Bajaj Finance Warns Of Asset Quality Fears In Q1, Q2
Indian rupee banknotes of various denominations sit in a cash register. (Photographer: Dhiraj Singh/Bloomberg)

Bajaj Finance Warns Of Asset Quality Fears In Q1, Q2

Bajaj Finance Ltd. is likely to witness higher gross and net non-performing assets in the first six months of the ongoing financial year amid disruptions by the second wave of the Covid-19 pandemic.

“Forward flows across overdue positions were higher due to constraints on collections amidst strict lockdowns across most parts of India,” it said in a mid-quarter update late on June 4. “As a result, the company estimates its GNPA and NNPA in Q1 and Q2 to be higher.”

The non-bank lender’s gross NPA ratio and net NPA ratio stood at 1.79% and 0.75%, respectively, as of March 31. While announcing the earnings for the quarter ended March, the company expected its gross NPA to range between 1.4% and 1.7%, and net NPA within 0.4-0.7%, in the long term.

The firm entered the first quarter of the ongoing fiscal with Covid-19 overlay provisions worth Rs 840 crore, with collections infrastructure capable of delivering 25-30% higher collections across portfolios.

According to the mid-quarter update, average bounce rates in monthly installments during the quarter ended June are higher by approximately 1.08x over the preceding quarter, indicating higher delinquencies.

Bajaj Finance said it expects incremental credit costs worth Rs 1,100-1,300 crore in the ongoing fiscal, compared with the estimate at the start of the year.

The second wave of the pandemic has led to localised lockdowns across various states, which have been extended till mid-June.

Segments Worst Hit

Among the worst hit businesses for Bajaj Finance are business-to-business financing and auto financing. According to the update, business volumes across these two portfolios dropped to 70% of planned volumes in April and further fell to 40% in May.

“Most states have indicated continued lockdowns till June 7 or 15. With expected reopening, June should be much better,” the company said.

Other lines of business though have held up during the pandemic, delivering 85% of the estimated business volumes in April, Bajaj Finance said. It leveraged its digital capabilities, which helped in 60% of planned business volumes in May, for businesses other than B2B and auto financing.

“The company estimates an impact of Rs 4,000-5,000 crore to its AUM (assets under management) growth plan for FY22 on account of the disruption caused by the second wave,” Bajaj Finance said, adding the impact will be more severe during the first quarter than the rest of the year.

The company has taken measures to reduce operating expenses and cost of funds to partially mitigate the financial impact from lower AUM growth. It didn’t detail the measures taken.

Its AUM rose 4% year-on-year to Rs 1.53 lakh crore as of March 31. Bajaj Finance had guided an AUM growth rate of 25-27% in the long term, while announcing the fourth quarter results.

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