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AXSB saw a decent quarter due to better deposit growth at 7.0% QoQ (PLe 3.0%) and higher fees (8.7% beat). Adjusted for (1) PSLC income of Rs1.7bn (2) PSLC cost of Rs5.9bn and (3) provision write-back of Rs8.0bn in SR, core PAT beat PLe by 5.0% to Rs65.8bn. Since higher LDR was a constraint to healthy loan growth, balance sheet has been repaired as LDR declined QoQ to 88.7% from 92.6% in Q3FY25. While asset quality was better owing to lower net slippages, provisions adjusted SR write-back, remained elevated at 86bps (PLe 81bps) led by higher write-offs. CC has stabilized whereas PL would take a few more quarters to normalize; MFI share is not material at ~1% of retail loans. Owing to improved LDR, we tweak multiple to 2.0x from 1.9x and increase TP to Rs1,500 from Rs1,350 as we roll forward to Mar’27 ABV. Retain ‘BUY’.

? Decent quarter due to better deposit growth and fees: NII was lower at Rs138.1bn (PLe Rs140.4bn) due to miss on NIM while loan growth was in-line at 7.8% YoY. NIM was a miss at 3.75% (PLe 3.88%) as yields saw a blip at 9.8% (PLe 10.1%) owing to surplus liquidity offset by lower cost of funds. Deposit accretion was higher at 9.8% YoY (PLe 6.0%); CASA ratio increased to 40.8% (39.5% in Q3’25). Other income was higher at Rs67.8bn (PLe Rs61.2bn) due to beat on fee income. Opex at Rs98.4bn was a miss by 5.6% owing to 13.5% QoQ jump in other opex. Core PPoP at Rs105.8bn was 0.8% miss to PLe; PPoP was Rs107.5bn. Asset quality improved as GNPA declined by 18bps QoQ to 1.28% (PLe 1.46%) due to lower net slippages. Provisions were lower at Rs13.6bn (PLe Rs20.4bn); PCR dipped by 162bps QoQ to 74.6% led by more write-offs. Core PAT was 8.2% above PLe at Rs67.8bn. PAT was Rs71.2bn.

? LDR improves sequentially due to better deposit growth: Credit growth picked up to 2.6% QoQ compared to 1.5% in Q3’25 and mainly led by retail/SME at 2.8%/3.9%; corporate grew by 1.6%. Unsecured growth remains muted owing to asset quality challenges; however, as per the bank, CC has stabilized whereas PL would take a few more quarters to normalise. MFI contribution at ~1% or Rs60bn of retail loans is not material. Overhang on LDR goes away as deposit accretion at 7.0% QoQ was much better due to which LDR declined QoQ to 88.7% from 92.6%. Hence we slightly increase loan growth by 1% each in FY26/27E to 11%/12% YoY.

? Better asset quality; write-back in SR provision: Slippages were at Rs48.1bn (Ple Rs46.3bn) offset by more recoveries at Rs27.9bn (PLe Rs22.6bn). Split of slippages were: retail Rs45.1bn, SME/CBG-Rs1.96bn and corporate-Rs1.02bn. AXSB has become more stringent in terms of classification of accounts which could impact slippages in FY26. Management does not expect this impact to be material, but we raise provisions for FY26/27 by 4/2bps to 75/72bps. Pursuant to RBI’s revised norms for Govt. guaranteed SRs, the Bank has written back provisions of Rs8.01bn SRs.

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