Axis Bank: Q2-25 Earnings Call Highlights
Steady operational performance & progress amidst a challenging macroeconomic environment. Building a resilient franchise. Leveraging key acquisitions. Enhancing digital & customer-centric capabilities
axisbank.com | NSE: AXISBANK
1. Key Takeaways
1.1 TLDR
Overall, Axis Bank's Q2 FY25 results reflect steady operational performance and strategic progress amidst a challenging macroeconomic environment.
The bank continues to focus on building a resilient franchise, leveraging key acquisitions, and enhancing its digital and customer-centric capabilities to drive future growth.
1.2 Operational Highlights:
Profitability: Consolidated ROA improved 9 bps YoY and 22 bps QoQ to 1.92%. Consolidated ROE improved 140 bps QoQ to 18.08%.
Operating Performance: Operating profit grew 24% YoY and 6% QoQ, driven by healthy operating income and moderating operating expense growth.
Deposit Growth: The bank delivered above-industry deposit growth at 14% YoY and 2% QoQ. CASA growth remained flat, but the bank highlighted a focus on deposit quality and granularity.
Loan Growth: Net advances grew 11% YoY and 2% QoQ, driven by growth in focus segments like retail, SME, and mid-corporate.
Asset Quality: GNPA declined 29 bps YoY and 10 bps QoQ to 1.44%. Net NPA declined 2 bps YoY to 0.34%. The bank emphasized that asset quality improved despite some stress in unsecured portfolios.
Capital Adequacy: The bank remains well-capitalized with a CAR of 16.61% and CET1 ratio of 14.12%.
1.3 Key Themes:
Building a Resilient, All-Weather Franchise:
Project Triumph: The bank's deposit transformation program continues to drive improvements in deposit franchise quality and strength.
Branch Expansion: Axis Bank opened 150 new branches in Q2, focusing on both urban and rural markets.
Premiumization: The bank is seeing strong growth in its Burgundy wealth management platform, with AUM exceeding INR 2 lakh crores.
Transaction Banking: Customized solutions are driving higher transaction banking flows and improving current account balances.
Strengthened Core: Investments in core technology, cybersecurity, and risk management continue to strengthen the bank's foundation.
Creating Multiplicative Forces to Build Competitive Advantage:
UPI Leadership: Axis Bank is the leading UPI Payer PSP bank in India with a market share of 30.87%.
Citi Integration: The successful integration of the erstwhile Citi consumer business has significantly strengthened Axis Bank's presence in the retail segment.
Building for the Future:
Digital Banking: The bank continues to enhance its digital offerings, including the rollout of Neo for Corporates and Neo for Businesses.
Bharat Banking: Rural advances grew 20% YoY, demonstrating the success of the bank's focus on expanding its reach in rural markets.
Customer Obsession: Sparsh 2.0, the next phase of the bank's customer obsession program, aims to further enhance customer satisfaction and drive business outcomes.
1.4 Key Quotes
"We find favourable macros backed by a strong and stable domestic policy environment which bodes well for the banking sector… We will continue to invest where necessary to remain differentiated and distinctive in our journey towards building ‘an all-weather institution’."
"Overall, what I would like to indicate to you is asset quality for Axis is not as commented or observed in your initial observation… We are not in the price game for garnering deposits."
"On the whole, our deposit journey… we continue to invest in building a quality franchise, improving the LCR, the outflow ratios, and improving the quality of deposits and the premiumization of the entire deposit base.”
1.5 Analyst Concerns
Reiterating Asset Quality Improvement: Management emphasized that asset quality metrics, including GNPA, net NPA, and slippage ratios, have all improved sequentially and year-on-year.
Explaining Stable Margins: The bank attributed its stable margins to disciplined deposit pricing and effective management of balance sheet construct and loan pricing.
Clarifying CD Ratio Management: While the bank acknowledged ongoing discussions with the regulator about CD ratios, they stated that their current operating level is comfortable and in line with regulatory expectations.
Axis Bank Q2 FY25 Earnings Call FAQ
1. How has Axis Bank's asset quality performed in Q2 FY25?
Contrary to some perceptions, Axis Bank's asset quality has improved in Q2 FY25. Both gross NPAs and net NPAs have declined year-on-year and sequentially. Key indicators like gross slippage ratio and net slippage ratio have also seen improvements. The bank has also made prudent provisions for non-NPA assets to further strengthen its balance sheet.
2. Why did Axis Bank's provisions and contingencies increase despite improved asset quality?
While loan loss provisions decreased, the bank proactively added to its non-NPA provisions. This addition of ~INR 520 crores is a precautionary measure to enhance balance sheet robustness and is not indicative of expected NPA increases.
3. Why did Axis Bank's Net Interest Margin (NIM) decline?
The reported NIM decline is primarily due to the absence of a one-time income tax refund interest received in the previous quarter. The core business spreads have remained relatively stable.
4. What is Axis Bank's strategy to manage its Credit Deposit (CD) ratio?
Axis Bank is comfortable operating within its current CD ratio band and does not plan to sell down its retail portfolio for CD ratio management. They are following regulatory guidance and believe their current CD ratio is appropriate.
5. How is Axis Bank addressing concerns about stress in the unsecured lending portfolio?
The bank acknowledges industry-wide stress in unsecured lending, including credit cards and personal loans. They are taking proactive steps to manage this by tightening scorecard cut-offs, curtailing spending limits, and closely monitoring portfolio performance.
6. Why hasn't the CASA deposit base grown significantly despite efforts to acquire more salary accounts?
While the CASA ratio has remained relatively flat, the bank has focused on attracting granular, sticky deposits through salary accounts and premium accounts. They are also prioritizing deposit growth from all business segments. The overall deposit growth rate is higher than the industry average.
7. What is the impact of the recent RBI regulations on private sector bank investments in subsidiaries on Axis Bank?
Axis Bank is currently evaluating the implications of the draft circular and will seek clarifications where needed. They will determine their course of action once the final guidelines are released, ensuring any decision is in the best interests of their shareholders.
8. What is Axis Bank's outlook on borrowing costs and margins?
While a change in the RBI's stance to neutral has been noted, the likelihood of an immediate rate cut appears low given the recent inflation figures. Axis Bank expects borrowing costs to stabilize once there is a definitive shift in the RBI's rate guidance. They maintain a structural NIM guidance of 3.8% on a two-cycle basis and aim to preserve the cushion above this guidance.
Source: Link to Earning Call Transcripts
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