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AXSB saw a mixed quarter; while NII was in-line, miss on fee/opex was offset by lower provisions. Core PPoP miss of ~6% was mainly led by opex drag due to one-time impact of INR5bn. Ex-FCNR(B), loan growth was 5.3% QoQ attributable to corporate, SME and retail. Reported NIM was down 10bps QoQ to 3.36% due to 11bps temporary drag from FCNR(B). Bank expects this decline to reverse in Q3FY27. While core earnings quality remains weaker to peers due to sharper NIM decline and one-offs, asset quality is a silver lining that continues to improve. We tweak multiple to 1.6x from 1.7x but raise TP to INR1,600 from INR 1,550 as we roll forward to Sep’28 core ABV. Retain ‘BUY

NII in-line, higher opex offset by lower provisions: NII was in-line at INR153.7bn with NIM (calc.) at 3.47% (PLe 3.48%); reported NIM was down 10bps QoQ to 3.36% due to FCNR. Loan/deposit growth at 23.0%/20.7% YoY met PLe. LDR was QoQ to 94.6% from 91.9% in Q1FY27. Other income was lower at INR65.3bn (PLe INR73.5bn) due to a miss on fees. Opex at INR108.2bn was a miss by 5.7%. Core PPoP at INR109.3bn was ~6% below PLe; PPoP was INR110.8bn (PLe INR124.9bn). Asset quality improved; GNPA declined to 1.16% (PLe 1.25%) due to lower net slippages. Gross slippages were lower at INR46.8bn (PLe INR59.8bn); recoveries were INR26.6bn (PLe INR25.5bn). Provisions at INR16.9bn were better (PLe INR22.7bn) due to lesser slippages. Core PAT at INR68.9bn was below PLe (INR72.3bn); reported PAT was INR70bn

Retail loan growth picks up; FCNR supports funding: Credit growth QoQ at 8.9% QoQ was broad based led by corporate (8.0%), SME (8.6%) and retail (9.5%). Corporate growth remains broad-based across capex, project finance, refinancing etc. ECLGS 5.0 sanctions stood at INR107bn, with ~80% disbursed. Ex-FCNR, loan growth was healthy at 5.3% QoQ and retail book growth improved to 3% on strong disbursals, with bank targeting >55% retail mix. Bank garnered FCNR(B) deposits of INR1.1trn with leveraged portion at INR438bn. FCNR funds remain partly undeployed, providing runway for loan growth, while part was used to repay high-cost liabilities.

NIM recovery expected; one-offs weigh on opex: Reported NIM was down 10bps QoQ to 3.36% driven by 11bps temporary FCNR(B) drag; excluding this, NIM was up 1bp QoQ to 3.47%. Bank expects NIM decline to reverse from Q3FY27. Opex was a drag due to (1) one-time impact of INR2.5bn related to labor code and FCNR(B) mobilization and (2) INR5.7bn of other opex of which 60% was attributable to volume, 13% to technology investment & digital and remaining were BAU costs.