New NPA framework not to cut Axis Bank too deep, says chief Shikha Sharma
Banks are already bleeding due to the systemic clean-up of their books undertaken by RBI over the past three years and the newer accounting system may only aggravate the pains.
Axis Bank chief Shikha Sharma has said the new NPA resolution framework issued by RBI came as a surprise, but sought to downplay its impact on the bank as it would have anyways made higher provisions under the new accounting norms.
The third largest private sector lender had already factored in higher bad assets recognition and the resultant provisions due to migration to the Indian Accounting Standards (IndAS), the newer accounting system due from April 1, and therefore, it will be able to support credit growth even after setting aside more money, Sharma said.
"Transition would have involved some hit to our capital. Some of that is already going to happen because of this (RBI circular). Actually, the transition to the IndAS becomes easier because a part of that pain is already factored in," she said.
She referred to her bank's recent announcement of raising over Rs 10,000 crore in core equity from Bain Capital and others and said the impact of migration to Ind-AS from the present accounting system was factored-in during the infusion.
"When we raised the capital, we had sized it for IndAs and for growth. Instead of the impact coming through under this new regime, a large part will come through this and we still have capital for growth," she said.
Following the RBI measure on Monday, analysts warned of more pains on the provisioning front for banks as a greater quantum of assets will have to be recognised as non-performing ones, and resolved in a time-bound manner through National Company Law Tribunals through resolution plans.
Some analysts warned that the move will result in an additional capital of up to Rs 2 trillion just to cover for the provisions. And mover 80 per cent of this higher additional capital need will be from the public sector banks.
Banks are already bleeding due to the systemic clean-up of their books undertaken by RBI over the past three years and the newer accounting system may only aggravate the pains.
Asked if it will aggravate bad loans pains, she said it will "accelerate" the provisioning requirements which would have had anyways come in with the migration to the IndAS.
The RBI expects provisions for the banking system to rise 30 per cent with the switch to IndAS, which converges with the International Financial Reporting Standards (IFRS).
Rating agency Icra has warned that this would take the overall NPAs at the system level to over 16.5 per cent from the projected 10 per cent by March.
Sharma refused to quantify the impact on provisioning because of either IndAS implementation or the revised bad loan resolution norms.
When asked if she was surprised by the RBI move late Monday, Sharma admitted that she was not expecting it but added that the RBI might have done it because of the failure of the existing dispensations like asset restructuring in resolving the underlying stress.
"They (RBI) probably feel that you have given dispensations and if those have not achieved the purpose, then let's move to a simple regime...they have tightened the regulation on the belief that early recognition and early action is probably in the best interest of banks and the underlined assets," she said, adding this is good in the long-term for the system.
It has also been a result of the confidence in the "transformational" institution of the National Company Law Tribunal, which will be handling these cases, she said.
It can be noted that in a surprise move, the Reserve Bank had on Monday abolished half-a-dozen existing loan-restructuring mechanisms and provided a strict 180-day timeline for banks to agree on a resolution plan in case of a default or else refer the account for bankruptcy.
Under the new rules, insolvency proceedings would have to be initiated in case of a loan of Rs 2,000 crore or more if a resolution plan is not implemented within 180 days of the default. Banks will face penalties in case of failure to comply with the guidelines.
The RBI has withdrawn the existing mechanism such as corporate debt restructuring, strategic debt restructuring and scheme for sustainable structuring of stressed assets. It also abolished the joint lenders forum as an institutional mechanism for resolution of stressed accounts.
"All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework," the RBI had said, adding going forward, banks must report defaults on a weekly basis in the case of borrowers with over Rs 5 crore of loan.