Loan growth recovers, deposits remain strong
Brokerages expect Axis Bank’s loan growth to remain healthy in Q3, marking a clear recovery from earlier quarters. Kotak Equities estimates loan growth of around 14% YoY, or about 4% quarter-on-quarter (QoQ), driven by sustained momentum across segments. Deposit growth is also expected to stay robust at roughly 15% YoY, ahead of the industry average, supporting continued balance sheet expansion.
YES Securities, meanwhile, expects sequential loan growth of around 3%, noting that Axis Bank continues to chart an idiosyncratic growth path compared with peers. Overall, business momentum is seen as stable, even as the bank fine-tunes its portfolio mix.
NIMs likely to soften sequentially
Despite healthy loan growth, margins are expected to come under pressure during the quarter. Kotak Equities is factoring in a sequential net interest margin (NIM) decline of about 5 basis points to around 3.5%, reflecting changes in the loan mix. YES Securities also expects net interest income (NII) growth to lag loan growth, as yields on advances fall faster than the cost of deposits.
Motilal Oswal is slightly more cautious, projecting a sharper NIM decline of around 9 basis points in Q3. Emkay echoes this view, noting that softer margins, coupled with higher operating expenses, could constrain pre-provision operating profit growth.
Asset quality: Seasonal slippages in focus
Asset quality will be a key monitorable for Axis Bank in Q3. Kotak Equities expects slippages of around Rs 6,300 crore, or about 2.2% of loans, largely driven by the retail segment. It also estimates loan loss provisions at around 70 basis points, noting that the first and third quarters typically see higher slippages from the priority sector lending portfolio.
Emkay likewise expects seasonally higher agricultural slippages to keep overall slippages elevated, even as provisions are likely to decline sequentially. YES Securities, meanwhile, expects both slippages and provisions to moderate quarter-on-quarter, lending some support to profitability.
Fees, opex, and profitability outlook
On the fee income front, YES Securities expects sequential growth to outpace loan growth, aided by seasonality. Operating expense growth is likely to remain lower than business growth, although Motilal Oswal cautions that cost ratios could stay elevated during the quarter.
Overall profitability is expected to remain under pressure. While lower provisions may provide some cushion, softer margins and steady operating costs are likely to weigh on earnings. As a result, brokerages expect Axis Bank’s PAT to decline by around 8% year-on-year in Q3, even as the underlying business shows signs of stability.
Key things to watch
Investors will closely track management commentary on margin trajectory, asset quality trends, particularly in the unsecured and priority sector portfolios, and the sustainability of loan growth.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)