One-time jump in slippages hurts Axis Bank Q1 results; should you sell?

Axis Bank Q1 results: Asset quality issues, slow loan growth and rate cut cycle hit Axis Bank Q1 earnings. Should you buy, sell, or hold the stock now? Read to find out analysts' review

Axis Bank share price: Frequent negative surprises on the earnings front, as seen during the first quarter of 2025-26 (Q1FY26), have forced analysts to cut Axis Bank's earnings forecast for the coming years.

 

Nuvama Institutional Equities downgraded the stock to “Hold” on repeated volatility in asset quality and earnings growth.

 

“We cut earnings by 5.4 per cent for FY26 and 6.3 per cent for FY27 on an already below consensus base, and trim our target to ₹1,180 from ₹1,400. Since Axis Bank has more catching up to do on rate cuts compared to peers, we expect the stock's discount to peers to widen, given repeated volatility,” the brokerage said.

 

Axis Bank share price crashed 7.4 per cent intraday to hit a low of ₹1,073.95 per share on the BSE. It ended 5.24 per cent lower at ₹1,099 per share as against a 0.6 per cent dip in the BSE Sensex.

 

Slippages surge

 

Axis Bank's Q1FY26 net profit slipped 4 per cent year-on-year (Y-o-Y) to ₹5,806 crore, weighed by "technical" slippages and one-time bump in provisions. The technical impact, it said, was restricted to cash credit and overdraft products, and one-time settled (OTS) accounts.

 

According to the management, the "technical slippage" affected the bank's net profit by ₹614 crore, return on assets (RoA) by 15 basis points (bps), and return on equity (RoE) by 1.4 per cent during the quarter. 

 

The bank's total slippages stood at ₹8,200 crore in Q1FY26, including slippages worth ₹2,709 crore due to the "technical impact". Total slippages, thus, surged 71 per cent Y-o-Y and quarter-on-quarter (Q-o-Q).

 

Further, the bank's loan loss provisions shot up to ₹3,900 crore, up 2.85 times Q-o-Q and 1.52 times Y-o-Y. This also led to the gross non-performing asset (GNPA) ratio and net NPA ratio worsening Q-o-Q by 29 bps and 12 bps to 1.57 per cent and 0.45 per cent, respectively, in Q1.

 

“Though the management had earlier given guidance for this policy change to ensure industry-best prudency, the extent of NPA formation is higher than expected. The management indicated that Q1FY26 bore the impact of the stock plus flow, and so slippages during the first nine months of FY26 (9MFY26) should be relatively moderate (albeit elevated), as also the credit cost," Emkay Global Financial Services analysts said in a note.

 

The management's decision to move from Days Past Due (DPD)-based NPA recognition to qualitative judgement-based recognition, and to not upgrade an account till the last instalment is received in full in case of OTS would, therefore, lead to elevated NPA flow in the near term, they added. 

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Slow growth hurts margins 

Axis Bank's Q1FY26 earnings also bore the impact of slow loan growth and rate cut cycle. The bank's total deposits slipped 1 per cent Q-o-Q, but rose 9.3 per cent Y-o-Y, to ₹11.61 trillion. Its total loans, meanwhile, grew 1.8 per cent Q-o-Q and 8 per cent Y-o-Y to ₹10.59 trillion. This led to an increase in loan-to-deposit ratio (LDR) to 91.2 per cent.

 

Net interest income (NII) was broadly flat Y-o-Y but down 2 per cent Q-o-Q at ₹13,560 crore, with net interest margin (NIM) contracting 17 bps Q-o-Q to 3.80 per cent.

 

Notably, Axis Bank's NIM contraction came even when the lender has been the slowest among peers in cutting rates.

 

"We cut FY26, FY27, and FY28 earnings estimates by 7 per cent, 3 per cent, and 1 per cent, respectively. We expect the RoA to dip to 1.6 per cent in FY26E (estimate), and gradually recover to 1.7 per cent," said Emkay Global.

 

It has, however, maintained its “Buy” rating on the stock, with an unchanged share price target of ₹1,400 as the share trades cheap at 1.4x FY27E adjusted book value.

 

Motilal Oswal Financial Services, meanwhile, maintained its “Neutral” rating on the stock, with a target of ₹1,250 as it anticipates higher slippages and credit costs in the near term.

 

"The residual loan repricing will also continue to put pressure on margins. We cut our earnings estimates for FY26 and FY27 by 8.6 per cent and 5.7 per cent, respectively," it said.