Axis Bank Q1 Profit Misses Estimates as Provisions Rise

Axis Bank, India’s fourth-largest private bank by market capitalization, reported a smaller-than-expected first-quarter profit on Wednesday.

The bank’s standalone net profit, which excludes its subsidiaries, rose 4% year-on-year to 60.35 billion rupees ($721.2 million) for the quarter ended June 30. According to LSEG data, analysts had estimated a profit of 64.50 billion rupees.

Increased Provisions and Asset Quality Concerns by Axis Bank:

Provisions and contingencies, funds set aside for potential bad loans, increased by 97% to 20.39 billion rupees. This rise in provision indicates the bank’s cautious approach to potential defaults and unforeseen events.

The gross non-performing assets (NPA) ratio, a critical measure of asset quality, increased to 1.54% at the end of June from 1.43% in the previous quarter, suggesting some deterioration in the bank loan portfolio. The bank attributed this increase to higher credit costs due to seasonality and lower recoveries.

Pressure on Margins and Profitability

Axis Bank’s net interest margin (NIM), a key indicator of profitability, shrunk to 4.05% from 4.10% last year and 4.06% in the previous quarter.

This decline in NIM reflects the pressure on margins Indian banks face, as strong loan demand has increased competition for deposits.

Loan and Deposit Growth by Axis Bank:

Despite the margin pressure, Axis Bank reported a 13% rise in net interest income, the difference between interest earned and paid, totaling 134.48 billion rupees. The bank’s net loans grew by 14%, while total deposits increased by 13%, indicating robust growth in lending and deposit activities.

Rival banks Kotak Mahindra Bank and Yes Bank also reported contractions in their NIM for the first quarter, indicating a broader trend in the Indian banking sector. Shares of Axis Bank closed 1.9% lower ahead of the results announcement.

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