and, like all banks, the borrowers’ ability to repay is under question.
• The key data point to monitor, therefore, will be the amount of loans where borrowers have decided to pause payments until the moratorium ends in August.
• However, HDFC Bank decided to keep the number under wraps and Axis CEO Amitabh Chaudhry may choose to do the same for now.
• Not surprisingly, investors have been very cautious with the shares of Axis Bank⁠ — the scrip has barely moved in the last one month.

There are three things that a bank needs to grow. Strong growth in deposits and borrowers, and that the money lent comes back. For Axis Bank, there are doubts on two out of the three basic necessities and that is likely to reflect in the earnings tomorrow, July 21.

To start with, the number of fresh loans for the period of April to June 2020 is expected to fall sharply ⁠— and the fall in profit maybe even sharper ⁠— but how many of these loans turn sour may be known tomorrow. One cannot say for sure because HDFC Bank decided to keep the number under wraps and Axis CEO Amitabh Chaudhry may choose to do the same for now.


So far, Axis Bank has sustained minimal damages. “Banks with relatively lower moratorium, higher contingent provision and secured retail portfolio including HDFC Bank and Axis Bank are seen reporting a steady performance,” said ICICI Securities.

But the market is not risking any more bets. The stock has hardly changed in the last month.


While the growth in deposits may be steady, loan growth is likely to be tepid and, like all banks, the borrowers’ ability to repay is under question, according to Edelweiss, due to the economic stress following the lockdown.

The provision for bad loans will also reflect the amount of risk that the bank is already factoring. Last quarter, the bank made a provision of ₹ 7730.02 crore.

In the last three months, Indian Banks, including Axis Bank, have announced aggressive cuts in the base rate that determines both lending and deposit rates, after much prodding by the Reserve Bank of India (RBI). That has reduced the cost of maintaining deposits.

ICICI Securities estimates that Axis Bank’s moratorium is lower than others at 28% putting its cost of credit at lower risk.

Axis Bank says 90% to 95% of all its loans are rated A or better. The ratings will not change until the moratorium is in place. Therefore, the number to watch out for will be how many more customers have opted for the moratorium, which has now been extended up to August 31.

SEE ALSO:
HDFC Bank is beefing up capital and provision to cushion a spike in bad loans post moratorium — and that’s helping its share price

HDFC Bank is mum on the loans under moratorium⁠— profit jumps 20%, provision for bad loans spike 49%