Axis Bank Q1 FY27 earnings call

Axis Bank demonstrated strong growth momentum in Q1 FY27, with total advances increasing by 19% YoY and 2% QoQ. This growth was broad-based, with Wholesale advances up 38% YoY, SME up 25% YoY, and Retail up 8% YoY. The bank also saw significant deposit accretion, with total deposits growing 18% YoY and 6% QoQ, driven by 21% YoY growth in term deposits and 13% YoY growth in CASA. Management noted that the bank continues to gain market share in both advances and deposits.

The Net Interest Margin (NIM) for Q1 FY27 stood at 3.46%, marking a 34 bps YoY and 16 bps QoQ decline. Management attributed this compression primarily to the full impact of 125 bps repo rate cuts (19 bps) and a change in balance sheet mix (16 bps YoY), along with competitive loan pricing (9 bps QoQ). Despite this, the bank views 3.46% as the 'cycle bottom' and remains committed to its structural NIM target of 3.8% in the medium term, aiming to achieve this through balance sheet recalibration and deployment of new opportunities like FCNR (B) deposits.

Asset quality continued to improve, with Gross Non-Performing Assets (GNPA) declining 29 bps YoY to 1.28% and Net Non-Performing Assets (NNPA) falling 6 bps YoY to 0.39%. The net credit cost for the quarter was 0.63%, down 75 bps YoY. The bank maintains a healthy Provision Coverage Ratio (PCR) of 70% and standard asset coverage of 1.24%. Additionally, the bank holds cumulative non-NPA provisions of ₹15,608 crores, including a proactive one-time^📎 provision of ₹2,001 crores created in Q4 FY26, which remains undrawn and acts as an additional buffer of ~52 bps.

Axis Bank successfully raised US$600 million in Additional Tier 1 (AT-1) and US$300 million in senior debt during the quarter, further strengthening its capital position and funding profile. The AT-1 raise contributed 34 bps to overall capital adequacy, with the CET-1 ratio (including Q1 FY27 profit) standing at 14.64%. Management reiterated that no equity capital is needed for either growth or protection, emphasizing the bank's robust balance sheet and financial flexibility.

The bank demonstrated improved operational efficiency, with the cost-to-assets ratio declining to 2.20%, down 21 bps YoY and 8 bps QoQ. Operating expenses declined 7% QoQ, partly due to one-time^📎 reversals related to provident fund liability and gratuity. Technology and digital expenses constituted approximately 11% of total operating expenses, reflecting ongoing investments in AI and CX platforms. The bank's AXIOM enterprise AI model aims to systematically embed AI across its functions, enhancing sourcing, credit decisions, and customer experience.

Axis Bank's loan book is granular and well-balanced, with retail advances constituting 54%, corporate loans 34%, and CBG 12%. Retail disbursements grew 18% YoY, with home loans up 24% and personal loans up 23%. Domestic subsidiaries reported a net profit of ₹546 crores, growing 21% YoY, with Axis Finance's PAT up 29% and Axis Capital's PAT up 72%. This diversified portfolio and strong subsidiary performance contribute to the bank's overall resilience and growth strategy.

The bank identified FCNR (B) deposits as a meaningful opportunity to augment its deposit base, attracting strong interest from NRI customers. While quantitative details will be provided in Q2 FY27, management highlighted the high quality of its overseas book, with 98% rated A- and above, and 64% of outstanding loans to top 10 conglomerates. This strategic focus on FCNR (B) is expected to provide additional liquidity for deployment and contribute to deposit growth.

Management clarified its strategy for corporate lending, emphasizing that returns are assessed holistically, considering not just NIM but also other revenue streams like higher balances, trade fees, and FX. Despite lower NIMs typically associated with wholesale banking compared to retail, the bank ensures that corporate loans meet internal RAROC (Risk-Adjusted Return on Capital) thresholds. This approach allows the bank to capitalize on opportunities in sectors with economic tailwinds and clients with reciprocal flows, contributing to overall profitability.