Axis Bank Growth Outlook Improving; NIMs To Bottom Out In 4Q/1Q - MOFS Report

Private sector lender Axis Bank is expected to deliver a return on assets (RoA) of 1.61%, and return on equity (RoE), attaining a neutral outlook with a target price of Rs 1,300, according to a Motilal Oswal Financial Services (MOFSL) note.

Axis Bank Growth Outlook

The Mumbai-headquartered bank is entering a repair phase, with advances growing 12% YoY and 5% QoQ in 2QFY26, supported by a pickup in wholesale banking and improving traction in granular segments.

"The SBB, SME, and mid-corporate book at ~INR2.66t now constitutes ~24% of total advances, rising ~740bp over four years, reflecting a conscious shift toward higher risk-adjusted return portfolios," as per the brokerage note.  

Meanwhile, the Amitabh Chaudhary led private lender has recorded retail a slowdown in retail growth post  the unsecured cycle correction, with vehicle loans and mortgages remaining soft, reflecting industry trends/margin considerations.

However, disbursements have begun to improve, which should gradually translate into stronger AUM growth. The cards portfolio has stabilized, while personal loan disbursements are picking up, albeit with a lagged impact on balance sheet.

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Axis Bank Management's Key Expectations

The private sector banking major's top management remains "confident of outpacing system growth, targeting ~300bp faster growth over the medium term as execution improves through FY27."

"The liability franchise remains the most critical execution variable for AXSB in the current cycle. Deposits grew 11% YoY and quarterly average balances rose 10% YoY in 2QFY26, reflecting steady yet sub-optimal traction in a highly competitive deposit environment," it said.

"Management acknowledged the need for improved deposit traction to drive faster asset growth," it said.

Currently, the industry is struggling to attract Current Account/Savings Account deposits, incremental flows are skewed towards wholesale deposits, putting pressure on both consistency and mix.

"Despite this, early repricing actions have yielded results, with cost of funds declining 24bp QoQ and 30bp YoY, while CASA remains stable at ~38–40%. Liquidity remains comfortable, with an average LCR of ~119%, though the focus has shifted from LDR optimization to LCR management," it said.

Ongoing liability initiatives and execution focus are expected to gradually narrow the funding gap vs peers over time.

NIMs likely to bottom out in 4Q/1Q; guidance reiterated for 3.8% in 15-18 months

NIMs contracted 7bp QoQ in 2QFY26 to 3.73%, and management suggested that margins will continue to reflect drag from repo-linked repricing and a deliberate moderation in unsecured retail. Management now expects margins to bottom out in 4QFY26 or 1QFY27, as the impact of the 25bp repo cut largely flows through, while higher LCR outflow rates could further exert pressure on margins.

With benefits from CRR cuts, asset mix improvement, and residual deposit repricing, AXSB remains confident of restoring cycle-agnostic NIMs to ~3.8% within 15 to 18 months from the date of the last repo rate cut.