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What the record says.
Axis Bank delivered a strong Q2 FY24 with PAT of INR 5,864 crore (+10% YoY) driven by robust core operating profit growth of 19% YoY in H1. NIM remained stable at 4.11%, supported by improved loan mix and RIDF reduction. Fee income grew 31% YoY, with retail fees up 38%. Asset quality improved further with GNPA at 1.73% (down 77bps YoY) and net slippages at 1.49% (lowest in 12 quarters). CET1 ratio improved to 14.56%, aided by organic capital generation. Management guided for loan growth 400-600bps above system (~13%), with continued investment in technology and branch expansion (500 branches planned for FY24). Key risk: potential margin compression from lagged deposit repricing and elevated operating expenses from Citi integration and growth investments.
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Guidance to track
- Management expects Axis Bank to grow loans at 400-600 basis points faster than the banking system credit growth of ~13% for FY24.
- The bank plans to add 500 branches in FY24, with 207 added in Q2 and 110 new centers.
- Management targets cost-to-assets ratio of around 2.1% by FY25, including Citi business, down from 2.41% in Q2 FY24.
- Digital banking platform Open currently ~5% of bank's business; management intends to increase contribution 3-4 times by fiscal 2027.
Risks flagged
- OpEx grew 34% YoY, with Citi integration costs and technology investments driving growth. Cost ratios expected to remain sticky until integration completes.
- Deposit growth has been muted relative to loan growth, raising concerns about funding. Management relies on LCR management and term deposits to bridge gap.
- RBI has expressed caution on personal loan growth. Axis Bank's PL book grew 25% YoY, but management notes stress in sub-INR 50k segment (which they avoid).
- Management expects recoveries and upgrades to decline, narrowing the gap between gross and net credit costs, potentially increasing net credit costs.
Key quotes
- The current level of 18%+ ROE is delivered at a much lower risk-weighted asset intensity than in the past. This has helped the bank become self-sufficient on capital.
- Our marginal cost of funding has stabilized, so at the margin, we're not seeing an increase in deposit expenses. The base book will continue to reprice. The pace of repricing of the base book should slow down as we get into the subsequent quarters.
- We have no intention of releasing our COVID provisions. We will keep it for a future rainy day.
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