Deutsche Bank downgrades Axis Bank, warns stress may remain high

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Deutsche Bank has downgraded Axis Bank to hold but did not change target at Rs 590 per share. The brokerage firm warns that the stock lacks near-term triggers though it remains a structurally strong bank considering a weak transitionary phase coupled with somewhat premium valuations. The stock is up 51 percent in last six months outperforming Sensex (up 22 percent) and Bankex (up 42 percent).

Deutsche Bank is cautious that its stress is likely to remain elevated resulting in higher credit costs and expects recovery only in FY19.

It expects slippages to rise to 3 percent in FY17 and will remain elevated in FY18 as well. "Credit costs may rise to170 basis points (bps)/140bps in FY17/FY18from an average of 90 bps over last five years . This reduces return on assets (RoA0 to 1.4 percent for FY17/FY18 and return on equities (RoEs) to 14-15 percent, which is low compared to its historical trends," it says in a note.

The watch list for Axis Bank is at 5.5 percent of loans. There are non-fund limits (1 percent), restructured loans (2  percent), SDRs (1 percent) and the SME exposures, which will continue to impact asset quality. Deutsche Bank believes that 60-70 percent of this should turn into non-performing loans (NPLs0 and will require elevated credit costs.

Axis Bank Q1 was disappointing with profit falling 21.4 percent to Rs 1,555.5 crore on yearly basis, impacted by sharp surge in provisions. Its net interest income, the difference between interest earned and interest expended, grew by 11.4 percent to Rs 4,516.92 crore in the quarter ended June 2016 compared with Rs 4,056.23 crore in same period last fiscal.

Its asset quality deteriorated during the quarter as gross non-performing assets (NPA) climbed 87 basis points to 2.54 percent and net NPAs rose 38 basis points to 1.08 percent in sequential basis, driven by slippages from the watch list.

During the quarter, the bank added Rs 3,638 crore to gross NPAs; recoveries and upgrades were Rs 140 crore and write-offs during the quarter were Rs 32 crore.

Posted by Nasrin Sultana