Axis Bank investors cautious on credit, margin outlook

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₹607 crore in Q3. Despite decent growth, investors are concerned due to the bank’s apprehensions about credit and deposit growth. Anticipating a tight liquidity environment to continue until inflation cools to 4%, Axis Bank foresees a slowdown in credit growth and limitations on deposit expansion.

Cost of deposits increased further in Q3, and the worry is that the management expects these costs to spill over into Q1FY25, thus pressuring margin. In Q3, Axis Bank’s net interest margin (NIM) fell 10 basis points sequentially to 4.01%. NIM is the difference between the interest income earned by a bank from its lending activities and the interest expenses paid on its borrowings and deposits, expressed as a percentage of the average interest-earning assets.

To be sure, Axis Bank’s NIM was in line with expectations, supported by improved yields resulting from a favourable product mix and a reduced share of low-yielding Rural Infrastructure Development Fund bonds that helped maintain the bank's NIM. Looking ahead, as the deposit repricing continues and the loan-to-deposit ratio contracts, there might be some near-term pressure on NIM, but it does not appear alarming yet. While the management did express concerns over loan growth, it also expressed confidence in maintaining a 400-600 basis points lead over industry growth in the medium term.

Amid the chase for deposits, Axis Bank has expanded its footprint with the addition of 100 branches in the third quarter, contributing to a total of 350 new branches in the first nine months of FY24. This brings the bank closer to achieving its target of 500 branches by the end of FY24. Meanwhile, Axis Bank’s credit costs appear to have bottomed out, but its operating expenses trajectory