Axis Bank shares fall 2% after RBI raises risk-weight on consumer loans, imposes penalty

Axis Bank shares fell over 2 percent on November 17, a day after the Reserve Bank of India (RBI) tightened norms for personal loans and credit cards to check the unbridled growth in this segment. The central bank has raised credit risk weights on unsecured consumer loans by increasing the capital requirements for such loans as concerns have been growing over these borrowings.

At 10:00 am, Axis Bank shares were trading 2.47 percent lower at Rs 1,000.90 on the National Stock Exchange (NSE). So far in 2023, the stock has rallied 6 percent, underperforming benchmark Nifty 50 which has risen around 8.5 percent during this period.

According to analysts, higher unsecured credit risk would adversely impact the capital adequacy ratios (CARs), which provides a quick idea of whether a bank has enough funds to cover losses and remain solvent under difficult financial circumstances. CLSA and Citi denoted up to a whopping 230 basis points (bps) impact in the CAR (capital adequacy ratio) of lenders.

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According to foreign brokerage Citi, Unsecured credit risk weight rise adversely impacts Common Equity Tier 1 (CET-1) by 36 bps for Axis Bank. Note that CET1 is the highest quality of regulatory capital, as it absorbs losses immediately when they occur. The tier I capital consists mainly of share capital and disclosed reserves.

The fall in Axis Bank share price also comes after RBI took stringent action against the bank, imposing a monetary penalty of nearly Rs 91 lakh. The penalty is a consequence of Axis Bank’s non-compliance with specific directives outlined by the RBI.

This regulatory action stems from the findings of the statutory inspection for supervisory evaluation, conducted by the RBI with reference to Axis Bank’s financial position as of March 31, 2022.

The inspection revealed several deficiencies in regulatory compliance, including the bank’s failure to preserve records related to customer identification and addresses in specific cases.

Also Read | RBI imposes monetary penalty of Rs 90 lakh on Axis Bank for non-compliances

Additionally, Axis Bank was found to have made persistent calls to certain customers, failed to ensure the appropriate behaviour of recovery agents with delinquent borrowers, neglected to record the content of calls made by recovery agents, and omitted to obtain declarations from customers during the opening of current accounts.

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