Axis Bank Will Start Recovering Home Loan Dues From Credit Card Defaulters With This Strategy

The country’s third-largest private sector bank, Axis Bank said that they will classify home loans of credit card defaulters as non-performing loans. 

While giving the explanation, it said that this is being done as a part of its prudent provisioning practice to tackle troubled loans.

How Does This Affect?

Basically, a loan that is classified as a non-performing asset (NPA) would mean that the lender bank would have to take a hit on its earnings. 

Since the lender bank has to provide for such a loan and.

Further, any interest payments that it has already received will cease to be regarded as income. 

While, for the borrower, it means that the lender bank will at some point initiate recovery proceedings and may even recall the entire loan. 

Normally, loans are classified as NPAs after erring on payment by 90 days.

Supreme Court Stay Order 

Interestingly, the move comes even after a Supreme Court order has stayed the classification of defaults during the pandemic, according to the report.

“The asset classification per extant applicable income recognition and asset classification regulations require every bank to follow asset classification at a borrower level and not at a facility/ product level. We have used the said regulations for the determination of our proforma NPA and provisions made in the financial statement for Q3FY21. Hence, the Borrower level classification is an RBI regulatory requirement and not an Axis Bank specific choice. The actual customer classification shall be done only upon the final order of the Supreme Court,” said a spokesperson for Axis Bank to reporters.

Despite Axis bank making provisions from its earnings, proceedings might yet not be initiated due to the SC order.

What Does Axis Bank Say?

The news was confirmed by Axis Bank CEO and MD Amitabh Chaudhry. 

Further, Chaudhry said that profits were “adversely impacted due to prudent expense and provisioning charge of Rs 1,050 crore,” while announcing the bank’s results for the December 2020 quarter.

Considering the year-on-year (YoY), the profits slumped 36 percent to Rs 1,116 crore in December 2020 from Rs 1,757 crore from December 2019.

At the same time, during Q3, Rs 6,736 crore worth of additional loans slipped into default, according to Chaudhry.

Further, he added, “We are in the risk-taking business… we have to make prudent provisions. We have provided as though the SC dispensation (barring lenders from classifying loans as NPA) is not there. We have reversed interest earnings and fees from our income on these loans,”.