At Bajaj Finance, asset quality concerns persist
PremiumBajaj Finance’s AUM growth was largely on the back of a jump in mortgages of its housing subsidiary
Bajaj Finance Ltd showed the expected improvement in business growth for the March quarter. Its asset quality, too, looked less worrisome, thanks to the improvement in repayment collections. But what matters in the wake of a more virulent second wave of the pandemic is how these metrics will pan outin the coming quarters.
The consumer lender reported a 4% year-on-year growth in assets under management (AUM) on a consolidated basis. On a sequential basis, too, AUM grew by 4%, an improvement from the contraction seen in the previous quarter. But this growth came largely because of a 19% jump in mortgages of subsidiary Bajaj Housing Finance Ltd.
TRENDING STORIESSee All
For Bajaj Finance, as such, AUM shrank 1%. What this means is that the consumer lender is yet to see meaningful improvement in loan growth. The pandemic has had a massive impact on its balance sheet as Indians have been unable to spend like before. The reluctance to spend exists even now with several surveys, including the Reserve Bank of India’s consumer confidence survey, showing that spending is unlikely to rise sharply in the coming months.
View Full Image
However, Bajaj Finance’s management said that despite the second wave in the country already resulting in strict restrictions in large states, the lender would be able to take growth back to pre-pandemic levels. To be sure, this is not based on mere hope. In a call with analysts after the results, Rajeev Jain, Bajaj Finance managing director, said that increasing average daily business volume, along with collections, gives them this confidence.
“As a high-frequency indicator, in the last 7-10 days, the company has continued to originate 50-55% of daily volumes in B2B business, 80-85% in B2C and SME business and 40-50% in mortgages," he added.
That said, the company’s presentation adds a caveat: “Barring a national lockdown, three-four large GDP-contributing states going into simultaneous lockdown for three-five weeks and another moratorium on loan repayment, the company is confident of delivering its long-term guidance metrics in FY22."
MORE FROM THIS SECTIONSee All
Premium Premium Discount brokers emerge big winners in the retail trading frenzy
2 min read . 12:51 AM IST
Premium Premium Maruti’s margins shrink further in Q4; road ahead may not be smooth
2 min read . 12:43 AM IST
Simply put, there is no way Bajaj Finance can escape the impact of the second wave, although the firm is better prepared in terms of operations than it was last year.
But there is some succour for investors on its asset quality. While headline numbers may have increased, the underlying stress and potential stress seem manageable. The lender’s gross bad loan ratio rose to 1.79% from 1.61% in the previous quarter.
Bajaj Finance’s restructuring loan pile was just ₹1,739 crore, against which the lender has made adequate provisioning. Write-offs were lower than last quarter. Moreover, the lender has increased provisioning to cover for pandemic risks, apart from existing bad loans. A key pressure point for the company seems to be its auto loans. The biggest stress pile was in auto loans, where the gross bad loan ratio was 9.3%. This segment also saw the third-highest restructuring loan pile.
Bajaj Finance has been on the mend over the past two quarters in terms of both loan growth and asset quality. But the second covid wave threatens this improvement.
While the management remains optimistic of its prospects, going ahead, it remains to be seen whether investors would give a boost to its valuations in a hurry. The company’s stock has underperformed the broad Nifty index in the past one month, hinting at the concerns investors have.
Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.