
Axis Bank Q3 profit seen muted; asset quality, deposit growth in focus
Summary
- Q3 is expected to be a weak quarter for lenders, including Axis Bank, as the sector continues to grapple with challenges such as tight liquidity conditions, tempered loan growth, and early warning signs of asset quality stress
Mumbai: Axis Bank Ltd, India's third-largest private sector lender, is expected to report muted profit in the December quarter due to weaker loan growth and rising asset quality stress, particularly in its unsecured loan portfolio.
The lender will be the first large bank to declare its December quarter (Q3FY25) results on Thursday. Bank of Maharashtra and Punjab & Sind Bank kickstarted the Q3 earnings season for banks on 15 January.
December quarter is expected to be a weak period for most banks in terms of earnings growth as the sector continues to grapple with near-term challenges such as tight liquidity conditions, tempered loan growth, sluggish deposit mobilisation and early warning signs of asset quality stress.
Here are five key aspects to watch as Axis Bank announces its third-quarter earnings on Thursday.
Earnings growth
Axis Bank's net profit for Q3 is expected to be between ₹6,236 crore and ₹6,540 crore, and net interest income (NII) is likely to be between ₹13,709 crore and ₹13,793 crore, according to estimates by six brokerages.
In the year-ago period, the lender reported a profit of ₹6,071 crore and NII of ₹12,532 crore. In the previous quarter, Axis Bank had posted a net profit of ₹6,918 crore, an increase of 18% year-on-year. It had reported an NII of ₹13,533 crore, up nearly 10% on year.
As markets focus on Axis Bank earnings, it is pertinent to note that during October-December, its shares fell more than 13% compared to a 4% fall in the benchmark Nifty0 index. Over the last year, the stock has declined 7.5%.
Asset quality trends
Private banks and small finance banks, especially those with a notable exposure to microfinance and unsecured lending, are seen as the most impacted by pressure on their return profiles. This, combined with elevated loan-deposit ratios, is expected to result in stable to slightly lower margins for most banks, analysts said.
Gross non-performing assets (NPA) ratio for Axis Bank could rise to 1.5% in the reporting quarter from 1.4%, according to Emkay Global Financial, primarily due to stress in microfinance, agriculture and unsecured loans. Accordingly, the lender’s slippages and write-offs for the quarter will be keenly watched to access the aggregate impact of asset quality stress.
Gross NPA stood at 1.44% at the end of September, lower than 1.54% in the previous quarter.
Muted credit growth
Estimates peg loan growth for the bank at 10-11%, leading to muted growth in net interest income and subsequently margins.
“In the near-term, the growth trajectory would be driven by liability mobilisation and there is no guidance around that," ICICI Securities said in a note recently. "Growth trends would remain healthy in chosen areas such as small business banking, mid-corporate and SME, where the bank sees better risk-adjusted return on capital (RaRoC). Growth in personal loan may moderate, but shall continue to be faster than the overall book."
Brokerage firm Jefferies pegs credit growth for the sector at 11-13% over FY25-27, saying that growth will be divergent and banks with higher deposit growth will lead. “A 10 basis points lower NIM can impact earnings by 3-8%, which could be higher for PSU banks," it said.
Also Read: Mint Primer: Why are banks issuing fewer credit cards?
Deposit accretion
Analysts said the pace of deposit mobilisation will be a key monitorable for most banks, given that deposit accretion continues to lag credit growth for banks across the board.
Of the banks that have reported their provisional numbers so far, deposit momentum has come off on a sequential basis. Even as the pace of credit growth has tapered, most banks reported steady to marginally higher loan to deposit ratio (LDR) compared with September 2024, Axis Securities said in a pre-earnings note.
“CASA (current and saving account) deposits accretion continued to face challenges, with deposit growth being led by term deposits (TDs). While most managements had been optimistic around demand-led growth coming back in H2FY25; we believe our undercoverage banks could turn cautious on credit growth amidst persisting challenges on deposit mobilization, tepid corporate credit growth and continued asset quality stress in certain segments," the brokerage said.
Also Read: Banks added over ₹2 trillion more in deposits than loans in 2024
Margins, credit cost
Even as pressure on margins is expected to persist, Axis Bank is seen posting largely stable margins for the quarter on the back of pick-up in deposit growth and controlled incremental slippages.
“2025 may be a Year of Easing for Indian Banks as RBI's effort to manage risks have narrowed gap in loan/deposit growth, slowed unsecured loans & even GDP growth. Loan growth to slow to 11-13% that drives some earnings per share (EPS) cuts," brokerage firm Jefferies said in a note.
However, elevated provisions and consequently higher credit costs are seen weighing on the bank’s profitability, analysts said, adding that margins for the bank are seen in the range of 3.8-4% for the quarter.
Axis Securities expects credit costs for lenders to surge by around 10% sequentially during the reporting quarter owing to higher slippages and deterioration in portfolio quality, thereby weighing on earnings. “We do not see any respite on earnings for banks, which is likely to de-grow by 6% QoQ in Q3 FY25," Axis Securities said, adding that outlook on credit growth momentum, comments on asset quality concerns and medium term credit costs will be the key monitorables.
Also Read: Banks are stepping up partnerships with startups: Axis Bank’s New Economy Group head Sanjiv Bhatia