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Updated January 24th, 2024 at 14:53 IST

Axis Bank warns of rising credit costs, shares fall over 6%

Axis Bank shares plunged as much as 6.24 per cent to hit an intraday low of Rs 1,020.85 per share.

Axis Bank shares fall
Axis Bank shares fall | Image:Pexels
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Axis Bank in focus: Axis Bank shares struggled during the early trade on Wednesday despite reporting in-line earnings in December quarter (Q3FY24) after the bank’s management hinted that funding costs will continue to inch up over the next two quarters impacting net interest margins (NIMs) going ahead. 

Axis Bank shares plunged as much as 6.24 per cent to hit an intraday low of Rs 1,020.85 per share.

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Axis Bank's December quarter earnings were in line with expectations, with a profit after tax (PAT) of Rs 6,071 crore, reflecting a 3.5 per cent quarter-on-quarter (QoQ) growth. The performance was supported by robust other income and credit growth, offset to some extent by higher provisions linked to Alternate Investment Fund (AIF)-related factors, analysts said. 

Net Interest Income (NII) witnessed a modest 9 per cent annual growth and a 1.8 per cent quarterly growth to Rs 12,532 crore. Despite the growth, reported margins declined by 10 basis points quarterly to 4.01 per cent, primarily due to an uptick in funding costs.

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Operating expenses grew by 31 per cent annually and 3 per cent quarterly, aligning with ongoing investments in digital and technology, employee increments, and expenses related to the integration of Citi. 

Meanwhile, pre-provision operating profit (PPoP) showed 5.9 per cent quarterly growth to Rs 9,140 crore, in line with expectations.

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Axis Bank's loan book demonstrated a robust 22 per cent annual and 3.9 per cent sequential growth, with retail and corporate loans rising by 5.3 per cent and 1.3 per cent quarterly, and small medium enterprises (SME) loans witnessing faster growth at 26 per cent annually and 4.2 per cent quarterly. 

On the asset quality front, fresh slippages increased to Rs 3,720 crore, against Rs 3,250 crore in the September quarter (Q2FY24). However, the Gross Non-Performing Asset (GNPA) ratio improved by 15 basis points QoQ to 1.58 per cent, while the Net NPA ratio remained stable at 0.36 per cent. 

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In its management commentary, Axis Bank made full provisions for its entire Alternative Investment Fund (AIF) investments of Rs 182 crore, with 46 per cent in government-related securities. 

The bank maintained its guidance of maintaining a 400-600 basis points differential between its growth and industry growth over the medium term. It anticipates continued deposit repricing until Q1FY25, with a slowing pace. 

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The bank further expects recoveries and upgrades to decline, leading to an increase in credit costs. Despite these challenges, Axis Bank currently has no plans to raise capital in the near term.

The bank's future performance will be closely monitored for near-term growth, considering the elevated Credit-to-Deposit (C/D) ratio constraining credit growth and the ongoing repricing of deposits potentially impacting margins, the brokerage firm highlighted. 

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Motilal Oswal analysts revised down the Financial Year 2025 earnings per share (FY25 EPS) estimates by 8 per cent, factoring in increased costs and margin pressures. Therefore, the rating has been downgraded by the brokerage firm to ‘Neutral’ with a revised Target Price (TP) of Rs 1,175 per share.

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Published January 24th, 2024 at 10:34 IST

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