When the private lender releases its Q2 performance on October 20, it is anticipated that Axis Bank Ltd. would record a 45 percent year-over-year increase in its net profit for the July-September quarter, driven by solid core income growth and improving asset quality.
According to the average forecasts of eight brokerages surveyed by Moneycontrol, the bank's net profit for Q2FY23 is anticipated to be approximately Rs 4,561 crore, driven by a 25% increase in net interest income to Rs 9,921 crore.
Analysts predict that the private bank would experience loan growth of about 17%, which is still less than some of its larger competitors, including HDFC Bank and ICICI Bank.
However, given rate transmission, we anticipate front-ended NIM expansion for the bank, according to analysts at Elara Securities Ltd.
"However, this will somewhat be balanced by improved NIMs," they wrote in a note.
Given that the lender passed on policy rate increases to its loan rates, the net interest margin at Axis Bank may improve more than expected.
In other words, the lender not only made more loans throughout the quarter, but also made more money from them.
Mixed operating metrics
Due to pressure on treasury income, non-interest income may be muted even though core interest income is expected to expand strongly.
But because yields fell throughout the quarter, the bank might not experience a significant mark-to-market blow on its bond holdings, unlike the prior quarter. Bond prices increase as bond yields decrease and vice versa.
For the quarter of July through September, analysts at Nuvama Research, formerly Edelweiss Securities, anticipate a 1% decline in non-interest income.
This could restrict the growth in operating profit to about 19% combined with increased operating costs.
Operating expense growth is expected to remain at 4% QoQ, translating to a growth of 17% year over year, according to ICICI Securities analysts.
Deposit growth could be slower in the midst of exceptional loan growth, according to analysts.
The percentage of low-cost current and savings accounts (CASA) in total deposits would be the determining factor, even though Axis Bank won't be an anomaly in slower deposit growth. The bank's CASA deposits made up 43.7 percent of the total as of April through June.
Asset quality boost
The consistent increase in Axis Bank's asset quality is what makes its profitability robust.
Analysts predict that provisions will practically half from the same period last year, increasing profits for the September quarter.
Bad loan ratios are anticipated to decrease, in part because of renovations and also because of rapid loan growth.
Additionally, it is anticipated that new slippages will decrease by at least 5% consecutively. Axis Bank's slippage ratio was 2.19 percent in Q1 FY23, and it is anticipated to drop to 2 percent in July–September.
According to ICICI Securities, "additionally, there could be stronger recoveries and upgrades QoQ, which should result in reduced GNPA QoQ."
The bank's shares have increased by 16 percent over the last three months, which would be justified by in-line earnings performance.
Investors would then pay attention to the management's commentary on how the acquisition of Citibank's credit card business was going.
Investors would also be interested in the operational expense outlook and capital raising initiatives.