Axis Bank Ltd., an Indian multinational banking and financial services company, in its Q3 earnings call discussed about facing multiple challenges including lagging deposit growth, deteriorating asset quality, mainly in unsecured loans, and margin pressure, leading to multi-quarter low performance. Management emphasized its strategic shift to prioritize quality over growth, deliberately slowing unsecured lending growth. While early indicators from new loan cohorts show positive signs, management cautioned it’s too early to call a peak in delinquencies as these portfolios typically take several quarters to normalize. The bank has strengthened its collection infrastructure, tightened credit filters, and maintained its through-cycle NIM guidance of 3.8% while focusing on building a granular deposit base rather than chasing high-cost deposits.
India’s third largest private sector bank, showed mixed results in its Q3 performance, with net profit increasing 4.1% year-on-year to ₹6,742 crore, falling short of market estimates, while core operating profit grew 14% year-over-year. Despite facing challenges like compressed Net Interest Margins, dropping to 3.93% and slower overall loan growth, the bank showed strength in specific segments with small business, SME, and mid-corporate loans growing 16%, and deposit growth reaching 13%. Asset quality metrics remained relatively stable year-over-year with gross NPA at 1.46% and net NPA at 0.35%, though there was increased delinquency in unsecured retail products. The bank maintained strong capital adequacy with a CET1 ratio of 14.61% and demonstrated growth in retail fee income of 5% and transaction banking fees of 16%, while continuing expansion with 130 new branches.
Continue Reading: Discover the Vital Insights from Axis Bank Ltd.’s Earnings Call!
Financial/Operational Metrics:
- Total Revenue: INR38,959 crore, up 10.8% YoY.
- Net Profit: INR6,742 crore, up 4.1% YoY.
- Basic EPS: INR21.79, up 3.5% YoY.
- Net Interest Income: INR13,606 crores, up 9% YoY.
- Fee Income: INR5,455 crores, up 6% YoY.
- New Branches: Added 130 in 3Q, totaling 330.
- Cost-to-Income Ratio: 47%, up 247 basis points YoY.
- Digital Transactions: 96% of individual customer transactions were digital.
- UPI Transaction Value: Grew 32% YoY.
Analyst Crossfire:
- Deposit Growth Strategy (Chintan Joshi – Autonomous)? Axis Bank focuses on granular deposits rather than high-cost, lumpy deposits. Despite a 13% QAB deposit growth YOY, the bank emphasized the need for sustainable, high-quality deposits through initiatives like Project Triumph (Munish Sharda – Executive Director).
- Loan Deposit Ratio & Fee Income Moderation (Abhishek Murarka – HSBC, Rikin Shah – IIFL)? The bank maintains its LDR within a comfortable range, with no regulatory compulsion to adjust it further. Axis aims for balance sheet stability while focusing on high-quality deposits and targeted loan growth. Fee income, impacted by structural shifts in disbursements and reduced card sourcing, remains steady at 1.42% of assets. The bank anticipates improvement as its strategy recalibrates (Amitabh Chaudhry – MD & CEO; Puneet Sharma – CFO).
- Stress in Unsecured Loans & System-wide Stress Spillover (Abhishek Murarka – HSBC, Mahrukh Adajania – Nuvama)? Delinquencies in personal loans and credit cards remain a concern, but proactive recalibration of risk filters and enhanced collections infrastructure are stabilizing the portfolio. Stress in unsecured loans and microfinance hasn’t significantly impacted other segments. Axis remains cautious and focuses on secured lending for better performance in the current macro environment (Amit Talgeri – Chief Risk Officer, Arjun Chowdhry – Group Executive).
- Macroeconomic Challenges and Strategy (Suresh Ganapathy – Macquarie Capital)? The uncertain macro environment, constrained liquidity, and rising credit costs are challenges. Axis prioritizes creating a high-quality, resilient franchise rather than chasing aggressive growth (Amitabh Chaudhry – MD & CEO).
- Operating Expenses Outlook, Global and Domestic Margins (Kunal Shah – Citigroup, Nitin Aggarwal – Motilal Oswal)? Cost optimization measures are underway, reflected in a 5% QOQ decline in operating expenses. While growth in Q4 could influence cost trends, the bank continues to focus on efficiency. Domestic NIMs remain stable, while global margins declined due to changes in the non-rupee book mix and excess offshore liquidity. The bank maintains its through-cycle margin guidance of 3.8% (Puneet Sharma – CFO).
- Loan Deposit Ratio and Liquidity (Param Subramanian – Nomura)? The bank operates within acceptable LDR levels and is strategizing for potential regulatory changes. Its liquidity position is robust, with plans to adapt to final LCR guidelines (Amitabh Chaudhry – MD & CEO).
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