Axis Bank Q3FY25, On Friday, the financial community focused on Axis Bank following a 3.5% decline in its share price. Its Q3FY25 earnings, which were below market expectations, were the cause of the decline. Investors were alarmed by the bank’s performance, which led to a strong response on D-Street even if net profit increased somewhat. What, then, led to this slide? Let’s get started and examine the specifics.
Summary of the Findings
With a net profit of ₹6,036 crore, Axis Bank recorded a 4% YoY increase Axis Bank Q3FY25. Although an increase in profits is often a good thing, analysts were disappointed by this number because of the greater provisioning and poor credit growth. Investor sentiment was significantly impacted by these issues, leaving them with more questions than answers.
Principal Causes of the Stock Drop
Let’s examine the precise causes of the market’s unfavourable reaction to Axis Bank’s performance.
Reduced Growth of NII
A key indicator of a bank’s profitability, net interest income (NII), increased 9% year over year to ₹13,606 crore from ₹12,533 crore in the same quarter the previous year. This growth was by no means remarkable, though. At ₹13,483 crore, the NII was unchanged sequentially. Quarter-over-quarter (QoQ), the bank’s overall interest income grew by a moderate 1.7%, but interest costs climbed by 2.4%. These numbers demonstrate how slow credit growth and growing finance in Axis bank Q3FY25 and costs are impeding overall performance.
Poor Growth in Advancements
A key motivator for any bank, credit growth, remains disappointing. At ₹10,14,564 crore, Axis Bank’s total advances for the quarter represented a 9% YoY rise and a little 1% sequential gain. These figures are below the 11% industry average during the same time frame. The bank’s capacity to produce bigger revenues was hampered by slow loan distribution, which suggested that it could find it difficult to compete with rivals.
Stable but Pressured Deposit Growth
On the deposit front, the bank’s performance was steady, with deposits growing 13% YoY and 3% QoQ to reach ₹1,09,5882 crore. However, a faster increase in deposit rates compared to advances added pressure on margins. The narrowing spread between deposit and lending rates—a key profitability measure—was another factor that contributed to the market’s negative sentiment.
The Surge in Slippages: A Major Concern
One of the most concerning aspects of Axis Bank’s results was the sharp rise in gross slippages. Gross slippages—loans that have turned non-performing—increased by 46% YoY to ₹5,432 crore, compared to ₹3,715 crore in the same quarter last year. Sequentially, slippages rose 22% from ₹4,443 crore in Axis Bank Q3FY25.
The bank’s lending book is becoming increasingly stressed, as seen by the notable rise in bad loans. Axis Bank set aside ₹2,155 crore to enhance its bad loan provisioning by an astounding 110% in order to address these slippages. Although this action shows caution in risk management, it also had a significant negative impact on the bank’s income, restricting net profit growth to only 4% year over year.
How Axis Bank Performed Poorly Compared to Industry Peers
Even though the macroeconomic climate has been difficult for the banking industry, several of Axis Bank’s rivals have been able to produce better outcomes. Outperforming Axis Bank Q3FY25, banks like HDFC Bank and ICICI Bank have recorded strong advances growth and improved asset quality. This relative underperformance has increased worries about Axis Bank’s capacity to stay competitive.
Investor Attitude: The Reasons for the Market’s Negative Reaction
The market responded quickly and harshly to Axis Bank’s findings. This is the reason:
Miss Earnings: The bank’s growth trajectory was called into question when the net profit statistics failed to meet street expectations.
Weak credit increase: The slower-than-normal increase in advances is a warning sign that there may be future revenue difficulties.
Increasing Stress Levels: The notable increase in provisioning and slippages indicates declining asset quality.
Margin Pressure: Investor worries were heightened by the shrinking net interest margins (NIMs) brought on by growing funding costs.
What’s in Store for Axis Bank?
Despite the uncertain outlook for the near future, Axis Bank may take the following steps to improve performance and regain the trust of investors:
Increase the Growth of Credit
To stay ahead of the competition and increase its market share, the bank must restructure its lending approach. Accelerated growth might be achieved by improving customer acquisition efforts and aggressively pursuing high-growth areas.
Improve the Quality of the Assets
It would be crucial to Axis Bank take proactive steps to control slippages and lessen the load of non-performing assets (NPAs). Future stress in the loan book can be reduced by making an investment in improved risk management mechanisms.
Maximise Your Profits
Enhancing net interest margins (NIMs) will need greater funding cost management and operational efficiency. It might also be beneficial to look into alternate funding options and lessen dependency on expensive deposits.
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Conclusion
Axis Bank Q3FY25 results for Axis Bank show a range of chances and difficulties. Despite seeing a little improvement in net profit, the bank’s performance was clouded by sluggish loan growth, increased slippages, and margin compression. The market’s worries and the necessity for Axis Bank to respond decisively are highlighted by the 3.5% decline in share price.
This episode reminds investors that while assessing a bank’s performance, it’s critical to keep a careful eye on important criteria like asset quality and loan growth. The upcoming quarters will be critical in assessing whether Axis Bank can recover and regain its position as the market leader as it attempts to resolve these problems.