Axis Bank Q2 Earnings Impacted by FCNR Deposit Costs
Rising operating expenses and foreign currency inflows pressure margins despite strong profit growth.
1Profitability Amid Margin Pressure
Axis Bank reported a net profit of ₹7,003 crore for the quarter ending 30 September 2026. While this represents a 38% year-on-year increase, it reflects a 2% sequential decline. Higher operating expenses and a squeeze on margins tempered earnings, despite steady growth in net interest income reaching ₹15,371 crore during the period.
2FCNR Inflows Impacting Margins
The bank's net interest margin narrowed to 3.36% from 3.46% in the previous quarter. This 11 basis point impact is primarily attributed to the influx of foreign currency non-resident deposits under a special RBI window. The bank received over $10 billion in these deposits, which initially weighed on overall lending profitability metrics.
3Rising Operational Expenditure
Operating expenses increased 9% year-on-year and 11% sequentially to ₹10,819 crore. The bank allocated 32% of these costs toward IT infrastructure and digital journey investments. Another 24% was linked to business volumes and rate changes, while the remaining 44% was categorized as routine business expenses required to maintain current operational service levels.
4Strategic Use of Capital
Axis Bank is utilizing the $10 billion in FCNR inflows to replace higher-cost bulk deposits and support ongoing lending growth. Management believes this strategy will eventually provide an uplift to margins. The bank continues to deploy these funds, noting that the initial deployment process took time, contributing to the recent margin compression.
5Robust Lending and Demand
Total advances rose 23% year-on-year to ₹13.7 trillion, while total deposits grew 20.7% to ₹14.5 trillion. Despite strong figures, the bank remained non-committal on specific loan growth guidance. Executives cited a high base from the previous year and potential inflationary pressures as factors that could influence future lending growth trajectories across sectors.
6Commercial Sector Growth Drivers
Broad-based growth is currently observed across infrastructure, energy, metals, and commercial real estate sectors. This activity is driven by capital expenditure, project financing, and working capital requirements. Management expects this momentum to sustain over coming quarters, supported by a healthy lending pipeline that indicates robust demand despite broader macroeconomic uncertainties and inflation.
7Digital Payment Expansion Plans
Axis Bank subsidiary Freecharge recently received an RBI payment aggregator licence. The bank plans to leverage this to monetize digital payments and potentially benefit from future UPI merchant discount rate implementations. With a 38% market share in UPI volume and 25.7% in merchant acquiring, the bank aims to expand its digital ecosystem.
8Leadership Transition and Outlook
The earnings call marked the first interaction for CFO Rajeev Mantri, who assumed his role on 28 September. He replaced Puneet Sharma, who transitioned to HDFC Bank. As the bank navigates margin pressures and digital investments, the focus remains on balancing volume-linked costs with long-term technological transformation and market share gains.
Original article: mint - companies — Axis Bank Q2 Earnings Impacted by FCNR Deposit Costs