Axis Bank Q2 profit miss: Why the market isn't worried

Copyright © HT Digital Streams Limited All rights reserved. Ananya Roy 3 min read Oct 16, 2025, 4:29 pm. IST Axis Bank, the first among major banks to announce its Q2 results, posted a net profit of ₹5,090 crore, down 26% YoY and down 12% sequentially. (File Photo: Reuters) Summary Margins held up despite RBI rate cuts, loan growth outperformed peers, and asset quality improved sequentially, easing investor concerns. Axis Bank’s September quarter results were widely expected to bear the brunt of the Reserve Bank of India’s (RBI) monetary policy easing and change in stance, given that 72% of its advances are linked to floating rates. In June, the RBI cut key lending rates by 50 basis points (bps) and shifted to a neutral stance from accommodative, pushing yields higher. This was seen as a double whammy for banks: net interest margins (NIMs) would bear the full impact of the rate cut, while trading profits would suffer from rising yields. For Axis Bank, analysts wrote in a sequential NIM compression of 25-30 bps, even as higher “technical” expenses after its FY25 annual inspection continued to weigh on its reported asset quality and profits. But barring some one-offs like making default provision on two discontinued crop loan variants, the lender has outperformed on many parameters against gloomy expectations. Yields on advances did compress 30 bps sequentially, but cost of funds fell by 24 bps, leading to a 7 bps drop in NIM to 3.73% in Q2FY26. Loan growth of 12% year-on-year (YoY) outpaced industry-level credit growth of 10.4% in the two weeks ended September 19, as 20% growth in corporate credit negated sluggish retail lending. The outcome? Instead of the expected decline in net interest income (NII), Axis Bank saw a rise of 2%. Fee income also rose a healthy 10% y-o-y to ₹6,037 crore, offsetting the 55% drop in its trading income to ₹498 crore caused by higher returns. Yet pockets of risk remain. Deposit growth of 10.7% was slower than credit growth, resulting in an acceleration of credit-deposit ratio to 92.8%. This not only limits room for credit growth, but can also weigh on margins if the bank is forced to borrow at higher rates to fill the gap. Further, following the RBI’s FY25 annual inspection, which found its non-performing asset (NPA) norms to be too liberal, Axis Bank has changed its NPA classification standards. This led to a rise in slippage to ₹8,200 crore in Q1FY26 from around ₹4,800 crore in Q4FY25, which the bank maintained was “technical”, and not indicative of asset-quality deterioration. The impact carried over into Q2FY26, with standard asset provision of ₹1,231 crore and a priority sector loan certificate of ₹474 crore eroding profits during the quarter. Another ₹474 crore will be absorbed over the next two quarters. Operating performance Operating profit fell by 3% year-on-year due to lower trading income. Credit costs (gross recoveries) were reported at 0.95%, which would have been 0.86% were it not for the “technical” provisions. The bank wrote off R3 265 crore worth of assets in Q2FY26. Still, asset quality has improved sequentially, as seen in lower slippage and credit costs. Gross and net NPAs declined from 1.57% and 0.45% in Q1FY26 to 1.46% and 0.44% in Q2FY26. While further RBI rate cuts may depress NIM, the bank aims to improve asset quality in its unsecured retail book, supporting future retail loan growth. This is the way for the bank to drive retail lending, potentially benefiting from the goods and services tax (GST) cuts driving festive demand. Coupled with the RBI’s CRR cut, management expects industry credit growth to outperform by 300 bps. These silver linings appeared to ease investors’ concerns about the 26% year-over-year decline in net profit. After a year of underperformance—shares are up 4% versus Nifty Private Bank’s return of 9%—incred Research Services estimates place the stock at an attractive 1.3x September 2027F book value, leaving room for appreciation. Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #Axis Bank #mark to make Read next story