Axis Bank’s fiscal third quarter net profit was pulled down by a 32% rise in operating expenses to Rs 8,946 crore. 

The Mumbai-based private bank’s net profit saw a modest 4% year-on-year increase to Rs 6,071 crore for the quarter ended December and 3.5% rise on a sequential basis.

The country's third-largest private lender expects deposit costs, which impacted profitability, to stay heated amid intense competition for funds. 

Net interest margin (NIM) fell to 4.01% in the December quarter from 4.26% a year ago and 4.11% in the prior quarter. Private lenders HDFC Bank and ICICI Bank also reported weak margins for the December quarter on the backdrop of rising cost of deposits.

Net interest income, the difference between the interest earned and the interest expended, rose 9.4% year-on-year to Rs 12,532 crore.

The bank’s loan growth outpaced that of deposits. Axis Bank chief financial officer Puneet Sharma said in a conference call that deposit growth in the short-to-medium term would be a “constraining factor” to loan growth. Deposit repricing would continue through this financial year, he added.

While the private lender’s loans grew at 22% year-on-year for the December 2023 quarter, deposits rose by 18%.

Axis Bank’s deposits stood at Rs 10.04 lakh crore as on 31 December 2023. Term deposits grew by 24% year-on-year, contributing to the rise in deposit costs. While savings account deposits grew 16% year-on-year, current account deposits rose 5%. The share of CASA deposits in total deposits stood at 42%.

With banking system liquidity tightening, the cost of deposits has risen among banks even as loan growth has continued. Several banks reported a drop in lending margins in the fiscal third quarter.

Axis Bank’s advances stood at Rs 9.32 lakh crore as on 31 December 2023.  Retail loans grew 27% to Rs 5.46 lakh crore. Out of this, the share of secured retail loans was around 75%, with home loans accounting for 30% of the retail book.

The lender’s asset quality improved, with gross non-performing asset ratio (NPA) standing at 1.58% as of December-end, down from 2.38% a year ago and 1.73% in the prior quarter.

Net NPA for the December quarter remained flat at 0.36% on a year-on-year basis.

Provisions for bad loans dropped 28.5% year-on-year to Rs 1,028 crore.

The bank has made full provision of Rs 207 crore towards alternative investment funds (AIF), in line with the Reserve Bank of India’s mandate.