CLSA has reiterated its ‘Outperform’ rating on Axis Bank, even as it revised down its target price to ₹1,350 from ₹1,400, citing higher-than-expected credit costs in Q1FY26 despite steady core operating performance.
In its report, CLSA noted that net interest income (NII) and core pre-provision operating profit (PPOP) were in line with expectations. However, profit before tax (PBT) missed estimates due to a notable jump in provisioning, which was driven by elevated slippages.
The bank’s gross slippages surged to ₹8,200 crore, up 71% QoQ, following what the management described as a “one-time tightening of NPA recognition norms”. While Axis Bank clarified that this move was a proactive step and not prompted by the regulator, CLSA stated that even adjusting for this technicality, credit costs remained 25-30 basis points above estimates.
On a brighter note, Axis Bank continued to maintain a steady balance sheet with loan and deposit growth in the range of 8-9%, and adjusted NIM compression was limited to 13 basis points QoQ, after factoring in interest reversals.
CLSA views the proactive stance on asset recognition as a long-term positive but believes near-term earnings may stay under pressure due to the elevated provisioning and margin compression.
