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Axis Bank, India's third-largest private sector lender, announced a 4% decrease in net profit for the first quarter, landing at ₹5,806 crore, a dip from the ₹6,035 crore recorded in the corresponding period of the previous year. This downturn is primarily attributed to a surge in provisioning expenses. While the bank witnessed a marginal increase in net interest income (NII) by 1% to reach ₹13,560 crore, the higher provisioning requirements significantly impacted the overall profitability. The net interest margin (NIM) for the quarter was reported at 3.80%. Operating costs also experienced a rise of 2% year-over-year in Q1 FY26. The provisions and contingencies for the quarter reached ₹3,948 crore, substantially higher than the ₹2,039 crore observed in the same period last year. Specific loan loss provisions accounted for ₹3,900 crore of this total. At the close of the quarter, the bank held cumulative provisions (standard + additional other than NPA) amounting to ₹11,760 crore, demonstrating a proactive approach to managing potential risks. The bank explicitly stated that the decline in asset quality parameters, leading to increased provisions and contingencies, was due to the stringent application of technical parameters in identifying slippages and subsequent upgrades. This technical impact was mainly concentrated in cash credit and overdraft products, as well as one-time settled accounts. The bank clarified that ₹821 crore of the provisions and contingencies debited to the profit and loss account were directly attributable to this technical impact. Adjusting for this technical impact, the actual provisions and contingencies amounted to ₹3,127 crore. The bank's balance sheet showed a healthy growth of 9% year-over-year, reaching ₹16,03,308 crore as of June 30, 2025. Total deposits also increased by 9% year-over-year. Advances experienced a growth of 8% year-over-year, reaching ₹ 10,59,724 crore. As of June 30, 2025, the bank's reported gross NPA and net NPA levels were at 1.57% and 0.45% respectively, reflecting an increase compared to the levels of 1.28% and 0.33% reported as of March 31, 2025. Recoveries from written-off accounts for the quarter amounted to ₹904 crore. The reported net slippages for the quarter, adjusted for recoveries from the written-off pool, were ₹5,149 crore, with retail contributing ₹5,210 crore. Gross slippages during the quarter totaled ₹8,200 crore, compared to ₹4,793 crore in the corresponding period of the previous year. Recoveries and upgrades from NPAs during the quarter were ₹2,147 crore. The bank wrote off NPAs aggregating ₹2,778 crore during the quarter. As of June 30, 2025, the bank's provision coverage, as a proportion of gross NPAs, stood at 71%, a decrease from the 78% reported as of June 30, 2024. The fund-based outstanding of standard restructured loans implemented under the resolution framework for COVID-19 related stress (COVID 1.0 and COVID 2.0) continued to decline during the quarter and stood at ₹1,148 crore as of June 30, 2025, representing 0.10% of the gross customer assets. The bank maintains a provision of 17% on restructured loans, exceeding the regulatory requirements. Amitabh Chaudhry, MD&CEO of Axis Bank, expressed optimism for FY26, citing supportive regulatory conditions and a favorable operating landscape. He believes that large, well-capitalized banks like Axis, with strong digital capabilities and innovative product suites, are well-positioned to capitalize on the opportunities. Chaudhry further stated that the bank has built a platform enabling it to grow at rates exceeding the industry average this year, a trend expected to continue in the medium term. In summary, Axis Bank's Q1 results reflect a mixed performance, with a decline in net profit due to increased provisioning, offset by growth in NII and overall balance sheet size. The bank's management remains optimistic about future growth prospects, leveraging its strong capital base and digital capabilities.
The increase in provisions and contingencies is a critical aspect of Axis Bank's Q1 performance, warranting closer examination. The bank has attributed this rise to the prudent application of technical parameters for recognizing slippages and the subsequent upgrades impacting asset quality. This suggests a proactive approach to identifying and addressing potential risks within its loan portfolio. However, the magnitude of the increase, nearly double the previous year's figure, raises questions about the underlying factors driving the slippages. While the bank mentions the technical impact being largely restricted to cash credit and overdraft products, and one-time settled accounts, further details on the nature and extent of these issues would provide greater transparency. It is essential to understand whether these slippages are concentrated in specific sectors or segments, or if they represent a broader trend across the bank's portfolio. Moreover, the increase in gross NPA and net NPA levels, albeit marginal, also contributes to the overall picture of asset quality. While the bank has implemented measures to recover written-off accounts and upgrade existing NPAs, the pace of new slippages appears to be outpacing these efforts. The decline in provision coverage ratio (PCR) from 78% to 71% further underscores the pressure on asset quality and the need for increased provisioning. The bank's decision to maintain a higher-than-regulatory provision on restructured loans demonstrates a cautious approach to managing potential risks associated with these assets. However, the overall level of restructured loans, while decreasing, still warrants close monitoring, particularly in light of the evolving economic environment. It's important to note that the COVID-19 pandemic continues to cast a long shadow, and the residual impact on borrowers' ability to repay loans remains a key concern. The bank's performance in managing these restructured loans will be crucial in determining its long-term asset quality and profitability. In addition to asset quality, the bank's net interest margin (NIM) is a key indicator of its profitability. The NIM of 3.80% indicates the bank's ability to generate income from its lending activities relative to its funding costs. This metric is influenced by factors such as interest rate movements, the composition of the bank's loan portfolio, and its cost of funds. While the NIM appears to be stable, it is important to consider the competitive landscape and the potential impact of rising interest rates on the bank's funding costs. The bank's ability to maintain or improve its NIM will depend on its effective management of asset and liability portfolios.
The MD&CEO's optimistic outlook on FY26 is contingent on several factors, including supportive regulatory conditions and a favorable operating landscape. While the regulatory environment has been generally supportive of the banking sector, any changes in policies or regulations could impact the bank's operations and profitability. The operating landscape is also subject to various uncertainties, including economic growth, inflation, and interest rate movements. A slowdown in economic growth could impact loan demand and asset quality, while rising inflation could erode the purchasing power of borrowers and increase the risk of defaults. The bank's ability to navigate these challenges will depend on its agility, adaptability, and risk management capabilities. The emphasis on digital capabilities and innovative product suites is a crucial element of the bank's growth strategy. In an increasingly competitive market, banks need to differentiate themselves through technology and innovation. Axis Bank's investments in digital platforms and new product offerings are aimed at attracting new customers, enhancing customer experience, and improving operational efficiency. However, the success of these initiatives will depend on the bank's ability to effectively integrate technology into its existing infrastructure, manage cybersecurity risks, and adapt to changing customer preferences. The claim that the bank has built a platform allowing it to grow at rates exceeding the industry average this year is a bold statement. While the bank has demonstrated strong growth in recent years, it faces stiff competition from other large private sector banks, as well as public sector banks. Achieving sustained growth above the industry average will require the bank to outperform its competitors in key areas such as loan growth, deposit mobilization, and asset quality. The bank's ability to execute its growth strategy will also depend on its ability to attract and retain talent, maintain a strong corporate culture, and adhere to the highest standards of governance and ethics. The overall assessment of Axis Bank's Q1 performance requires a holistic perspective, considering both the challenges and opportunities facing the bank. While the decline in net profit and the increase in NPA levels are causes for concern, the bank's strong balance sheet, proactive provisioning, and focus on digital capabilities provide a foundation for future growth. The bank's management needs to effectively address the asset quality issues, while continuing to invest in technology and innovation to maintain its competitive edge.
Furthermore, a deeper dive into the composition of the bank's advances is warranted to fully understand the nuances of its performance. Understanding the sectoral distribution of loans – the proportion allocated to retail, corporate, and SME segments – provides valuable insights into the bank's risk appetite and growth strategy. High exposure to specific sectors facing economic headwinds could amplify the risk of slippages and impact asset quality. Conversely, a well-diversified loan portfolio mitigates these risks and enhances resilience. The geographical distribution of the bank's advances also merits attention. Concentration in specific regions that are particularly vulnerable to economic shocks could increase the likelihood of loan defaults. Diversification across different geographies reduces this concentration risk and improves the overall stability of the loan portfolio. In addition to sectoral and geographical distribution, it's important to analyze the credit quality of the bank's loan portfolio. This involves assessing the proportion of loans that are rated investment grade versus those that are rated sub-investment grade. A higher proportion of sub-investment grade loans indicates a higher risk profile and necessitates a more conservative provisioning policy. Furthermore, the tenure of the bank's loan portfolio is a crucial factor to consider. Loans with longer tenures are generally more susceptible to interest rate risk and credit risk, particularly in a volatile economic environment. The bank's asset-liability management (ALM) strategy plays a vital role in mitigating these risks. ALM involves managing the bank's assets and liabilities to optimize its net interest income and minimize its exposure to interest rate risk and liquidity risk. A robust ALM framework is essential for maintaining the bank's financial stability and profitability. The bank's capital adequacy ratio (CAR) is another key indicator of its financial health. CAR measures the bank's ability to absorb losses and continue operating under adverse economic conditions. A higher CAR provides a greater buffer against potential losses and enhances the bank's resilience. The bank's ability to maintain a strong CAR is crucial for sustaining investor confidence and supporting its growth plans. The analysis of Axis Bank's Q1 performance should also take into account the regulatory landscape. Changes in regulations relating to capital adequacy, provisioning, and asset classification can have a significant impact on the bank's financial performance. The bank needs to proactively adapt to these changes and ensure compliance with all regulatory requirements. Finally, it's important to compare Axis Bank's performance with that of its peers. Benchmarking against other large private sector banks provides a valuable context for assessing the bank's relative strengths and weaknesses. This comparison can help identify areas where the bank is outperforming its peers and areas where it needs to improve. By analyzing all these factors, it is possible to gain a more comprehensive understanding of Axis Bank's Q1 performance and its prospects for future growth. The decline in net profit is a cause for concern, but the bank's strong balance sheet, proactive provisioning, and focus on digital capabilities provide a solid foundation for overcoming these challenges and achieving its strategic objectives. The bank's management needs to remain vigilant, adapt to the evolving economic environment, and execute its growth strategy effectively to deliver sustainable value to its stakeholders.
Source: Axis Bank Q1 net profit slips 4% to ₹5,806 crore on higher provisions