Bajaj Finance vs HDFC Bank Q3 FY24

Bajaj Finance reported a mixed Q3 FY24 with strong AUM growth of 35% to INR 311,000 crore and record new customer acquisitions of 3.85 million. PAT grew 22% to INR 3,639 crore, but was dampened by elevated loan losses of INR 1,248 crore (annualized 1.79% of AUM) and the impact of the RBI embargo on eCom and Insta EMI Card products. Management highlighted that rural B2C stress remains an inside-out problem, with growth deliberately slowed to 10%, while urban B2C delinquencies are seen as transient. The company raised interest rates by 20-30 bps from January to mitigate cost pressures. Long-range strategy targets 130-140 million customers by FY28. Key risk: credit costs may remain elevated if rural B2C stress persists or regulatory restrictions linger.

Guidance read

Credit cost guidance of 175-185 bps: Management expects annualized loan losses to average AUM to remain in the 175-185 basis points range, consistent with pre-COVID levels. Interest rate hike of 20-30 bps from January 1: Effective January 1, the company increased interest rates by 20-30 basis points across portfolios to mitigate higher cost of funds and risk weights. Rural B2C growth slowed to 10%: Rural B2C portfolio growth was deliberately reduced to 10% in Q3 from 26% in Q1, reflecting risk actions to control elevated delinquencies. KFS compliance for all products by March 2024: The company plans to implement Key Fact Statement (KFS) in vernacular languages and digital signatures for all products by March 2024.

Risk read

Key risks include Rural B2C credit stress persists — Rural B2C portfolio continues to show elevated delinquencies, with growth deliberately slowed to 10%. Management describes it as an 'inside-out problem' requiring ongoing risk actions.; RBI embargo on eCom and Insta EMI Card products — Regulatory restrictions on two key products have temporarily impacted loan volumes and digital metrics. Full compliance submission is pending digital signature and vernacular KFS.; Urban B2C delinquency uptick may not be transient — Analyst questioned whether rising delinquencies in urban B2C could persist. Management called it 'transient' but acknowledged preventive cuts of INR 450-500 crore quarterly.; Co-branded credit card renewal risk — RBI granted only a one-year renewal for the RBL Bank co-branded card partnership due to deficiencies. Management is engaging with RBI to resolve issues..

Promise ledger

Of 3 tracked promises, management 0 met, 0 close, 3 missed.

HDFC Bank reported a 33.5% YoY PAT growth to INR 164 billion, driven by strong advances growth of 4.9% QoQ and stable NIM at 3.4%. However, deposit growth lagged at 1.9% QoQ, with retail deposits growing 2.9% while non-retail deposits declined. The LDR rose above 110%, and LCR fell to 110%, signaling funding constraints. Management emphasized a focus on profitable growth, aiming to improve CASA ratio and replace borrowings with deposits. They guided for deposit growth to outpace loan growth by 300-400 bps to reduce LDR. Key risks include persistent liquidity tightness, elevated LDR, and slower-than-expected branch expansion (target of ~1,000 vs earlier 1,500). The bank plans to enhance cross-sell metrics disclosure to track synergy realization from the HDFC merger.

Guidance read

Deposit growth to outpace loan growth by 300-400 bps: Management expects deposit growth to exceed loan growth by 300-400 basis points to reduce the LDR over time. Cost-to-income ratio to progressively decline to mid-30s: The bank aims to reduce cost-to-income from ~40% to mid-30% over the medium term through digital efficiencies and margin improvement. Branch network to reach ~1,000 additions in FY24: Revised target from 1,500 to ~1,000 branches for FY24, with 570 branches in pipeline. Cross-sell metrics to be disclosed from next quarter: Management will start reporting penetration of savings accounts, credit cards, and consumer durable loans among new mortgage customers.

Risk read

Key risks include Elevated LDR and tight liquidity — LDR above 110% and LCR at 110% limit balance sheet flexibility; system liquidity turned negative for the first time in 3.5 years.; Slower deposit growth constraining loan growth — Deposit growth of 1.9% QoQ lagged loan growth of 4.9%, forcing reliance on borrowings and investment sales.; Branch expansion falling short of target — FY24 branch additions likely to be ~1,000 vs original target of 1,500, potentially limiting deposit mobilization.; Margin pressure from rising cost of funds — CASA ratio declined and term deposit rates remain elevated; management did not commit to a timeline for margin improvement..

Promise ledger

Of 1 tracked promise, management 0 met, 1 close, 0 missed.