A Quarter of Two Halves

Motilal Oswal Financial Services describes Axis Bank's July-September quarter as "mixed," and the arithmetic bears that out. On the revenue line the bank delivered: net interest income rose 12% year on year and 5% sequentially to Rs 15,370 crore, a 3% beat. Provisions fell sharply to Rs 1,690 crore, 18% below the brokerage's forecast.

The leakage came below the top line. Operating expenses climbed 11% quarter on quarter to Rs 10,820 crore, 7% above estimates, and other income slipped to Rs 6,530 crore as treasury gains shrank to just Rs 85 crore. Pre-provision operating profit of Rs 11,080 crore missed by 5%, while the cost-to-income ratio jumped to 49.4% from 45.5% in the June quarter. Net profit of Rs 7,000 crore was up 38% on a low base but 2% lower sequentially.

The FCNR(B) Lens

The quarter's defining feature was a large mobilisation of foreign-currency non-resident deposits. Axis Bank raised Rs 1.02 lakh crore through FCNR(B), capturing an estimated 8% market share. The inflow flattered headline deposit growth but carries a cost: it shaved 11 basis points off the margin and diluted the CASA mix.

Measuring the Margin Gap

Management reiterated its through-cycle margin guidance of 3.8%, citing improving retail disbursements and a better balance-sheet mix. Part of the FCNR(B) money was used late in the quarter to retire costlier non-resident term deposits, a benefit expected to show in the December quarter, alongside the effect of rate hikes on the loan stock. With 72% of loans on floating rates and 60% linked to the repo rate, the bank is well placed for a rising-rate cycle.

Where the Costs Went

Of the Rs 1,100 crore sequential rise in operating expenses, management attributed 48% to higher business volumes and 23% to technology and digitisation, with staff costs and other overheads making up the rest. The comparison is distorted: the June quarter carried a Rs 270 crore one-time staff-cost reversal, while the September quarter absorbed Rs 250 crore of one-time charges tied to the new labour code and FCNR(B) mobilisation. Fee income grew a modest 6%, held back by cards and payments, though granular fees make up 90% of the total.

Loan Book Pulls Ahead

Advances grew 23% year on year and 8.9% sequentially to Rs 13.7 lakh crore. Corporate loans rose 8% on the quarter and SME loans 9%. Retail loans grew 3% sequentially. Retail disbursements were up 22%, led by small business banking at 33%, vehicle loans at 25% and home loans at 24%. The bank gained 10 basis points of market share in both loans and deposits and reiterated its aim to grow advances about 300bp faster than the industry.

Asset Quality Keeps Improving

Fresh slippages fell 14% sequentially to Rs 4,762 crore, and recoveries from written-off accounts reached Rs 970 crore. The bank holds a cumulative provision buffer of Rs 15,900 crore, about 1.2% of loans, including Rs 8,000 crore of contingent provisions, and sees no material impact from the shift to expected-credit-loss accounting.

The Subsidiary Crew

Subsidiaries lifted consolidated profit 39% to Rs 7,730 crore, adding 11bp to consolidated return on assets and 56bp to return on equity. Axis Finance's book crossed Rs 54,600 crore, and Axis Mutual Fund's quarterly average assets rose 9% to Rs 3.8 lakh crore.

Tape-Measuring the Target

The brokerage values the core bank at 1.6x March 2028 adjusted book value, or Rs 1,327 a share, and adds Rs 148 for subsidiaries after a 20% holding-company discount, arriving at Rs 1,475. It raised its fiscal 2028 earnings estimate by about 5% to factor in rate hikes, projecting a 1.6% return on assets and 15.1% return on equity.