The December quarter results present a mixed narrative: whilst net interest income grew 3.94% sequentially to ₹14,286.56 crores—the highest quarterly figure on record—the bank's net interest margin contracted to 3.64% from 3.73% in Q2 FY26. Provisions and contingencies declined significantly to ₹2,245.92 crores from ₹3,547.04 crores in the previous quarter, providing a crucial tailwind to profitability. Yet, asset quality metrics reveal a marginal deterioration, with gross non-performing assets edging up to 1.46% from 1.44% in September 2025, whilst the provision coverage ratio slipped to 70% from 71%.
The December quarter represents a critical juncture for Axis Bank as it navigates the delicate balance between aggressive loan growth and margin preservation. Whilst the bank's advances portfolio continues to expand—reflected in the 90.66% advance-to-deposit ratio—the competitive intensity in the lending market has compressed yields, particularly in the retail and corporate segments. The CASA ratio, a key indicator of low-cost deposit mobilisation, stood at 39% in Q3 FY26, down from 40% in the previous quarter and 41% a year ago, underscoring the challenges in maintaining funding cost advantages.
| Quarter | Interest Earned (₹ Cr) | Net Interest Income (₹ Cr) | NII Growth (QoQ) | Net Profit (₹ Cr) | Profit Growth (QoQ) | NIM (%) |
|---|---|---|---|---|---|---|
| Dec'25 | 32,274.40 | 14,286.56 | +3.94% | 6,489.57 | +27.51% | 3.64% |
| Sep'25 | 30,970.23 | 13,744.55 | +1.36% | 5,089.64 | -12.34% | 3.73% |
| Jun'25 | 31,063.51 | 13,559.75 | -1.82% | 5,806.14 | -18.42% | 3.80% |
| Mar'25 | 31,242.51 | 13,810.54 | +1.50% | 7,117.50 | +12.91% | 3.97% |
| Dec'24 | 30,953.94 | 13,605.85 | +0.91% | 6,303.77 | -8.87% | 3.93% |
| Sep'24 | 30,419.86 | 13,483.20 | +0.26% | 6,917.57 | +14.63% | 3.99% |
| Jun'24 | 30,060.73 | 13,448.23 | — | 6,034.64 | — | 4.05% |
Financial Performance: Profit Rebound Driven by Lower Provisions
Axis Bank's Q3 FY26 financial performance demonstrates a clear recovery from the subdued September quarter, with net profit rebounding sharply by 27.51% quarter-on-quarter to ₹6,489.57 crores. This improvement was primarily driven by a substantial 36.69% decline in provisions and contingencies, which fell to ₹2,245.92 crores from ₹3,547.04 crores in Q2 FY26. The provision normalisation reflects the bank's confidence in its loan book quality, though the elevated base in the previous quarter was partly attributable to accelerated write-offs and specific provisioning for stressed accounts.
On the revenue front, total income for Q3 FY26 grew 2.41% sequentially to ₹38,500.06 crores, supported by robust interest earned of ₹32,274.40 crores—the highest quarterly figure recorded. Year-on-year, total income expanded 4.26%, indicating sustained momentum in the bank's lending operations. Net interest income, the core earnings metric for banks, reached ₹14,286.56 crores in Q3 FY26, representing a 3.94% quarter-on-quarter increase and 5.00% year-on-year growth. This performance underscores the bank's ability to expand its loan book despite competitive pressures, with advances growing at a healthy clip.
However, the margin narrative remains a concern. Net interest margin contracted 9 basis points sequentially to 3.64% in Q3 FY26, continuing a downward trajectory from 3.80% in Q1 FY26 and 4.05% in Q2 FY24. The compression reflects a combination of factors: declining CASA ratios, intense competition for quality borrowers, and the repricing of legacy high-yielding assets. Interest expended rose 4.42% quarter-on-quarter to ₹17,987.84 crores, outpacing the 4.21% growth in interest earned, thereby squeezing margins. The bank's cost of funds has been creeping up as it competes aggressively for deposits in a tight liquidity environment.
Operating profit before provisions and contingencies stood at ₹10,875.70 crores in Q3 FY26, up 4.45% from the previous quarter, indicating improved operational efficiency. The bank's cost-to-income ratio, averaging 47.48% over recent periods, remains competitive within the private banking space, though there is scope for further optimisation as the bank scales its digital initiatives and rationalises branch networks. Profit before tax surged 25.69% quarter-on-quarter to ₹8,629.78 crores, aided significantly by the lower provisioning charge.
Asset Quality: Marginal Deterioration Amid Growth Ambitions
Axis Bank's asset quality metrics in Q3 FY26 reveal a marginal deterioration that warrants close monitoring. Gross non-performing assets (GNPA) stood at 1.46% of advances, up 6 basis points from 1.40% in the previous quarter and flat year-on-year. In absolute terms, the GNPA pool has expanded in line with the growing loan book, reflecting stress pockets in certain retail and MSME segments. Net NPA remained low at 0.42%, down from 0.44% in September 2025, supported by the bank's robust provisioning buffer.
The provision coverage ratio (PCR) declined to 70% in Q3 FY26 from 71% in the previous quarter, continuing a downward trend from 78% in June 2024. Whilst the PCR remains adequate by industry standards, the declining trajectory suggests the bank is running down its provisioning buffer as it manages legacy stressed assets. Provisions and contingencies of ₹2,245.92 crores in Q3 FY26 were significantly lower than the ₹3,947.66 crores charged in Q1 FY26, indicating variability in credit costs that could impact earnings predictability.
Asset Quality Monitoring Points
Whilst Axis Bank's GNPA ratio of 1.46% remains amongst the lowest in the private banking sector, the sequential uptick from 1.40% in September 2025 and the declining provision coverage ratio (70% vs 78% a year ago) signal emerging stress pockets. Investors should closely monitor slippage ratios and restructured asset trends in coming quarters, particularly in the unsecured retail and MSME portfolios, which have been growth drivers but carry higher inherent risk.
The bank's lending practices remain prudent overall, with the GNPA ratio of 1.46% comparing favourably to the broader industry average and reflecting disciplined underwriting standards. The capital adequacy ratio stood at 16.55% in Q3 FY26, with Tier 1 capital at 14.50%, providing a comfortable buffer above regulatory requirements and supporting continued balance sheet expansion. The bank's return on assets (ROA) of 1.45% and return on equity (ROE) of 12.80% underscore efficient capital deployment, though the ROE trails best-in-class private sector peers operating at 15%+ levels.
Margin Dynamics: The Structural Challenge Ahead
The persistent compression in net interest margins represents the most significant structural challenge facing Axis Bank. From a peak of 4.05% in Q2 FY24, NIMs have declined steadily to 3.64% in Q3 FY26—a cumulative erosion of 41 basis points over six quarters. This trend reflects broader industry dynamics: declining system credit-deposit ratios forcing banks to compete aggressively for deposits, repricing of legacy high-yielding corporate and retail loans, and competitive intensity in loan pricing, particularly in the secured retail and corporate segments.
The CASA ratio decline to 39% in Q3 FY26 from 42% in Q2 FY24 has been a key driver of margin pressure. Low-cost current and savings account deposits form the bedrock of banking profitability, and the 300 basis point erosion in CASA mix over 18 months has materially increased Axis Bank's cost of funds. The bank faces stiff competition from both incumbent private banks and emerging fintech players offering higher savings rates and superior digital experiences, making CASA accretion increasingly challenging.
The CASA Conundrum
Axis Bank's CASA ratio has declined from 42% in Q2 FY24 to 39% in Q3 FY26, representing a structural headwind to margins. Each 100 basis point decline in CASA mix typically translates to 3-5 basis points of NIM compression, assuming stable loan yields. With system liquidity remaining tight and competition for deposits intensifying, reversing this trend will require significant investments in branch expansion, digital customer acquisition, and product innovation—all of which carry near-term cost implications.
Looking ahead, margin stabilisation will depend on the bank's ability to arrest CASA decline, optimise loan mix towards higher-yielding segments without compromising asset quality, and leverage technology to reduce cost-to-income ratios. The management's focus on deepening customer relationships, expanding the retail franchise, and enhancing cross-sell ratios will be critical in defending margins in an increasingly commoditised banking landscape.
Industry Leadership: How Axis Bank Compares to Peers
Within the private banking peer group, Axis Bank occupies a unique position—offering attractive valuations relative to sector leaders whilst grappling with execution challenges that have constrained its re-rating. The bank's market capitalisation of ₹3.91 lakh crores positions it as the third-largest private sector bank, trailing HDFC Bank and ICICI Bank but significantly ahead of Kotak Mahindra Bank and emerging challengers.
| Bank | P/E Ratio (TTM) | Price to Book | ROE (%) | Dividend Yield (%) | GNPA (%) |
|---|---|---|---|---|---|
| Axis Bank | 16.09x | 2.06x | 12.80% | 0.08% | 1.46% |
| HDFC Bank | 19.30x | 2.62x | 13.58% | 1.47% | — |
| ICICI Bank | 19.58x | 3.00x | 15.31% | 0.82% | — |
| Kotak Mahindra Bank | 31.03x | 3.35x | 10.81% | 0.12% | — |
| IDBI Bank | 10.89x | 1.52x | 13.99% | 2.15% | — |
| IDFC First Bank | 48.83x | 1.54x | 3.15% | 0.21% | — |
Axis Bank trades at a price-to-earnings ratio of 16.09x, representing a significant discount to HDFC Bank (19.30x) and ICICI Bank (19.58x), reflecting market concerns around margin trajectory and earnings growth visibility. The price-to-book ratio of 2.06x similarly trails peers, with ICICI Bank commanding 3.00x and Kotak Mahindra Bank at 3.35x. This valuation gap is partly justified by Axis Bank's lower ROE of 12.80% compared to ICICI Bank's sector-leading 15.31%, though it compares favourably to Kotak's 10.81%.
The bank's asset quality credentials are strong, with a GNPA ratio of 1.46% amongst the lowest in the sector, reflecting disciplined underwriting and effective risk management. However, the dividend yield of just 0.08% lags significantly behind peers, with HDFC Bank offering 1.47% and even IDBI Bank at 2.15%, limiting the stock's appeal to income-focused investors. The combination of reasonable valuations, strong asset quality, and improving operational metrics positions Axis Bank as a potential re-rating candidate, contingent on margin stabilisation and sustained earnings growth.
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current market price of ₹1,316.70, Axis Bank trades at a price-to-earnings ratio of 16.09x trailing twelve-month earnings and 2.06x book value, representing a 17% discount to HDFC Bank and 19% discount to ICICI Bank on P/E multiples. The valuation discount reflects persistent concerns around margin compression, earnings growth visibility, and execution risks in scaling the retail franchise. However, the current multiples also offer an attractive entry point for patient investors willing to look through near-term headwinds.
The bank's historical trading range has seen P/E multiples oscillate between 12x during periods of stress and 20x during growth phases. The current 16x multiple sits in the middle of this range, suggesting neither extreme optimism nor pessimism is priced in. The price-to-book ratio of 2.06x compares to a long-term average of approximately 2.5x, indicating modest undervaluation relative to historical norms. The market's valuation grade for Axis Bank recently shifted to "Expensive" from "Fair" in September 2025, reflecting the sharp rally that saw the stock gain 38.91% over the past year.
Fair value estimation for Axis Bank centres around sustainable ROE and growth assumptions. With an ROE of 12.80% and book value per share of ₹576.67, the bank generates approximately ₹74 in annual earnings per share. Assuming a normalised P/E multiple of 18x—midway between current levels and sector leaders—fair value would approximate ₹1,330, implying minimal upside from current levels. However, if the bank successfully arrests margin decline and sustains 15%+ earnings growth, a re-rating to 20x earnings would justify a price target of ₹1,480, representing 12% upside.
Shareholding: Institutional Confidence Remains Strong
Axis Bank's shareholding pattern reflects exceptionally high institutional ownership, with 85.22% of equity held by foreign institutional investors, mutual funds, insurance companies, and other domestic institutional investors. This concentration underscores the bank's status as a core portfolio holding for institutional investors seeking exposure to India's banking sector growth story.
| Quarter | Promoter (%) | FII (%) | Mutual Funds (%) | Insurance (%) | Other DII (%) |
|---|---|---|---|---|---|
| Dec'25 | 8.15% | 42.57% | 33.48% | 5.04% | 4.13% |
| Sep'25 | 8.16% | 41.89% | 33.97% | 4.99% | 3.92% |
| Jun'25 | 8.17% | 43.81% | 32.54% | 5.00% | 3.68% |
| Mar'25 | 8.18% | 43.94% | 32.02% | 5.22% | 3.64% |
| Dec'24 | 8.23% | 47.32% | 29.03% | 5.10% | 3.35% |
Foreign institutional investors hold 42.57% of Axis Bank's equity as of December 2025, up 68 basis points from the previous quarter, signalling renewed confidence following the strong Q3 results. FII holdings had declined from 47.32% in December 2024 to 41.89% in September 2025, reflecting concerns around margin compression and earnings volatility. The recent uptick suggests FIIs view the current valuation as attractive relative to growth prospects.
Mutual fund ownership stands at 33.48%, down marginally from 33.97% in September 2025 but significantly higher than the 29.03% holding a year ago. The steady accumulation by domestic mutual funds over the past four quarters—adding 450 basis points—reflects conviction in the bank's long-term franchise value and asset quality credentials. With 45 mutual fund schemes holding positions, Axis Bank remains a consensus pick within the domestic fund management community.
Promoter holding has remained stable at approximately 8.15%, with Life Insurance Corporation of India being the sole promoter entity. The minimal promoter stake reflects the bank's origins as a private sector institution without a traditional corporate promoter group. Insurance holdings stand at 5.04%, whilst other domestic institutional investors account for 4.13%, both showing modest sequential increases. The absence of promoter pledging and high institutional ownership provide comfort on governance standards and alignment of interests.
Stock Performance: Outperformance Driven by Sector Rotation
Axis Bank's stock has delivered exceptional returns across multiple timeframes, significantly outperforming both the benchmark Sensex and the broader private banking sector. Over the past year, the stock has surged 38.91%, generating an alpha of 30.57 percentage points over the Sensex, which returned just 8.34%. This outperformance reflects a combination of improving fundamentals, sector rotation into banking stocks, and valuation re-rating as concerns around asset quality receded.
| Period | Stock Return (%) | Sensex Return (%) | Alpha (%) |
|---|---|---|---|
| 1 Week | +1.83% | -0.64% | +2.47% |
| 1 Month | +7.22% | -3.98% | +11.20% |
| 3 Months | +4.99% | -3.69% | +8.68% |
| 6 Months | +21.14% | +0.24% | +20.90% |
| Year-to-Date | +3.78% | -4.18% | +7.96% |
| 1 Year | +38.91% | +8.34% | +30.57% |
| 3 Years | +50.78% | +37.63% | +13.15% |
| 5 Years | +108.37% | +72.23% | +36.14% |
The stock's momentum has been particularly strong in recent months, with gains of 7.22% over the past month and 21.14% over six months, substantially outpacing the Sensex, which declined 3.98% and gained just 0.24% respectively over these periods. The recent rally has been fuelled by improving sentiment around the banking sector, expectations of monetary policy easing, and relief that asset quality concerns have not materialised into significant stress.
From a technical perspective, Axis Bank currently trades in a "Mildly Bullish" trend, having transitioned from "Bullish" on January 23, 2026. The stock is trading above all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—indicating strong underlying momentum. At ₹1,316.70, the stock is just 0.70% below its 52-week high of ₹1,326.00, suggesting potential resistance at current levels. The immediate support lies at the 52-week low of ₹934.00, though more realistic near-term support would be the 20-day moving average at ₹1,275.63.
The risk-adjusted return profile is attractive, with the stock delivering a Sharpe ratio classified as "Positive" and volatility of 20.44% over the past year. This places Axis Bank in the "Low Risk High Return" category, indicating superior returns relative to the risk undertaken. The stock's beta of 1.00 suggests it moves broadly in line with the market, making it suitable for investors seeking banking sector exposure without excessive volatility.
"Axis Bank's 39% one-year return and consistent alpha generation underscore its position as a core banking sector holding, though the recent rally to near 52-week highs warrants caution on fresh entries at current valuations."
Investment Thesis: Balancing Quality with Valuation
Axis Bank presents a nuanced investment case characterised by strong fundamental quality, improving asset metrics, and reasonable valuations, offset by structural margin pressures and execution uncertainties. The bank's Mojo score of 58 out of 100 places it in the "HOLD" category, reflecting a balanced assessment across four key parameters: valuation, quality, financial trends, and technical momentum.
The quality assessment remains "Good," supported by a low gross NPA ratio of 1.46%, strong institutional ownership of 85.22%, and a five-year net profit compound annual growth rate of 50.36%. These metrics underscore the bank's resilient business model, disciplined risk management, and ability to generate superior long-term returns. The return on equity of 12.80%, whilst trailing best-in-class peers, remains respectable and provides a foundation for sustainable dividend growth and capital appreciation.
However, the near-term financial trend is classified as "Flat," reflecting the margin compression challenges and earnings volatility witnessed over recent quarters. The bank's net interest margin has declined from 4.05% to 3.64% over the past 18 months, representing a structural headwind that will require strategic initiatives to reverse. The technical trend of "Mildly Bullish" provides some support, though the stock's proximity to 52-week highs limits near-term upside potential.
The valuation grade of "Expensive" reflects the stock's strong rally over the past year, which has compressed the margin of safety for fresh investors. At 16.09x trailing earnings and 2.06x book value, Axis Bank trades at a discount to sector leaders but at a premium to its own historical averages. The combination of expensive valuations and flat financial trends creates a challenging entry point, though existing holders can remain invested given the bank's strong franchise and improving asset quality trajectory.
Key Strengths & Risk Factors
✅ KEY STRENGTHS
- Best-in-Class Asset Quality: Gross NPA ratio of 1.46% amongst the lowest in private banking, reflecting disciplined underwriting and effective risk management frameworks.
- Strong Institutional Backing: 85.22% institutional ownership with 45 mutual fund schemes holding positions demonstrates confidence in long-term franchise value.
- Robust Capital Position: Capital adequacy ratio of 16.55% with Tier 1 at 14.50% provides comfortable buffer for balance sheet expansion and regulatory compliance.
- Impressive Long-Term Growth: Five-year net profit CAGR of 50.36% and consistent ROE above 12% underscore the bank's ability to generate superior returns through cycles.
- Diversified Loan Portfolio: Well-balanced mix across retail, corporate, and MSME segments reduces concentration risk and provides multiple growth levers.
- Strong Deposit Franchise: Total deposits of ₹11.73 lakh crores as of March 2025 provide stable funding base despite CASA ratio challenges.
- Attractive Valuation Discount: Trading at 17% P/E discount to HDFC Bank and 19% to ICICI Bank offers potential re-rating opportunity upon margin stabilisation.
⚠️ KEY CONCERNS
- Persistent Margin Compression: Net interest margin declined from 4.05% to 3.64% over 18 months, representing 41 basis points erosion with limited near-term visibility on stabilisation.
- Declining CASA Ratio: Low-cost deposits fell from 42% to 39% over six quarters, increasing cost of funds and pressuring profitability in a competitive environment.
- Deteriorating Provision Coverage: PCR declined from 78% to 70% over 18 months, suggesting the bank is running down provisioning buffers to support earnings.
- Volatile Provisioning Trends: Quarterly provisions ranging from ₹1,359 crores to ₹3,948 crores create earnings unpredictability and complicate forecasting.
- ROE Lag vs Peers: 12.80% return on equity trails ICICI Bank's 15.31% and HDFC Bank's 13.58%, indicating lower capital efficiency relative to sector leaders.
- Minimal Dividend Yield: 0.08% yield significantly lags peers (HDFC Bank 1.47%, IDBI Bank 2.15%), limiting appeal to income-focused investors.
- Execution Risks: Scaling retail franchise, defending CASA ratios, and optimising loan mix require sustained management focus and investment with uncertain near-term payoffs.
Outlook: What to Watch in Coming Quarters
The trajectory for Axis Bank over the next 12-18 months will be determined by its ability to arrest margin decline, defend CASA ratios, and sustain loan growth without compromising asset quality. Investors should closely monitor quarterly net interest margin trends, with stabilisation at current levels representing a positive inflection point. Any further compression below 3.50% would raise serious questions about the sustainability of the bank's return profile and could trigger valuation de-rating.
POSITIVE CATALYSTS
- NIM Stabilisation: Sequential margin improvement or even flattening at 3.60-3.70% would signal successful liability management and loan mix optimisation.
- CASA Ratio Recovery: Reversal of declining low-cost deposit trends through branch expansion, digital initiatives, and product innovation.
- Sustained Asset Quality: Maintaining GNPA below 1.50% whilst growing advances at 15%+ would validate the bank's risk management capabilities.
- Operating Leverage: Cost-to-income ratio improvement below 45% through technology investments and operational efficiency gains.
- Retail Franchise Scaling: Successful expansion in high-margin retail segments (credit cards, personal loans, home loans) driving fee income growth.
RED FLAGS
- Further Margin Erosion: NIM declining below 3.50% would indicate structural challenges in defending profitability and could trigger earnings downgrades.
- CASA Ratio Below 38%: Continued low-cost deposit attrition would materially increase funding costs and compress returns on equity.
- Asset Quality Slippage: GNPA rising above 1.75% or sharp increase in restructured assets would signal underwriting deterioration.
- Elevated Credit Costs: Provisions consistently exceeding ₹3,000 crores per quarter would pressure earnings and return ratios.
- Competitive Intensity: Market share losses in key segments to nimbler competitors or fintech disruptors could impair long-term franchise value.
The broader macroeconomic environment will play a crucial role, with monetary policy trajectory, system liquidity conditions, and credit demand dynamics all influencing Axis Bank's performance. A dovish shift by the Reserve Bank of India, leading to lower interest rates, could provide relief on funding costs and support margin stabilisation. Conversely, prolonged tight liquidity or aggressive deposit rate competition would exacerbate margin pressures.
The Verdict: Solid Franchise, Challenging Entry Point
Score: 58/100
For Fresh Investors: Axis Bank's strong Q3 FY26 results and impressive asset quality credentials are offset by persistent margin compression and expensive valuations following the 39% rally over the past year. Fresh investors should await margin stabilisation and a 10-12% correction from current levels to ₹1,180-1,200 before initiating positions. The bank offers a compelling long-term franchise, but near-term risk-reward is unfavourable at ₹1,317.
For Existing Holders: Continue holding with a medium-term perspective. The bank's low GNPA ratio of 1.46%, strong institutional backing, and reasonable valuation discount to sector leaders (16x P/E vs 19-20x for HDFC/ICICI) provide downside protection. Monitor quarterly NIM trends closely—sustained compression below 3.50% would warrant portfolio reassessment. Maintain positions with a 12-18 month horizon, targeting ₹1,450-1,500 (18-19x FY27 estimated earnings).
Fair Value Estimate: ₹1,380 (18x normalised earnings), representing 5% upside from current levels. Limited near-term appreciation potential given expensive valuation grade and flat financial trend, but long-term franchise value remains intact.
Note- ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
