Why Axis Bank Share Price is Falling

Investor anticipation for the Union Budget 2024 created a buzz in the Indian stock market. However, the post-budget sentiment took a sharp downturn.

The banking sector also felt the brunt of the market's pessimism. The Nifty Bank index experienced a significant decline. It fell 3.1% in the past five days.

Another factor dragging down the Nifty Bank Index is a steep fall in Axis Bank's share price. The banking company's share price fell 5% yesterday.

Axis Bank announced its Q1 results which appears to have exacerbated the downward pressure on the stock.

Let's take a look at bank's quarterly results.

Weak Quarterly Results

For Q1 FY25, the bank reported a 12% growth in net interest income (NII) year-on-year to Rs 134.5 bn. The income grew due to higher interest earned compared to interest paid.

During the quarter under review net profit increased by 4% to Rs 60.4 bn, reflecting improved operational performance. The net interest margin (NIM) also rose to 4.1%, indicating better profitability from core banking operations.

However, the bank's asset quality deteriorated. Gross non-performing assets (NPA) increased to 1.5%, and net NPA levels rose to 0.4%, up from 1.43% and 0.31% as of 31 March 2024. This increase in NPAs reflects worsening asset quality, contributing to the decline in the share price.

This increase in NPAs indicates a higher level of loans turning bad, which is a red flag for investors. Higher NPAs suggest that more borrowers are struggling to repay their loans, which can impact the bank's profitability and financial stability.

The rise in NPAs also led to higher provisions and contingencies. The bank had to set aside Rs 20.4 bn for Q1 FY25 to cover potential loan losses. Specific loan loss provisions stood at Rs 25.5 bn. These higher provisions indicate that the bank expects more loans to default, further straining its financial health.

Gross slippages during the quarter were Rs 47.9 bn, compared to Rs 34.71 bn in Q4 FY24 and Rs 39.9 bn in Q1 FY24. Recoveries and upgrades from NPAs were Rs 15 bn.

The bank wrote off NPAs totaling Rs 22.1 bn. This increase in slippages suggests that new bad loans are emerging at a faster rate, exacerbating concerns over the bank's asset quality.

Recoveries from written-off accounts were Rs 5.91 bn, while recoveries and upgrades from NPAs were Rs 15.03 bn. Despite these recoveries, the net impact of higher slippages and provisions has raised alarm among investors.

The provision coverage ratio, which includes specific, standard, and additional provisions, stands at 150% of GNPA, reflecting the bank's efforts to cover potential loan losses.

However, the increased credit cost, which was 0.97% annualised for the quarter, indicates higher costs associated with managing bad loans.

Investors are worried about the rising NPAs, higher provisions, and increased slippages, which indicate potential challenges in the bank's loan portfolio. This has led to negative sentiment and a decline in the bank's share price.

What Next?

Axis Bank aims to drive higher business growth and increase market share in rural and semi urban markets.

It focuses on an asset-led liability strategy, seeing significant lending opportunities in these areas. This will complement the bank's overall priority sector lending (PSL) strategy.

The bank is leveraging alternative ecosystems to improve data utilisation and underwriting processes. There has been a notable year-on-year growth in rural advances and deposits, showing strong performance in these segments.

Axis Bank has several initiatives to achieve its growth targets.

The 'SBB Sankalp' project aims to improve efficiencies and deliver superior turnaround times (TATs) by digitising underwriting systems and loan disbursals. This is part of a broader strategy to offer innovative products and transform banking services.

The bank is leveraging synergies with its merchant acquiring business and the AVC channel to improve lead conversion rates.

It's also scaling up digital end-to-end co-lending journeys and forming partnerships to mobilise deposits from SME clients in rural and semi urban markets.

Investors should monitor these strategic initiatives and the bank's execution against its growth targets to assess its long-term potential.

In summary, Axis Bank's future plans involve leveraging digital innovation, expanding into rural and semi-urban markets, and forming strategic partnerships to drive growth.

How Axis Bank Share Price has Performed Recently

In the past five days, Axis Bank share price has tumbled 9.8%. In the last month, it is down 7.5%.

In 2024, so far it is up 7.2% and it is up 22.2% in the past one year.

The stock touched its 52-week high of Rs 1,339.6 on 12 July 2024 and a 52-week low of Rs 921 on 28 August 2023.

About Axis Bank

Axis Bank is the third largest private sector bank in India.

It offers the entire spectrum of financial services to customer segments covering large and mid-corporates, MSME, agriculture, and retail businesses.

The bank also offers asset management and brokerage services through its subsidiaries.

It has been at the forefront of offering digital banking services to its customers and is adopting new technologies, such as the cloud, to improve the customer experience.

For more details about the company, you can have a look at Axis Bank's fact sheet and Axis Bank's quarterly results on our website.

For a sector overview, you can read our banking sector report.

You can also compare Axis Bank with its peers on our website:

Axis Bank vs HDFC Bank

Axis Bank vs ICICI Bank

Axis Bank vs Kotak Mahindra Bank

Axis Bank vs Yes Bank

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy Investing.

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