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Axis Bank - CMP - ₹1110 - Buy - Technical provisioning weighs on performance - growth outlook steady

ICICIdirect Research 18 Jul 2025 DISCLAIMER

Axis Bank reported weak performance in Q1FY26, impacted by margin pressure, sharp rise in provisions and subdued business growth.
Advances grew 8.1% YoY (1.8% QoQ) to ₹10,59,724 crore, led by healthy traction in corporate advances, which rose 8.6% YoY (2% QoQ). However, retail growth remained soft due to a measured approach towards unsecured lending. Deposit growth remained modest at 9.3% YoY (-1% QoQ) to ₹11,61,615 crore, led by term deposits.
Factoring 25 bps of rate cut, margins came under pressure, contracting 17 bps QoQ to 3.8%, impacted by loan repricing (13 bps), agri slippages (3 bps), and technical reversals (1 bp). Further NIM compression may play out over the coming quarters as the residual 75 bps cut flows through. Management, however, maintains its through-cycle NIM outlook at 3.8%, expecting partial offsets from deposit repricing.
Slippages nearly doubled to ₹8,200 crore, largely on account of a voluntary tightening of asset classification norms and seasonal agri stress. This internal policy change, aimed at improving recognition discipline—particularly in CC/OD and OTS accounts—triggered ₹2,709 crore of technical slippages, primarily in the retail segment. Thus, GNPA spiked by 29 bps QoQ to 1.57%, while NNPA rose 12 bps to 0.45%.
With implementation of new recognition norms completed, focus is expected to shift towards growth with management remaining confident of delivering sustained growth surpassing the industry. Margins are expected to remain under pressure in Q2, reversal driven by repricing in liabilities is seen to limit full year numbers.
On valuation, concerns seem to have factored with scope for narrowing of discount with larger peers. Higher recoveries from technically recognized asset could act as a catalyst.  

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