Axis Bank Q2 Preview: Profit Seen Rising 41% As FCNR Deposits Weigh On Margins

Axis Bank is expected to report a significant jump in profit for the September quarter, with analysts forecasting a 41% year-on-year rise. This optimism is primarily driven by strong growth in both its loan and deposit books. However, the bank is also facing pressure on its profitability margins. This is largely due to a higher cost of funds, stemming from increased mobilisation of Foreign Currency Non-Resident (Bank) (FCNR(B)) deposits. These deposits are generally more expensive than domestic ones, which can squeeze the net interest margin.

For investors, this mixed picture highlights the bank's resilience amidst a challenging interest rate environment. While the higher cost of deposits is a headwind, the simultaneous growth in loans suggests the bank is successfully expanding its core business. The improvement in credit costs is another positive signal, indicating that the bank's asset quality is stabilising. Investors should keep a close watch on the bank's subsequent commentary regarding its strategy to manage the cost of funds and sustain its margin growth.