Axis Bank’s first-quarter results have raised concerns as the bank faced operational challenges. The Net Interest Margin (NIM) reached its lowest point in three quarters, impacting profitability. The bank’s profit for the quarter fell below expectations, partly due to a significant increase in provisions, which tripled during this period. Axis Bank’s provisioning for the first quarter of FY24 escalated from Rs 359 crore to Rs 1,035 crore.
Operational Challenges and Lowest NIM Impact Profitability
Despite the challenges, certain positive trends were observed in the bank’s performance. Loan growth in rural areas stood at an encouraging 22%, demonstrating the bank’s presence in the countryside. Additionally, Axis Bank witnessed robust growth in lending to small businesses, with loan growth increasing by an impressive 46%.
Total deposits also showed healthy growth, rising by 17% year-on-year, reflecting the bank’s ability to attract and retain customer funds. Such positive developments prompted brokers to issue an Overweight rating on Axis Bank following the release of its financial results.
Tripled Provisions: Impact on Axis Bank’s Q1 Profit
Among these brokers, JP Morgan stands firm on its Overweight rating for Axis Bank. The bank has set a target price of Rs 1,000 per share. JP Morgan highlights that the net profit exceeded estimates by 2% due to lower provisioning. However, the core Pre-Provision Operating Profit (PPoP) fell short of expectations. The compression of core NIMs on a quarterly basis resulted from re-pricing efforts.
The overall loan growth for the bank was modest at 2% on a quarterly basis, indicating a cautious approach. There were signs of normalization, but asset quality deterioration remained a concern. The bank’s credit cost stood at 50 basis points during this period.
Despite the challenges, Axis Bank managed to achieve a Return on Assets (RoA) of 1.8%, thanks to treasury gains.
Overall, Axis Bank’s first-quarter performance indicates a mixed bag of results, with both positives and challenges to address. Investors and stakeholders are keeping a close eye on the bank’s strategies to navigate through these uncertainties.