Axis Bank reported a decline in Net Interest Margins to 3.46% in the latest quarter due to loan mix changes and interest reversals. However, the bank beat core profit expectations as a result of disciplined operating expenses. The stock's performance will likely hinge on the bank’s ability to stabilize margins amid shifting loan portfolios.
Axis Bank recently reported its quarterly financial results, highlighting a mix of margin pressure and efficient cost management. The bank’s Net Interest Margin (NIM)—a key measure of the difference between interest earned on loans and interest paid on deposits—declined by 16 basis points quarter-on-quarter to 3.46%. When compared to the previous year, the NIM has fallen by 34 basis points.
Factors Influencing Margin Contraction
Management attributed this pressure to specific shifts in the bank’s business operations. A 3 basis point impact stemmed from agri interest reversals, while a 4 basis point contraction was linked to changes in the bank's loan mix. Additionally, pricing adjustments contributed another 9 basis points to the decline. A notable trend in the bank's recent balance sheet is the shift toward corporate lending, with the share of corporate loans increasing by 462 basis points. This move comes alongside a 150 basis point decline in the share of CASA (Current Account Savings Account) deposits, which are generally considered a cheaper source of funding for banks. Higher reliance on non-CASA funding can often lead to increased interest costs.
Operational Efficiency as a Buffer
Despite the headwinds faced by net interest income and fee-based revenue, Axis Bank surpassed core Profit After Tax (PAT) expectations for the quarter. This performance was largely supported by effective control over operating expenses. The bank has been working to manage its cost structure, and analysts from brokerage firms like Prabhudas Lilladher suggest that these operating expenses may continue to moderate in coming quarters. The valuation of the bank continues to be assessed by market participants at approximately 1.7 times the projected FY28 core Adjusted Book Value.
Investor Monitorables
For investors, the primary concern remains the stabilization of margins. As the banking sector faces a broader environment of shifting interest rate cycles and competitive deposit pricing, the bank’s ability to rebalance its loan portfolio while maintaining its CASA ratio will be critical. Moving forward, observers will track management commentary on loan growth, the sustainability of current expense levels, and whether the bank can mitigate the impact of pricing pressures in its core lending segments.