Morgan Stanley downgrades Axis Bank; shares fall

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Morgan Stanley downgraded its rating on Axis Bank to 'underweight' from 'equal weight' saying it expects the bank's impaired loans to increase.

Morgan Stanley said it sees Axis Bank's impaired loans at 4 percent of total loans in FY14.

After state-owned banks, Axis registered the most growth in impaired loans over the last three years, the investment bank said, while reducing its target price on the stock to Rs 800 from Rs 900.

Morgan Stanley said while net interest margins will hold up, sharply lower fees growth, driven by a decline in large corporate fees, will be a drag on core revenue growth for Axis.

Separately, Fitch Ratings said in a release that for fiscal 2013, impaired assets across the banking sector may exceed its initial forecast as the economy slows.

Fitch expects stressed assets in the banking system, including unseasoned restructured loans, to rise to about 10 per cent by FY13 end from 6.7 per cent in FY10.

Axis Bank shares fell 4.8 per cent to Rs 931 by 2.15 p.m.