Axis Bank Ltd. is expected to report a 41% year-on-year rise in standalone net profit for the September quarter, even as fresh foreign currency non-resident (FCNR) deposit inflows weigh on its net interest margin. Net interest income is projected to grow 11%, while provisions are expected to decline from a year earlier. Analysts expect the bank to sustain loan and deposit growth, but higher FCNR mobilisation and corporate lending are likely to constrain margin expansion.
The projected earnings increase comes alongside a sequential decline in the net interest margin, which analysts attribute to the cost of mobilising FCNR deposits. Citi expects the bank to attract $10 billion-$11 billion through these deposits, giving it a share of more than 8% of system-wide FCNR mobilisation, compared with its deposit market share of about 5.3%. Analysts expect the resulting funding inflows to support balance-sheet expansion, while lower-cost deposit replacement and a reduction in agricultural loan slippages could partly offset the margin drag.
Axis Bank Q2 Preview (Standalone, YoY) (Bloomberg Estimates)
- Net interest income seen 11% higher at Rs 15259.11 crore versus Rs 13744.55 crore
- Net interest margin seen at 3.4% versus 3.73% (3.46% QoQ)
- Profit seen 41% higher at Rs 7180.08 crore versus Rs 5089.64 crore
- Provisions seen 36.9% higher at Rs 2236.85 crore versus Rs 3547.04 crore
- Gross NPA seen at 1.3% versus 1.28% (QoQ)
READ | Banks Q2 Preview: FCNR(B) Inflows Lift Growth But Squeeze Margins
The central question for Axis Bank this quarter is whether strong deposit mobilisation and loan growth can offset pressure on lending margins. Citi expects loans and deposits to grow 8%-9% sequentially, translating into year-on-year growth of 22%-24%. Nomura estimates loan growth of 9% quarter on quarter, falling to 5.3% after excluding FCNR-linked lending. Motilal Oswal and Investec expect a sharper 12-basis-point sequential contraction in net interest margin, compared with the 6-7-basis-point decline projected by Citi and Nomura. Credit costs, meanwhile, are expected to normalise as stress indicators ease and technical slippages decline.
Here's what analysts expect from Axis Bank Q2 results:
Citi
Expects Axis Bank to mobilise $10 billion-$11 billion in FCNR(B) deposits, accounting for more than 8% of system-wide mobilisation and over 7% of the bank's total deposits.
Sees loans and deposits growing 8%-9% sequentially, with year-on-year growth of 22%-24%. Mid-corporate, SME and small business banking segments are expected to remain strong, while retail disbursements gain momentum.
Projects a 6-7-basis-point sequential decline in NIM as FCNR-related costs partly offset savings from retiring high-cost bulk deposits and lower agricultural slippages.
Expects credit costs to normalise to around 0.7%, with contained operating expense growth supporting profitability. Higher bond yields could also generate modest treasury gains.
Nomura
Estimates FCNR(B) deposits at 7% of total deposits and loan growth of 9% quarter on quarter. Excluding FCNR-linked lending, growth is projected at 5.3%.
Expects mid-corporate and SME lending to lead credit growth.
Sees NIM declining around 7 basis points sequentially as FCNR-related costs are partly offset by the retirement of expensive bulk deposits.
Projects credit costs to normalise to around 65 basis points.
READ | ICICI Bank Q2 Preview: Profit Seen Rising 16%, Margins Under Pressure From FCNR(B) Flows
Bank of America
Identifies a shallow slowdown in economic growth followed by a swift recovery, stronger loan performance than peers and market-share gains as potential upside drivers.
Sees faster-than-expected normalisation in operating expenses and better through-cycle credit costs as additional sources of upside.
Flags a sharper-than-expected deterioration in corporate and retail asset quality as a key downside risk.
Warns that aggressive RBI rate cuts and faster transmission could put further pressure on NIMs. Limited government support for economic growth or sector-specific bad-loan risks, along with the bank's exposure to SME and business banking segments, could also weigh on asset quality.
Motilal Oswal
Expects NIM to fall 12 basis points sequentially, reflecting strong FCNR(B) deposit mobilisation and faster corporate loan growth.
Projects credit growth of 19% year on year and 5.4% quarter on quarter, supported by corporate and SME lending and a pickup in retail disbursements.
Expects credit costs to decline in FY27 as technical slippages reduce.
Sees operating expenses remaining broadly steady, helping lower the cost-to-income ratio.
Investec
Notes that Axis Bank reported loan growth of 22.9% and deposit growth of 20.7%, supported by FCNR(B) inflows.
Expects NIM to moderate by 12 basis points sequentially.
Projects core pre-provision operating profit growth of around 2.4%.
Estimates return on assets at around 1.43%.
READ | HDFC Bank Q2 Preview: Profit Seen Up 6%, NIM Recovery Remains Elusive
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