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Shares of Axis Bank fall 5% after S&P downgrade

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Shares of Axis Bank lost as much as 5.21% on Monday after S&P Global Ratings lowered its ratings on Axis Bank due to increased economic risks for banks operating in India.

At 12:30 pm, Axis Bank was trading at 408.20 down 4% from its previous close, while the benchmark index, Sensex fell nearly 1% to 34,875.56.

“We lowered our ratings on Axis to reflect our expectation that heightened economic risks facing India’s banking system will affect the bank’s asset quality and financial performance. While Axis’ asset quality is superior to the Indian banking sector average, its level of non-performing assets (NPAs) will likely remain high compared to international peers’,” S&P said.

The ratings agency expects the bank to maintain its strong market position and adequate capitalization. The stable outlook reflects our view that our ratings on Axis already factor in some deterioration in the bank’s asset quality and performance over the next 12 months, S&P said.

The agency said economic conditions have turned adverse for Indian banks due to covid-19 and drastic efforts to curtail the spread of the virus have resulted in a sharp economic contraction.

S&P could raise its ratings if the bank’s performance, particularly its asset quality, improves significantly against domestic peers and commensurate with international peers’ over the next 18 months.

On Saturday, Axis Bank in an exchange filing said “The rating report inadvertently mentions the Bank being on CreditWatch. In this regard, S&P has confirmed that it is an editorial error and Bank is on STABLE outlook”.

From the beginning of the year, Axis Bank fell 46.22% against a loss of 15.88% in the benchmark index, Sensex. From the March lows, Axis Bank gained 42.28% while Sensex gained 31.65%.

For the quarter ended 31 March, Axis Bank reported a net loss of 1387.78 crore against a loss of 112.08 crore for the same quarter last year as spike in provisions and contingencies dented the bottomline of the lender, it doubled to 7,730.02 crore during the March quarter from 3518.39 crore.

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