Axis Bank Tweaks NPA Policy After RBI Flags Lapses

The Reserve Bank of India asked Axis Bank to tighten its non-performing asset management policy, after identifying gaps, according to people familiar with the matter.

The gaps were found in classification and upgradation of accounts belonging to vulnerable sectors such as small businesses and unsecured retail loans. According to the people quoted above, the accounts which showed consistent signs of weakness were not always being classified as NPA, because some dues were being repaid.

Axis Bank had been using a liberal interpretation of existing norms, the people said. Following the RBI’s intervention, the bank made changes to its policy in the June quarter. The regulator had asked the lender to complete all corrections within the quarter, the people said.

During its annual supervisory review between July and September, RBI will review the changes Axis Bank has made and will determine if they are enough to cover any gaps in norms, the people said.

Queries mailed to Axis Bank were not immediately responded to.

The regulator intends to take away any discretion in asset quality management and wants banks to follow rules in black and white, the people quoted above said.

Speaking to reporters on Thursday, Axis Bank CFO Puneet Sharma had said that the RBI had not "triggered" the policy changes at the bank. While talking to analysts later, Sharma said that Axis Bank had become the most prudent bank on the street, after the changes.

NDTV Profit had previously reported that Axis Bank had tightened certain aspects of accounting standards for cash credit, overdraft and one time settlement accounts. This had led to a sharp increase in bad loans.

The bank's gross slippages rose to Rs 8,200 crore in Q1. It also saw a net profit impact of Rs 614 crore. Axis Bank’s return on assets and return on equity fell due to the changes.

The RBI is expected to review the revised policy during its annual supervisory checks in the July–September quarter, the people said.