‘Inverted C’ margin path: Axis Bank outlines how NIMs will move this cycle

Axis Bank Q1: One-offs hit profit, but management bets on margin recovery through the cycle

Axis Bank’s bottom line in the June quarter was impacted by one-time technical adjustments, which led to higher slippages and a temporary deterioration in asset quality. The bank also saw its net interest margin (NIM) contract by 25 basis points year-on-year to 3.8 percent.

Looking ahead, the management expressed confidence that margins will remain around the current level of 3.8 percent through the rate cycle — the cycle that began with the last repo rate cut.

“Our stated position is that we are confident we can deliver a 3.8 percent margin on a through-cycle basis,” the management said during the post-results conference call.

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“We believe margins will return to the levels we have indicated over time. Think of the margin trajectory as an inverted C — margins dip initially when rate cuts are announced and then climb back up towards the end of the cycle,” the bank explained.

On how the next quarter might play out, Amitabh Chaudhry, CEO of Axis Bank, added that the full impact of the most recent rate cuts has not yet been fully reflected in earnings.

“In the current quarter, we have fully absorbed — on a full book and full quarter basis — the first 25 basis points rate cut. The next 75 basis points rate cut has only partially flowed through so far,” Chaudhry said.

“In the coming quarter, the full effect of that 75 basis points cut will be visible. However, it will also be partly offset by savings from lower deposit and borrowing costs. Since over 70 percent of our loan book is floating, the direction of margins is quite clear,” he explained.

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