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Axis Bank's recent financial quarter presented a mixed picture. A significant one-off tax benefit boosted the bank's reported profit, but core revenue generation faced pressures, and risk provisioning increased. While the bank achieved sequential profit growth and better asset quality, its Net Interest Income (NII) fell short of forecasts, and Net Interest Margins (NIMs) slightly declined amid strong loan growth and economic uncertainties.
Profit Boosted by Tax Refund, Core Income Falls Short
Axis Bank reported a fourth-quarter net profit of ₹7,071 crore, a 9% increase that exceeded Bloomberg estimates. This profit boost came primarily from a ₹2,193.2 crore tax write-back, related to depreciation claims on intangible assets from the Citi consumer business acquisition. Without this special item, the year-over-year profit would have decreased. The bank's main revenue source, Net Interest Income (NII), grew 5% year-over-year to ₹14,457 crore but missed the ₹14,727 crore consensus estimate. Net Interest Margin (NIM) dipped to 3.62% from 3.64% in the prior quarter, suggesting reduced lending profitability despite a 19% annual loan growth.
Strong Loan Growth Continues Amid Margin Challenges
Axis Bank's business momentum remained strong, with gross advances rising 19% annually to ₹12,33,570 crore. Growth was broad-based, with corporate loans up 38%, SME loans by 24%, and retail loans by 8%. Retail advances now make up 55% of total net advances. Deposits also grew 14% year-over-year to ₹13,35,834 crore, and the CASA ratio improved to 40%. This growth occurred while NIMs were under pressure. For comparison, ICICI Bank reported 17.7% YoY profit growth and a strong 4.32% NIM. HDFC Bank's net profit rose 9% YoY but saw a lower NIM of 3.38%. Axis Bank's asset quality improved, with gross non-performing assets (GNPA) falling to 1.23% and net NPAs to 0.37%.
Rising Provisions Signal Caution Amid Economic Headwinds
A key concern is the significant year-over-year rise in provisions and contingencies to ₹3,522 crore, up from ₹1,359 crore. This increase, plus a ₹2,001 crore one-time standard asset provision, signals management's caution regarding economic and geopolitical uncertainties, even with better GNPA ratios. These higher provisions, while prudent, reduce current profits. The Reserve Bank of India (RBI) has kept its repo rate at 5.25%, despite global inflation and geopolitical tensions affecting currency and oil prices. Fitch Ratings predicts potential margin pressure for Indian banks (a 20-30 basis point drop) due to tighter liquidity and rising funding costs from Middle East tensions. Analysts also note potential integration risks from the Citi deal and a valuation gap compared to peers like ICICI Bank. Some foresee subdued results in the near term due to increased provisioning.
Analyst View and Sector Outlook
Analysts generally hold a positive view on Axis Bank, with average 12-month price targets suggesting potential upside. The bank is considering significant fundraising, possibly for future growth or to strengthen its balance sheet. Future results will be key to understanding how sustainable its profit drivers are and how management plans to manage margin pressures and economic uncertainties. The broader Indian banking sector is expected to see strong credit growth, particularly in retail and SME lending, though liquidity constraints and geopolitical risks remain factors to monitor.