(Bloomberg) -- Axis Bank Ltd.'s top executive warned that loans to individuals in India may sour as borrowers emerge from a repayment holiday stemming from the coronavirus pandemic.
“Slippages will emerge in the system, especially on the retail side,” Chief Executive Officer Amitabh Chaudhry said in a Bloomberg Television interview on Friday. Retail loans souring in the next couple of quarters “will be definitely higher than what the system has seen in the last eight to 10 years,” he said.
Indian banks have been grappling with swelling bad loans for years, particularly in the corporate sector. Asset quality risks on loans to businesses are likely to be contained given the massive clean-up exercise driven by the Reserve Bank of India in the last three to five years, according to Chaudhry.
“Once you have run through some of the borrowers who are struggling to pay, you will come out of the crisis in the next financial year stronger, with a better balance sheet, better portfolio and if people have the capital, the ability to lend even more,” he said.
The RBI gave a six-month repayment holiday to borrowers until August, which also allowed banks to relax bad-loan classification during the period. It replaced that with a loan restructuring program that will let banks ease lending terms for a narrower set of borrowers over the next two years. Such tweaks must be made by the end of this month.
Axis Bank raised 100 billion rupees ($1.4 billion) selling shares to institutional investors in August to absorb potential bad-loan shocks and boost growth. India's third-largest private lender has approval to raise another 50 billion rupees of equity capital and has been in talks with potential investors.
Chaudhry said the bank is ready to step up lending as the economy revives, but will remain conservative in its approach.
“It appears that we are on the way to recovery,” he said of the economy. “Though the climb might be slow, there is optimism in the air.”
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