Bajaj Finance Ltd.’s disbursements to small businesses and consumers fell on stricter lending criteria amid a consumption slowdown even as the non-bank lender met profit estimates in the June quarter.
The company tightened underwriting standards in digital product financing in urban and rural business, translating into an about 15-18 percent cut in new disbursements, according to its investor presentation filed with exchanges. Bajaj Finance altered norms for small-to-medium enterprises and business-to-consumer segments, resulting in a 10 to 12 percent decline in disbursements, it said, adding that it also tightened credit standards for auto loans.
The categories contribute about 40 percent of the total assets for the non-bank lender that offers credit for everything from buying a car to home appliances and even clothes.
The “prudence measures” come as the demand slows in the economy. Multiple indicators like falling sales of cars and scooters, easing volume growth of staples to shampoos, lack of demand for apparel to appliances and weak rail, road and freight volumes only reinforce the slowdown.
“Bajaj Finance’s growth has been affected due to slowdown in consumption, rural slowdown,” said Kajal Gandhi, analyst at ICICIdirect who has a ‘Reduce’ rating since June 2019 and will review it after the company’s analyst concall. “If the growth remains at this higher rate, asset quality may suffer.”
Ashutosh Misra, analyst at Ashika Stock Broking, said there are early signs of stress in the retail book, and the management has tightened the underwriting practices to avoid any major credit loss in the future. The company’s bad loans and provisions rose in the quarter ended June.
Rajeev Jain, managing director at Bajaj Finance, remains optimistic. The core growth during the quarter was strong at 38 percent and balance sheet will continue to grow at 25-27 percent, he said in an interview with BloombergQuint. “Growth could be a little slower if the current environment persists. If the environment were to strengthen, then on a full-year basis, you may not even see a difference.”
Asset Quality Deteriorates
Bajaj Finance’s net profit rose 43 percent year-on-year to Rs 1,195.25 crore in Q1, according to its filing. That’s in line with Rs 1,165 crore estimated by analysts tracked by Bloomberg.
Bajaj Finance Q1 Results 2019-20: Key Highlights (year-on-year)
- Net interest income, or core income, rose 43 percent to Rs 3,695 crore—higher than the Rs 3,221-crore estimate. That was primarily led by a 29.1 percent rise in new loans booked.
- Gross non-performing assets ratio expanded to 1.6 percent from 1.54 percent over the previous quarter. The Net NPA ratio rose to 0.64 percent sequentially from 0.63 percent.
- Excluding its exposure to IL&FS, gross NPAs improved by 8 basis points to 1.42 percent while its net NPAs grew by 3 basis points to 0.5 percent.
But provisions against bad loans rose 34.7 percent quarter-on-quarter and 69 percent on a yearly basis to Rs 551 crore.
Other Highlights
- Capital adequacy ratio (including tier-II capital) as of June 30 stood at 19.48 percent.
- Total operating expenses-to-net interest income for Q1 was at 35 percent against 37 percent last year.
Assets managed by Bajaj Finance jumped 41 percent on a yearly basis—the most in at least nine quarters—to Rs 1.29 lakh crore as of June, Bajaj Finance had announced earlier.
Watch the full interview with Bajaj Finance’s Rajeev Jain here:
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