(Online Desk)

The banking sector could see the bad loan pile-up swell by as much as Rs 40,000 crore in the wake of the Reserve Bank of India (RBI)’s recent classification of eight consortium accounts of Axis Bank as non-performing assets (NPA).

Following the annual risk-based supervision exercise conducted for FY17, the central bank had directed certain reclassifications in the private-sector lender’s asset classification and provisioning as of March 2017.

As a result, Axis Bank had to reclassify nine standard accounts into NPAs. Of these, eight accounts are part of a consortium lending, according to the latest quarterly results announced by the bank.
As of June 2017, Axis Bank said that these nine accounts were classified as standard assets across most consortium banks, with only around six per cent of their outstanding classified as bad loans.
According to estimates, the total outstanding loan of these accounts at the end of June 2017 was about Rs 42,000 crore.

The central bank’s move has triggered fear among other consortium members about their exposure to these accounts. Experts say banks would become cautious about fresh lending to these accounts in the wake of one of the consortium lenders identifying these accounts as NPA.
Sources said that some banks may take some pro-active measures such as classifying exposure to these accounts as NPA this quarter itself rather than waiting for the second half.

Banks are already saddled with NPAs of around Rs 8 lakh crore and there seems to be no respite from the mounting bad loans as the initial second quarterly numbers posted by some banks are not encouraging.
Major contributors to the NPA mess have been power, steel, road infrastructure and textile sectors.

Sectoral distribution of the nine accounts, as declared by Axis Bank, include one account in the steel sector with its exposure of Rs 1,128 crore.

Besides, the power sector has three accounts amounting to Rs 1,685 crore as part of the consortium lending while four accounts comprise a total of Rs 911 crore to various sectors.
An RBI inspection had found that there was divergence of Rs 5,632.80 crore in gross NPAs of Axis Bank at the end of March 2017. Gross NPAs rose to Rs 26,913.28 crore as per the assessment of RBI from Rs 21,280.48 crore reported by the bank at the end of March 2017.