Mumbai: Bajaj Finance’s loan loss provisions surged in the first quarter (April-June) of this financial year, driven largely by muted collections and higher provisioning requirements for ageing delinquencies.
This, the Pune-based non-bank lender said, has prompted it to now focus on improving its collection efficiency, which indicates the proportion of a loan’s repayment amount that is collected.
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Gross loan losses and provisions for the quarter were ₹1,790 crore. During the quarter, the non-banking financial company (NBFC) utilized a management overlay of ₹105 crore towards loan losses and provisions, as a result of which net loan losses and provisions were at ₹1,685 crore.
Management overlay is a kind of management-level provision buffer made by companies for use during emergencies or crises. In this case, Bajaj Finance built this overlay largely during the pandemic.
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In an analyst call late on Tuesday, the management said that while portfolio quality was steady and bounce rates were lower compared with the March quarter, significant movement of delinquent loans from stage 1 to stage 2 owing to muted collections led to the rise in loan losses in the June quarter.
Stage 2 assets, which warrant higher provisioning as against stage 1 assets, increased by ₹865 crore sequentially.
“The company is augmenting its debt management infrastructure as a mitigation measure,” it said in the investor presentation, with the management adding that they remain watchful of portfolio stress across business verticals and are “proactively pruning” exposure to certain customer segments.
“BAF (Bajaj Finance) reported higher than expected credit cost at 1.97%, an increase of 33 basis points sequentially. The surge in credit cost was on account of collection efficiency being impacted due to the elections,” Emkay Global Financial said in a note, adding that credit cost is expected to normalize over the next two quarters and be around 1.75-1.85% for FY25.
A basis point is one-hundredth of a percentage point.
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The company had also seen a rise in loan losses during the previous election cycle in 2019 and is seeing similar trends this time, the management said, adding that when loan losses surge either due to higher bounce rates or muted collections, it takes one to three quarters for levels to stabilize. As a result, loan losses are expected to remain at current levels in the ongoing quarter and should start to normalize by the third quarter (October-December) onwards, they said.
The company will have a clearer view on whether the muted collection trend is transient or not by the October quarter, they added.
Bajaj Finance’s gross non-performing asset (NPA) ratio improved marginally to 0.86% in the June quarter, from 0.87% a year ago. However, the net NPA ratio worsened to 0.38% from 0.31% a year ago, owing to the higher provisions. In the previous quarter, the gross NPA ratio was 0.85% and net NPA ratio at 0.37%.
So far, the stress is largely being seen in two- and three-wheeler finance, rural business-to-consumer, or B2C, (retail lending) and SME (small and medium enterprise) loan portfolios, even as growth in the rural business-to-business segment remains robust. Asset quality for the urban B2C segment is also steady, but the management is watchful for any signs of stress.
The management highlighted that the rural B2C portfolio has been seeing sluggish growth of 5-6% for the past year, including the 5% growth seen in Q1FY25. However, it expects some pickup going forward, pegging credit growth for FY25 at 10-11%. The company has been fine-tuning the borrower profile for the past year and is looking to broad-base the customer profile as was the case pre-Covid, it said.
Rural B2C loans for Bajaj Finance largely comprise cross-selling of personal loans, which have taken a hit following the increase in risk weights for the segment by the Reserve Bank of India (RBI). This led to stagnation in disbursements from November 2023 to June 2024 and is expected to temper growth in unsecured loans for the industry going forward.
Bajaj Finance’s share of unique customers, with no existing credit exposure, fell to 58% in June 2024 from 63% in March 2020. This means that of the current customers, 42% already have a relationship with the market in terms of unsecured or personal loans, an increase of 3% on year.
However, the company said that the overall borrower profile remains healthy, with the share of customers with outstanding personal loans having fallen from FY23 to FY24 in percentage terms.
The RBI, on 2 May, lifted the restrictions on sanction and disbursal of loans under ‘eCOM’ and ‘Insta EMI Card’ verticals, following which the NBFC restarted the EMI card business from May 10 and eCOM business from the first week of June, leading to a drag on disbursements during Q1. Both of these should pick up over the next three quarters, the company said, pegging overall loan growth for FY25 at 26-28%.
