Axis Bank Shares Fall 6% After Q1FY26 Profit Decline and Asset Quality Concerns

On Friday, Axis Bank shares fell by 6 percent touching a day’s low price of Rs. 1,086 on NSE after it disclosed Q1FY26 financials, which underscores its operational strength amid shifting asset recognition standards and a challenging macro environment. The bank reported a standalone net profit of Rs 5,806 crore for Q1FY26, marking a 4 percent decline year-on-year (YoY) from Rs 6,035 crore recorded in the same period last year. This reduction in profit is a result of significant technical impact related to changes in its asset classification and income recognition policies, which led to elevated slippages and consequently higher provisioning during the quarter. Excluding this “technical impact,” management asserted that most of the contracts slipping into non-performing status are fully secured, indicating that the economic loss is expected to remain minimal over the tenor of these loans.

Despite the slight fall in profits, Axis Bank’s core income continued to exhibit resilience. Net Interest Income (NII) rose by 1 percent YoY to Rs 13,560 crore, reflecting steady loan book expansion, while Net Interest Margin (NIM) came in at 3.80 percent for the quarter, down from 4.05% in Q1FY25 due to the impact of revised accounting and higher cost of funds. The bank registered growth in fee income, which expanded by 10 percent YoY to Rs 5,746 crore, while trading income surged dramatically by 249 percent to Rs 1,420 crore. As a result, overall non-interest income increased by 25 percent to Rs 7,258 crore, contributing to an 8 percent rise in operating revenue to Rs 20,818 crore. Operating expenses remained tightly managed, with a modest 2 percent YoY increase to Rs 9,303 crore, helping operating profit scale up 14 percent YoY to Rs 11,515 crore. On a core basis, the operating profit improved by 5 percent YoY to Rs 10,095 crore, excluding trading income and exchange gains.

In asset quality, the bank’s gross non-performing assets (GNPA) ratio rose to 1.57 percent, up 29 basis points sequentially, and net NPA climbed to 0.45 percent, up 12 basis points over the quarter. This uptick in slippages was expected after the bank adopted stricter standards for asset classification, primarily impacting cash credit, overdraft-based facilities, and accounts with one-time settlements. The gross slippage ratio spiked to 3.13 percent, while the net slippage ratio stood at 2.33 percent. Provisions for the quarter shot up to Rs 3,948 crore, nearly double compared to the previous year, and much higher than in the preceding quarter, reflecting the one-off technical impact of these policy changes.

The bank maintained a strong capital position with an overall Capital Adequacy Ratio (CAR) of 16.85 percent and a Common Equity Tier-1 ratio (CET-1) of 14.68 percent as of June 30, 2025. The provision coverage ratio stayed healthy at 71 percent, ensuring a buffer against further credit stress. Advances grew by 8 percent YoY to Rs 10,59,724 crore, while total deposits surged 9 percent YoY to Rs 11,61,615 crore, demonstrating the bank’s competitive strength.

Regarding business mix, retail loans grew by 6 percent, rural lending by 5 percent, SME loans by 16 percent, and corporate loans by 9 percent. Despite relatively slower retail and rural credit growth, Axis Bank continued to lead in digital payment solutions, maintaining an approximate 32 percent market share in UPI payer transactions and nearly 20 percent share in merchant acquiring business.

CEO Amitabh Chaudhry reaffirmed confidence in the bank’s growth platform and is confident that Axis Bank aspires to outpace industry growth during FY26, foreseeing acceleration in credit activity across its key segments. Management highlighted that the current quarter’s asset quality movements are transitional and largely technical, not reflective of underlying stress, and expect normalisation through the remainder of the year.