Muted credit, margin outlook a concern for Axis Bank investors

livemint.com:

₹607 crore. 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. 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 this quarter, contributing to a total of 350 new branches in the first nine months of FY24. This brings them closer to achieving their target of 500 branches by the end of FY24.

Meanwhile, Axis Bank’s credit costs appear to have bottomed out, but opex trajectory is a monitorable. “Axis Bank's opex ratios (cost to average assets) remain elevated at 2.6%," point out analysts from JM Financial Institutional Securities Ltd. The management has indicated that it will remain in investment mode as the benign credit environment gives them additional comfort to invest in distribution/technology while protecting profitability.

“We believe this is likely to keep opex ratios elevated for a longer period of time than anticipated earlier," said JM’s analysts in a report on 23 January. As such, investors are sitting on 16% returns in the past one year, although near-term triggers appear limited. The bank expects deposit challenges to persist in FY25.