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Informist, Thursday, Jul. 17, 2025

By Aaryan Khanna and Sourabh Kumar

MUMBAI/NEW DELHI – A technical change in Axis Bank's assessment of its asset quality drove up the bank's reported slippages and non-performing assets in the June quarter. The slippages are likely to remain elevated through the rest of the financial year ending March, though the following quarters would show directionally lower numbers before the base normalises in FY27, the management said in a post-earnings conference call with analysts. 

The bank reported fresh slippages worth INR 82 billion in the June quarter, against INR 48 billion each a year ago and in Apr-Mar, as part of its quarterly earnings released Thursday. The bank said the slippage, non-performing asset ratios as well as returns on assets and equity ratios could not be compared with prior quarters due to the application of the new technical parameters. However, the major impact of it has been recognised already on the bank's entire back portfolio, and so the hit to slippages in the next three quarters would only be on incremental loans. 

"One, the stock has been corrected, so there is no more stock to flow through in the subsequent quarters," Puneet Sharma, chief financial officer at Axis Bank, said in the call. "And second, absolutely correct, we should have recoveries from the stock that has flowed through in the current quarter in subsequent quarters."

The bank said the technical change had come about not due to regulatory pressure but because of its benchmarking of best practices in peers, and that management had flagged a potential impact in its call with analysts after its March quarter earnings. The technical impact was largely restricted to cash credit and overdraft products and one-time settled accounts, it said in its investor presentation earlier Thursday. Management said it did not foresee any large changes like this to come about in the next few quarters, unless they were regulatory in nature.

"This is the benchmarking we do and the policy that we have as at 30th June, 2025. I do not think there is a bank that's more prudent than us on asset qualification and upgrades combined on the street today," Sharma said. 

Earlier Thursday, Axis Bank said its net profit fell 3.8% on year and 18.4% sequentially to INR 58.06 billion in the June quarter. The bank's net profit was also lower than the analysts' estimate of INR 63.68 billion. Provisions and contingencies of Axis Bank increased by around 94% from a year ago and 190% from a quarter ago to INR 39.48 billion in Apr-Jun. Shares of the private-sector lender closed 0.7% lower at INR 1,159.80 on the National Stock Exchange Thursday. The bank announced the results after market hours.

Inspite of the higher provision, the bank's provision coverage ratio shrank to 71% at June-end from 75% at March-end. The chief financial officer said this was because 80% of the loans classified as NPAs hit by the technical impact were fully secured, and so the bank did not have to expand its provisioning for them.  

Regardless, the bank has enough cover to fully meet expected credit loss norms that may be forthcoming, the management said. The Reserve Bank of India had floated a discussion paper on the new framework, which is expected to increase provisioning requirements in its regulated entities. Axis Bank carried a provision of INR 50.12 billion for expected credit loss at the end of June.

As for the rest of the business, the management expressed confidence that Axis Bank would outperform peers due to its brand size and capital base, without the need for equity capital for either growth or protection. The bank's capital adequacy ratio was at 16.85% at the end of the June quarter. India's third-largest private bank told investors that banks like Axis are well placed to capitalise on India's growth opportunity.

"Our platform will allow us to grow at rates faster this year than the industry and this thesis will continue to play in the medium term," Managing Director and Chief Executive Officer Amitabh Chaudhry said. Chief Financial Officer Sharma later said the medium-term refers to 3-5 years with a base of FY26, and said Axis Bank's loan growth can outpace the industry by 300 bps during this period.

However, coming quarters including Jul-Sept are likely to see a hit in the bank's net interest margin, which fell 24 basis points on year and 17 bps on quarter to 3.80% in Apr-Jun, the management said. The Reserve Bank of India's Monetary Policy Committee cut the policy repo rate by 100 bps between February and June, and nearly 70% of Axis Bank's loans are linked to floating rates. While 25 bps had been accounted for by the June quarter, a part of the impact of the remaining 75 bps of cuts will be seen in the September quarter, by which time the bank will fully absorb the rate cuts conducted so far, the management said.

Sharma said the bank would maintain a 3.80% margin on a through-cycle basis, which he described as 18 months after the last rate cut in a cycle. The worsening margins will be more prominent immediately following the cuts, before rising near the end of the period. Some of the pain in Jul-Sept would be offset by a reduction in the bank's costs due to the rate cuts, he said.  End

Edited by Deepshikha Bhardwaj

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