Axis Bank Q2 outlook: Profit down 19% year-on-year as pressure on margins and costs continues

Private lender Axis Bank is likely to post a 19% year-on-year decline in profit after tax (PAT) for the September quarter, according to the average of six broker estimates, as higher funding costs, subdued loan yields and higher operating costs weigh on performance. The lender’s net interest income (NII) – a key measure of core profitability – is expected to decline by around 1% year-on-year, according to the consensus of three brokers.

Analysts believe the private lender, which has faced margin compression for more than a year, is likely to see a continuation of that trend in the second quarter of 2026. Brokers expect a subdued quarter operationally, marked by weaker profitability and pressure on asset quality indicators.

Margins and costs under pressure

Motilal Oswal Financial Services said Axis Bank’s margins are likely to remain under pressure due to higher cost of deposits and limited repricing benefits on the loan side. The broker expects the cost-to-income ratio to remain high, while the continued expansion of branches and investments in technology will keep costs high. “Credit costs are expected to remain high and asset quality may deteriorate marginally this quarter,” it added.

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ICICI Securities’ estimates point to a 4.1% YoY decline in NII to Rs 12,928 crore, while operating profit before provisions (PPOP) is expected to decline 3.7% YoY to Rs 10,311 crore. Profit before tax is estimated at Rs 7,111 crore, down 16.4% year-on-year, and PAT at Rs 5,319 crore, marking a sharp annual decline of 23%. The lender’s net interest margin (NIM), a key measure of profitability, is expected to contract to 3.59%, down 21 basis points sequentially and 40 basis points year-on-year. Analysts say the slowdown is due to the fact that repricing on deposits is rising faster than the improvement in lending rates.

Mixed trends in asset quality and provisions

While overall slippages are expected to gradually decline after peaking in Q1 26, analysts remain cautious about asset quality. ICICI Securities expects a decline of Rs 5,500 crore, down nearly 33% quarter-on-quarter, but still up 24% from a year earlier.

YES Securities said that while loan growth is expected to remain stable – around 3% quarter-on-quarter and 10% year-on-year, sequential fee income growth could outpace loan growth due to seasonal factors. However, “NII growth will be slower than loan growth due to a decline in returns on advances exceeding the increase in the cost of deposits,” the report said.

Provisioning is likely to be eased gradually after a tough first quarter, but analysts expect credit costs to remain above pre-pandemic averages amid a slightly deteriorating macroeconomic backdrop.

Outlook cautious despite steady lending growth

Elara Capital, which expects Axis Bank’s recurring PAT to decline 21.7% year-on-year to Rs 5,417 crore, said the bank continues to face pressure from weak operating leverage. It expects EBITDA to decline 10.2% year-on-year and 16.4% quarter-on-quarter, due to cost inflation and sluggish revenue growth.

While credit growth remains resilient, earnings could take another hit in the second quarter as margin compression, higher operating costs and credit costs weigh on performance. However, analysts believe that Axis Bank’s retail and SME segments will continue to offer steady growth, positioning the bank for a gradual recovery in profitability once deposit costs stabilize in the coming quarters.

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