Bajaj Finance Ltd. saw its net profit fall in the quarter ended December, as income dropped and stressed assets inched higher.
Net profit of the consumer finance focused lender fell 29% year-on-year to Rs 1,146 crore in the October-December period, according to an exchange filing. That compares with the Rs 1,181-crore consensus estimate of analysts tracked by Bloomberg.
The company’s total revenue dropped 5% over the year earlier to Rs 6,658 crore. Analysts had pegged the top line at Rs 4,306 crore.
Consolidated assets under management rose to Rs 1.43 lakh crore at the end of the October-December quarter from Rs 1.37 lakh crore in the preceding three months. Bajaj Finance owns a 100% stake in Bajaj Housing Finance Ltd., which is considered in the consolidated assets under management. A year ago, in October-December 2019, the assets under management were marginally higher at Rs 1.45 lakh crore.
“AUM growth is back across all businesses except auto finance. AUM growth was granular across all lines,” the company said in an analyst presentation. It also said that most business segments had started disbursing 85-100% of last year’s volumes.
Asset Quality
Bajaj Finance’s gross non-performing asset ratio as on Dec. 31 stood at 0.55% compared with 1.03% as on Sept. 30. The company said it has not classified any account as NPA since Aug. 31 according to the Supreme Court’s directions in the interest-on-interest case.
If the Supreme Court directions were not in place, the gross NPA ratio in the third quarter would have been 2.86% against 1.34% in the July-September period.
Bajaj Finance also provided one-time restructuring to loans worth Rs 2,040 crore under Reserve Bank of India’s RBI August 6 circular. This included Rs 930 crore worth mortgage loans and Rs 523 crore worth unsecured loans, it said.
Loan loss provisions in the third quarter stood at Rs 1,352 crore, up 63% year-on-year. This was largely owing to write-offs by the firm.
During the quarter the group, as a matter of prudence, has written off principal and interest amounts (including capitalised interest) of Rs 1,970 crore and Rs 365 crore respectively, of potentially unrecoverable loans which were under moratorium by utilising the available expected credit loss provision (including management overlay).Bajaj Finance Investor Presentation
Post provisions, the company estimates residual credit costs in the January-March quarter to be in the Rs 1,200-1,250 crore range.
“FY22 onwards, the company expects loan losses and provisions to revert to pre-COVID-19 levels of 160-170 bps of average assets. If recoveries are better in FY22, we may experience lower net loan loss to average assets,” it said in the presentation.
According to Rajeev Jain, managing director, Bajaj Finance, the company expects to return to normalcy by next year, even without considering the recoveries which may come. As part of its process of writing-off loan, the company went through its entire loan portfolio to identify accounts where the likelihood of recoveries were 5-10%.
“We applied various lenses to look at the loans. The assessment was done by us internally and by independent auditors before writing them off,” Jain told analysts over a conference call on Wednesday.
When asked whether Bajaj Finance was being over-cautious in its assessment of loans where the moratorium was invoked, Jain said that an assessment of bureau data of these customers showed that they were under some form of regulatory forbearance across lenders. As per the Reserve Bank of India’s last assessment published in the Financial Stability Report this month, about 40% of all bank loans were under moratorium as on August 31, 2020.
“We can’t speak for the entire market, but as far as our customer base is concerned, there was moratorium across lenders they deal with. It is not like they deferred repayments just to us,” he said.
Stepping Up Focus On Payments
Bajaj Finance is set to sharpen its focus on the payments business, according to announcements in its investor presentation.
The lender said that it is in the process of launching Bajaj Pay for consumers in Q4. This will offer payment solutions via UPI, PPI, EMI Cards and credit cards. It is also in the process of building Bajaj Pay for merchants.
Separately, Bajaj Finance will build five proprietary marketplaces — an EMI Store, an insurance marketplace, investment marketplace, BF health and a broking app, it said.
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