Axis Bank Q1 Profit Slumps Due to Rs 614 Crore

 

Axis Bank Q1 Profit Slumps Due to Rs 614 Crore "Technical" Loan Rule Shift

Mumbai, July 18, 2025: Axis Bank reported a significant dent in its first-quarter (Q1) profitability, attributing the miss primarily to a one-time "technical" adjustment in how it identifies bad loans. This stricter approach led to higher reported loan slippages and a direct Rs 614 crore hit to net profit.

ALSO READ S. Korea Floods: 2 Dead, 1,000 Evacuated

The "Technical" Hit Explained

Management, led by CFO Puneet Sharma, clarified that the impact stemmed from a fundamental change in applying qualitative parameters for recognizing loan upgrades, particularly concerning Cash Credit (CC), Overdraft (OD), and accounts undergoing One-Time Settlement (OTS).

ALSO READ Heart Attack Panic Sweeps India

Sharma simplified the change using an example:

Scenario: Customer X has a Rs 100 personal loan, already 5 days overdue. The bank offers an OTS: three installments of Rs 30, with a 90-day moratorium before payments start.

Old Practice: During the moratorium, the Days-Past-Due (DPD) counter continued rising (reaching 95 days). When X paid the first Rs 30 installment after the moratorium, the DPD reset to zero. The account would immediately be upgraded to "standard" or "good" status.

ALSO READ India's Silent Struggle Dysthymia Crisis Deepens

New Stricter Practice: Even after the DPD resets to zero following the first payment, the bank no longer automatically upgrades the account. Instead, it keeps the account classified as a non-performing asset (NPA) until:

All OTS installments are fully paid.

Additional qualitative checks are satisfied.

The Impact: Higher Slippages, Lower Profits

This shift from relying solely on the DPD counter reset to applying stricter, ongoing qualitative assessments meant more accounts remained classified as bad loans during the quarter.

ALSO READ UK Welcomes First 3-Parent IVF Babies

Slippages Surge: Reported gross slippages for Q1 reached Rs 8,200 crore. Crucially, approximately Rs 2,709 crore of this was directly due to the new technical parameters. Without this adjustment, slippages would have been Rs 5,491 crore.

Profitability Hit: The adjustment had a substantial bottom-line impact:

Reduced Profit After Tax (PAT) by Rs 614 crore.
Lowered Return on Assets (RoA) by 15 basis points.
Pulled down Return on Equity (RoE) by 140 basis points.

ALSO READ Jio BlackRock Shakes Up MF Market

Management's Rationale

Axis Bank stated this change reflects a more conservative and prudent approach to loan classification. The focus is now on the actual quality of repayment and honoring the full settlement terms, rather than just the technical resetting of the overdue counter after a single payment.

"This is one example. The criteria changes across multiple examples," CFO Sharma noted during the results call, indicating the adjustment was broader than just OTS cases, though specific details on all changes weren't disclosed.

ALSO READ Paytm Soars Past ₹1k on MSCI Hopes, Profit Bets

While this "technical" adjustment significantly impacted Q1 figures, Axis Bank emphasizes it's a one-time phenomenon related to the change in recognition methodology. The bank expects this stricter framework to provide a more realistic picture of asset quality going forward. Investors will be watching closely to see if underlying asset quality trends, excluding this technical impact, show sustained improvement in the coming quarters.

Disclaimer: The content on PulseNext is for informational purposes only and not investment advice. Stock market investments carry risks, including loss of capital. Always do your own research or consult a financial advisor before investing.