Axis Bank’s Mixed Q1 Results Signal Caution Amid FY26 Retail Loan Growth Hopes

Axis Bank delivered a net profit of ₹6,035 crore for the quarter ended June 30, 2024, marking a modest 4% year-on-year (YoY) rise but undershooting some analyst expectations. While the results highlighted resilience in net interest income (NII) and retail loan growth, elevated provisions and asset quality concerns cast a shadow over the bank’s near-term trajectory. Investors now turn to whether FY2026 could see a turnaround, fueled by improving deposit flows and stabilized credit costs.

Profit Growth Faces Sequential Headwinds

Despite the YoY profit increase, Axis Bank’s net profit fell 15% sequentially from ₹7,130 crore in the previous quarter. The decline stemmed from a sharp rise in provisions to ₹2,551 crore—a more than doubling from the same period last year. Gross slippages surged to ₹4,793 crore, with ₹4,200 crore linked to retail loans, including agriculture and unsecured lending. While the bank’s net interest income grew 12% YoY to ₹13,448 crore, driven by a 14% YoY advance expansion, the net interest margin (NIM) dipped to 4.05%, reflecting competitive pricing pressures.

Retail Loans Show Promise, But Risks Linger

Retail loans—a key growth engine—expanded 18% YoY to ₹5.85 trillion, accounting for 60% of total advances. This outpaced corporate loan growth of 10% YoY, underscoring the bank’s strategy shift toward lower-risk, higher-margin retail segments. However, the surge in slippages, particularly in unsecured retail lending, raised concerns about credit discipline. Analysts note that while FY2026 projections for retail loan growth are expected to stabilize at 5–8% YoY, this hinges on resolving deposit constraints and reducing credit costs.

FY2026 Outlook: Balancing Growth and Risk

Analysts project FY2026 could see gradual recovery if Axis Bank addresses three critical areas:
1. Deposit Mobilization: Total deposits grew 13% YoY to ₹10.62 trillion but dipped sequentially due to CASA slippage (to 42% of deposits). With the credit-deposit ratio at a record 80.8%, improving deposit traction is vital to sustain lending momentum.
2. Credit Costs: While net NPAs remain low at 0.34%, gross NPAs rose to 1.54% sequentially. Analysts like Elara Capital expect credit costs to trend toward historical averages (0.6–0.7%) if slippages stabilize.
3. NIM Stability: Kotak Securities forecasts a 15 bps QoQ NIM decline in Q4FY25, but Nuvama argues that FY2026 could see stabilization if deposit growth eases funding costs.

Challenges Ahead

The banking sector faces broader headwinds, including a 10.25% YoY deposit growth rate lagging loan growth. Axis Bank’s ability to maintain its CASA ratio above 40% and reduce reliance on costlier term deposits will be critical. Additionally, the RBI’s rate cut cycle has pressured margins, with sector-wide NIMs under strain.

Conclusion: A Cautiously Optimistic Outlook

Axis Bank’s Q1FY25 results reflect a mixed picture—profit growth is constrained by elevated provisions, but retail loan momentum and the completion of its Citi integration provide tailwinds. For FY2026, the bank’s prospects hinge on resolving deposit growth bottlenecks and managing credit quality in high-risk retail segments.

While FY2026 retail loan growth of 5–8% is achievable under favorable macro conditions, investors should remain cautious. A sequential profit decline and rising NPAs underscore the fragility of current margins. The bank’s management must demonstrate discipline in lending standards and deposit pricing to sustain growth without compromising profitability. With its strong retail franchise and asset quality resilience, Axis Bank remains positioned for recovery—but only if it navigates these challenges effectively.