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What the record says.
Axis Bank reported a mixed Q1 FY25. PAT grew 4% YoY to INR 6,035 crore, but net credit cost rose to 0.97% annualized, impacted by timing differences in recoveries. Core operating profit grew 16% YoY, with NIM stable at 4.05%. The Citi integration completed ahead of schedule, with customer metrics exceeding targets. Management highlighted deposit growth as a key constraint, guiding advances to grow 300-400 bps faster than industry over medium term. Credit costs are expected to normalize as recoveries materialize. Risk: elevated slippages in retail unsecured portfolios could persist if economic conditions weaken.
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Guidance to track
- Management expects advances to grow 300-400 basis points faster than industry over the medium to long term, contingent on deposit availability.
- Q1 annualized net credit cost of 0.97% is not reflective of full-year expectations due to timing differences in recoveries.
- Expense growth will moderate through FY25 from the 27-29% YoY range seen last year.
Risks flagged
- Credit costs in retail unsecured portfolios are rising, though still within internal risk benchmarks. Further deterioration could pressure earnings.
- Management flagged deposit growth as a key constraint for loan growth in the near term, which could limit balance sheet expansion.
- 55% of the increase in net credit cost was due to lower recoveries and upgrades in the wholesale segment, which are episodic and may not materialize as expected.
- 32% of gross slippages were from linked accounts, which may inflate reported stress; resolution timing is uncertain.
Key quotes
- The Q1 FY25 annualized net credit cost is not reflective of the credit cost we believe as a franchise we can run through the full year because it's impacted by timing differences.
- We have now operated at a 25 basis points squeeze in our through-cycle margin for a couple of quarters. We will make all efforts to ensure we retain as much of the margin as we possibly can.
- We do not need equity capital for either pillar [growth or protection].
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