Axis Bank’s Q1 results for the fiscal year 2024-25 have shown significant growth, particularly in the unsecured loans segment. Analysts have raised concerns about the rapid expansion in this area, suggesting that it should be closely monitored to ensure sustainable growth. The bank reported a strong performance overall, with notable increases in net interest income and operating profits. However, the fast-paced growth in unsecured loans has prompted a call for caution.
Strong Financial Performance
Axis Bank’s Q1 results revealed a robust financial performance, with a core operating profit of ₹9,637 crores, marking a 16% year-on-year increase. The net interest income grew by 12% year-on-year, reaching ₹9,637 crores. This growth was driven by steady increases in average deposits and advances. The bank’s net interest margin stood at 4.05%, reflecting a stable and healthy financial position.
The bank’s fee income also saw a significant rise, growing by 16% year-on-year. Retail fees, which constituted 93% of the overall fees, grew by 18% year-on-year. This indicates a strong performance in the bank’s core operating revenue, which increased by 14% year-on-year. The operating cost growth moderated to 11% year-on-year, showing a decline on a sequential basis.
Despite the strong financial performance, the rapid growth in unsecured loans has raised concerns among analysts. They suggest that the bank should closely monitor this segment to ensure that it does not lead to increased risks in the future.
Unsecured Loans Growth
The growth in unsecured loans has been a standout feature of Axis Bank’s Q1 results. Retail loans grew by 18% year-on-year, with rural loans increasing by 24% year-on-year. The small business banking (SBB) segment saw a 26% year-on-year growth, while the mid-corporate segment grew by 24% year-on-year. The SME loans also showed a 20% year-on-year increase.
The bank’s focus segments, which include SBB, SME, and mid-corporate, grew by 24% year-on-year. This growth has been driven by the bank’s strategy to expand its unsecured loan portfolio. However, analysts have cautioned that this rapid growth should be monitored to ensure that it does not lead to increased credit risks.
The bank’s overall capital adequacy ratio stood at 16.65%, with a CET 1 ratio of 14.06%. This indicates a well-capitalized position, providing a cushion against potential risks. However, the fast-paced growth in unsecured loans requires careful monitoring to maintain a healthy balance between growth and risk management.
Analysts’ Recommendations
Analysts have recommended that Axis Bank should closely monitor the growth in its unsecured loans segment. They suggest that the bank should implement stringent risk management practices to ensure sustainable growth. The rapid expansion in unsecured loans could lead to increased credit risks if not managed properly.
The bank’s asset quality remained stable, with a gross non-performing asset (GNPA) ratio of 1.54%, down by 42 basis points year-on-year. The net non-performing asset (NNPA) ratio stood at 0.34%, reflecting a healthy asset quality. However, the analysts emphasize the need for continuous monitoring of the unsecured loans segment to prevent any potential deterioration in asset quality.
In conclusion, Axis Bank’s Q1 results have shown strong financial performance, with significant growth in net interest income and operating profits. However, the rapid growth in unsecured loans has raised concerns among analysts, who recommend close monitoring and stringent risk management practices to ensure sustainable growth.
