Axis Bank Q1 profit seen rising as deposit costs squeeze margins

Axis Bank is expected to post an 18.6 per cent year-on-year increase in net profit to ₹6,880 crore when it reports first-quarter earnings on Saturday. The bottom-line expansion is largely driven by lower provisioning, even as analysts forecast a 3.1 per cent sequential drop in pre-provision operating profit to ₹10,140 crore. Total income is projected to reach ₹21,650 crore.

Margin pressure takes centre stage

The underlying concern for market professionals is the continued compression of the bank's net interest margin. Consensus estimates peg NIM at 3.53 per cent for the quarter, down from 3.62 per cent in the previous quarter and 3.80 per cent a year earlier. This squeeze stems directly from the bank's shifting deposit mix, with cheaper current account and savings account deposits falling 1.4 per cent sequentially while costlier term deposits surged 5.5 per cent.

Saurabh Jain, Head of Fundamental Research at SMC Global Securities, noted that net interest margins are likely to remain "broadly stable to marginally lower due to deposit repricing and competitive funding costs." Brokerage Kotak Institutional Equities offered a starker view, forecasting an 8 basis point sequential drop in NIM. Motilal Oswal Financial Services similarly expects a 5 basis point quarterly decline.

Loan growth offsets funding headwinds

Despite the funding cost headwinds, the lender continues to expand its balance sheet aggressively. Gross advances rose 18.8 per cent year-on-year to ₹12.73 lakh crore, while total deposits grew 18.2 per cent to ₹13.73 lakh crore. This momentum is expected to push net interest income up 8.9 per cent annually to ₹14,770 crore.

Jain attributed the healthy outlook to "sustained momentum across retail, SME and corporate lending." However, rapid corporate loan growth is partially responsible for the margin dilution, according to Motilal Oswal.

Retail slippages in focus

Asset quality will be another focal point during the earnings call. Kotak warned of seasonally higher loan slippages in the first quarter.

"We expect slippages of nearly ₹4700 crore (nearly 1.5% of loans), mostly led by retail and LLP of nearly 50 bps," Kotak stated. The brokerage added that commentary on the broader asset quality outlook is likely to remain positive.

Investors will be listening for management guidance on FCNR deposits, margin progression, and return on equity normalisation relative to peers. The bank's ability to protect its cheaper deposit base while maintaining loan growth will dictate its valuation. Motilal Oswal expects operating profit to shrink by 1.7 per cent year-on-year, highlighting how current bottom-line growth relies on controlled credit costs rather than core operational leverage.