Axis Bank is the third largest private sector bank in India with a balance sheet size of ~₹ 15 lakh crore. Strategy to focus on retail & MSME segment with emphasis on risk adjusted return has aided improvement in RoA & RoE.
• Retail and SME comprise ~71% of total loans
Q4FY25 performance: Axis Bank reported mixed performance in Q4FY25 with improved asset quality but slower business growth. Advances grew 8% YoY (3% QoQ) to ₹10,40,811 crores, driven by retail loans at 7% YoY (3% QoQ), SME at 14% YoY (4% QoQ). Deposit accretion remained strong at 10% YoY (7% QoQ) to ₹11,72,952 crores, led by term deposits up 14% YoY (5% QoQ). Margins improved 4 bps QoQ to 3.97%, owing to focus on better yielding segments. Fee income growth remained healthy with continued control on opex. Reversal of ₹800 crore of provision related to SR has resulted in decline in credit cost at ~50 bps, thus keeping earnings flat at ₹7,117 crore. GNPA improved 18 bps QoQ to 1.28%, led by elevated write-off, while NNPA improved to 0.33% (down 2 bps).
Investment Rationale
• CD ratio comfort and ample liquidity set stage for re-acceleration: Credit growth remained tepid at 8% YoY (3% QoQ), weighed down by muted performance in home loans (0.8% YoY), credit cards (4.3% YoY), and personal loans (8% YoY). However, loan against property and small business banking segments exhibited strong resilience, growing 18.3% and 16.7% YoY, respectively. With CD ratio now at a comfortable 88.7% and systemic liquidity showing signs of improvement, credit momentum is poised to reaccelerate. Strategic emphasis on improving deposit granularity and cost efficiency has helped contain funding pressures. As a result, credit growth is expected to compound at ~12.2% CAGR over FY26–27E.
• Strategic mix and ALM shield NIMs from rate cut pressure: Supported by a tightly matched asset-liability duration, recent cut in repo rate is expected to have a minimal bearing on margin trajectory, although interim quarterly volatility could not be ruled out. Notably, despite a moderation in CD ratio to 88.7%, margins improved by 4 bps QoQ—driven equally by interest reversals and enhanced asset yields. On a full-year basis, we expect the margin compression to remain contained at ~10–12 bps, underpinned by 25 bps cut in interest on savings deposit and calibration in term deposit rates, alongside a strategic shift in business mix to preserve yield momentum.
• Slippages trend lower, personal loan segment remains watchful: Asset quality improved with slippages declining 25 bps QoQ to 1.85% in Q4FY25. GNPA/ NNPA ratio improved 18/ 2 bps QoQ to 1.28%/ 0.33%. Credit cost declined at ~50 bps, including reversal of ₹800 crore related to security receipts. Management indicated stabilizing of stress in credit card segment, while personal loans is expected to take a few quarters to show improvement which was a change in earlier stance. Expect credit cost at ~70-75 bps in FY26-27E.
Rating and Target Price
• Sustained and consistent execution on growth and asset quality front is seen to aid valuation. Steep discount compared to private peers warrants re-rating. Thus, we revise our target price to ₹1350, valuing the stock at ~1.6x FY27E BV and ₹100 for subsidiaries. Maintain Buy rating