Bajaj Finance Logs Slowest AUM Growth In At Least 12 Quarters
The NBFC said that it remains well capitalised with capital adequacy ratio of approximately 25 percent as of March 31, 2020.
Bajaj Finance Ltd.’s assets under management in the January-March period grew at the slowest pace in at least twelve quarters.
The Pune-based non-bank lender’s assets under management rose 27.4 percent year-on-year—the slowest pace of growth since at least the first quarter of financial year ended March 2018—to Rs 1.47 lakh crore in the three months ended March, according to its exchange filing. On a sequential basis, its AUM rose 1.4 percent.
The non-bank lender had tightened credit norms for small and medium enterprises and business-to-consumer segments as per its first-quarter investor presentation. It had also tightened credit standards for auto loans and revised underwriting standards in digital product financing in urban and rural business.
Bajaj Finance said it acquired 1.9 million new customers in the third quarter as against 2.5 million customers in the previous quarter. Its customer base at the end of December quarter stood at around 42.6 million compared as against 34.5 million in the year-ago period.
New loans booked during the quarter totalled 6 million compared a drop of 22 percent sequentially and 3 percent year on year, the filing showed.
The company said that it remains well capitalised with capital adequacy ratio of approximately 25 percent as of March 31, 2020. Its deposit book stood at Rs 21,400 crore at March-end compared to Rs 13,193 crore year-on-year.
Commenting on the performance, Shubhranshu Mishra, assistant vice president of research (diversified financials), BOB Capital Markets Ltd. said the AUM growth of the NBFC is below their estimate of Rs 1.53 lakh crore. "We note that loan origination growth is a six-year low. We also take note of sequential capital burn of approximately 170 basis points, which seems high but could have seasonal effect as well."
Bajaj Finance Conference Call
In the last 10 days of a nation-wide lockdown, the company lost 3,50,000 customers and Rs 4,750 crore in assets under management, it said in an analyst conference call on April 6. It also said that small and medium enterprises or SMEs were under severe strain and exhorted the Reserve Bank of India to consider further economic relief measures such as a direct, low cost borrowing window for 12 months for all businesses. Bajaj Finance also said it is considering provisioning for some large accounts on account of Covid -19.
- These are exceptionally tough times, Covid -19 has brought the entire economy to a grinding halt for both demand and supply.
- $250 billion GDP loss is a base case scenario for Indian economy due to the one-month lockdown.
- Should see some demand revival by July, and a full recovery by September.
- Economy needs bold fiscal measures for revival.
While appreciating the RBI’s efforts, the company’s managing director Rajeev Jain expressed concern regarding potential moral hazard. “This is a stall of the economy, that has never been experimented before. Originally people thought it’s a waiver. It is now understood by customers that it is not a waiver, but damage is partially done. It’s going to be long work for financial institutions,” Jain said in the call.
He also said more measures were needed from RBI to alleviate stress on non bank financial companies, including housing finance companies.
- A direct low cost borrowing window for 12 months
- One-time restructuring
- And, freezing of customer Days Past Due till the end of moratorium period
Jain also stated that SMEs have been under severe stress and credit guarantee support from the government can ensure lenders come back to lend to this business.
Bajaj Finance shared three potential business scenarios
1. Lockdown is lifted as scheduled on April 14
- The company expects to do 20 percent of planned volume in April, 60 percent in May and 100 percent by September. With lost volume to be recovered in the second half of the financial year 2020-21.
- The impact on credit cost in such a scenario is expected to be 40-50 higher.
2. Lockdown is lifted on April 30
- The company expects May to run at 30 percent of planned volume, 70 percent in June and, by October return to 100 percent.
- Credit costs in such a scenario would be 50-60 percent higher.
3. Lockdown is lifted on May 15
- In such a scenario, business will be zero in April and May and this will have a structural impact on demand.
- By June volumes are expected to be at 50 percent, and a retrn to 100 percent volumes is only likely in the fourth quarter.
- The impact on credit cost is likely to be 80-90 percent higher on a full year basis.
Incremental Lending Opportunities
The company expects to be “very cautious” on incremental lending opportunities hereon. In the retail loan category it will avoid self-employed borrowers for the next 3-4 months. As far as SMEs go, it expects to cut lending to the bottom 2-3 deciles. And for commercial borrowers, it will work only with existing customers.
Bajaj Finance also pointed out that in general, it doesn’t lend to hotels, restaurants, aviation or those employed in these sectors. And while these are among the businesses that are hurting the most, no sector is unimpacted by the lockdown, the company said.