Axis Bank NIM Worries: Why Citi Says Margin Recovery Will Take Longer

Axis Bank has been under pressure in the market, and the key reason comes down to one number: Net Interest Margin (NIM). A recent note from Citi Research has brought renewed focus on how long it may take for the bank’s margins to recover, changing how investors are looking at the stock. 

Axis Bank shares are trading more than 4 percent lower today, reflecting concerns around delayed margin recovery. Let us break this down step by step.

Where Axis Bank’s NIM stands today

In Q2 FY26, Axis Bank reported a Net Interest Margin of 3.73 percent. This was largely stable quarter-on-quarter, but clearly lower than where margins stood a year ago.

Here is how NIM has moved over recent quarters:

• Q2 FY25: ~3.99 percent
• Q3 FY25: ~3.93 percent
• Q4 FY25: ~3.97 percent
• Q1 FY26: ~3.80 percent
• Q2 FY26: 3.73 percent

This shows that margins have been on a steady downward path, even though the pace of decline has slowed recently.

Citi’s key point: the bottom is further away than expected

Earlier, the market was working with the assumption that Axis Bank’s NIM would bottom out in Q3 FY26. That expectation has now changed.

Citi Research, based on updated management commentary, believes that margins will only bottom out in Q4 FY26 or even early Q1 FY27. This shift in timeline is critical. It means that instead of being close to recovery, Axis Bank may still be in a margin pressure phase for several more quarters.

Citi also described the expected recovery as C-shaped, which implies a long period of flat margins rather than a sharp bounce back.

Why margins are still under pressure

The first reason is loan repricing after rate cuts.Axis Bank management explained that during Q2 FY26, the bank’s loan yields fell by about 35 basis points as older loans reset to lower interest rates. This repricing process is not yet complete, which means pressure on interest income will continue.

In simple terms, the bank is earning less on loans today than it did a year ago, and that drag has not fully played out yet.

Deposit repricing helped, but only up to a point

Citi also highlighted that Axis Bank managed to defend margins in recent quarters mainly by cutting deposit costs early.

In Q2 FY26, the bank benefited from a sharp fall in its cost of funds, helped by reductions in savings account rates and repricing of term deposits. This is what kept NIM at 3.73 percent instead of falling more sharply.

However, Citi’s concern is that this lever is now getting exhausted. Once deposit costs stabilise, the bank will no longer have this buffer to offset falling loan yields.

Loan mix is another drag on margins

Another important factor is Axis Bank’s loan mix.

Corporate and mid-corporate loans have grown at around 20 percent year-on-year, much faster than retail loans. While this supports balance sheet growth and market share, corporate loans typically carry lower margins compared to retail products.

As a result, even when overall loan growth remains healthy, it does not automatically translate into higher net interest margins. This shift in loan mix is structurally limiting margin expansion in the near term, and is one of the reasons NIM recovery is expected to be gradual rather than sharp.

Why Citi sees limited upside in the stock

Putting all this together, Citi maintained a Neutral rating on Axis Bank with a target price of ₹1,285.

The logic is straightforward. If NIM remains flat or slightly weak for the next 15 to 18 months, earnings growth will also stay moderate. Without a clear margin recovery trigger, there is limited room for valuation re-rating in the near term.

This is why the stock reacted negatively. The market was positioned for a quicker margin turnaround, and Citi’s note pushed that expectation further out.

What investors should take away

• NIM pressure is cyclical, not structural: Axis Bank’s margin stress is driven by interest rate cuts and loan repricing, not by asset quality or execution issues. This reduces downside risk but also limits near-term upside.
• Margin bottoming has moved out by 2–3 quarters: Citi’s view that NIM may bottom only in Q4 FY26 or early Q1 FY27 means earnings normalisation is now a next-year story, which explains the sharp market reaction.
• Deposit cost benefits are largely behind: Early repricing of savings and term deposits helped protect margins, but this lever is nearing exhaustion. From here, NIM improvement depends more on loan yield stabilisation.
• Loan mix caps margin recovery: Faster growth in corporate and mid-corporate loans supports balance sheet growth but structurally keeps margins lower compared to a retail-led cycle.
• Stock likely to stay range-bound in the near term: With limited visibility on margin recovery and Citi maintaining a Neutral stance, Axis Bank may not see meaningful valuation re-rating until NIM shows clear signs of bottoming.

Final word

Axis Bank’s NIM has slipped from close to 4 percent to 3.73 percent over the past year. While the worst of the fall may be behind us, Citi’s analysis shows that patience will be needed for recovery.

A long, flat margin phase driven by loan repricing, limited deposit cost cuts, and a lower-yield loan mix is now the base case. That, more than anything else, explains why Axis Bank is under pressure today.

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