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Deposit growth a key to achieve targeted loan growth

AXSB saw a mixed quarter as better fees and asset quality was offset by miss on NII and opex. NII growth at 1.2% QoQ was lower to loan growth of 6.4% led by back-ended corporate accretion. Due to tax benefit of INR 21.9bn, buffer provisions of INR 20bn were created. We raise loan growth for FY27/28E by 100bps each to 13%. However, with CET-1 of ~15%, LDR of 92% and LCR of 117%, deposit growth would be a key driver to loan growth. We trim NIM for FY27/28E by avg. 10bps that would be offset by better loan growth/fees/opex; cut core PAT by avg. 2%. We keep multiple at 1.7x but as we roll forward to FY28 core ABV, raise TP to INR 1,600 from INR 1,500. Retain ‘BUY’.

Mixed quarter; NII and opex miss offset by better fees and asset quality:

NII was lower at INR 144.6bn (PLe INR 148.5bn) due to miss on NIM (calc.) that was 3.48% (PLe 3.59%); reported NIM was down 2bps QoQ to 3.62%. Loan and deposit growth were in-line at 18.5%/13.9% YoY. LDR was steady QoQ at 92%. CASA ratio increased to 39.6% (39.1% in Q3’26). Other income was lower at INR 60.2bn (PLe INR 65.3bn) due to MTM loss. Fee was 2.4% higher at INR 65.6bn. Opex at INR 104.7bn was a 4.1% miss due to higher staff cost and other opex. Core PPoP at INR 105.5bn was 5.8% below PLe; PPoP was INR 100.1bn. Asset quality improved; GNPA was lower 1.23% (PLe 1.36%) due to lesser gross slippages at INR 47.1bn (PLe INR 57bn). Excl. one-time impact, provisions at INR 15.3bn were lower (PLe INR 21.9bn). At normal tax rate of 25%, core PAT was largely in-line at INR 67.7bn. PAT was INR 70.7bn.

Loan growth was led by corporate:

Credit growth was healthy at 6.4% QoQ mainly led by corporate (+10%), agri (+10%), SME (+5.7%) and SBB (+6.9%). NII growth at 1.2% QoQ was lower, likely due to back-ended corporate loan accretion. Target is to reach retail/wholesale mix of 70:30, with wholesale growth driving near-term NII optimization and medium-term rebalancing toward retail. We raise loan growth by 100bps for FY27/28E to 13%. However, with CET-1 at ~15%, LDR at 92% and LCR at 117%, deposit growth is a key to achieve targeted loan growth.

Opex disappoints; additional provision buffer created:

Staff cost increase was led by rate movement driven provisioning while other opex was higher led by volume linked expenses. Provision included INR 20bn one-time std. asset provision as tax depreciation of INR 21.93bn was allowed which pertained to intangibles of INR 87.14bn (amortized fully in FY23) related to acquisition of Citi’s consumer business.

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