Bajaj Finance · tone and specificity signals across the available quarters.
Language signals
We think a 21%-23% ROE, given 19, 20, 23, 24, and mind you, last year, we had no one-timers, either as income or as great cost and given the Q1. We are penciling in that the long-term guidance, we are upping from 19%, 21% to 21%, 23%.
The amount of personal loan growth is troubling us. In fact, one of the objectives of us penciling in rural B2C, because we're seeing growth even there in terms of level of leverage.
We have strengthened the provisioning coverage ratio across businesses. That is costing us about INR 50 odd crores in the quarter one.
Between risk and growth, if you have to choose, we'll choose risk because longer term is more important than the shorter term.
We are in a risk business. While I could argue with you that it's a transient frame, as a firm we are a risk-first business.
We are pulling down exposures wherever we deem appropriate at this point in time based on the incoming data.
Consumer leverage continues to remain an area of concern. Company across lines of businesses continues to take several actions across all products to reduce contribution of customers with multiple loans.
We are watching offers data on these customers. That is not necessarily giving a good picture. It is the only point I would leave you with.
I think we have built distribution which is able to generate that kind of top of funnel. Mind you, in the private sector, there will be only two, three players, and we are much younger who are above 100 million franchise.
We've cut between 8%-14% of the business in urban and rural, 14% in rural and 8% in urban, as a preventive measure, to those who have more smaller ticket loans, while they may be short-term in nature, represents imprudence.
If there were ever butterflies in the stomach on this business, that was March 2020 till March 2022. Because we thought work from home is the new future. What would happen to this portfolio? This portfolio, even between March 2020 and March 2022, we did not see a single instance of default.
We are very capital prudent and very... Lastly, I think, you know, since you talked capital raise, we've always raised capital and consistently demonstrated our ability to effectively deploy it effectively and deliver medium-term ROE goals.
Between managing risk and managing growth, we'll choose credit.
We are cautiously optimistic that loan loss to average AUF has hopefully peaked, and we estimate it to go down to 2% or so by Q4.
The NIM is now stabilized at these levels from here on.
We principally remain a risk-first company.
We are building businesses with a 10-15 year view. We are very clear we will deliver the short-term, medium-term, and the long-term, all three at the same point in time.
We do not want the discussion to get hijacked by MSME discussion the way it happened last quarter. ... Nothing is alarming as such.
Rural B2C continues to be a inside-out problem. I've said this in previous calls as well, and between risk and data, call is always risk, and that's why the growth rates of the business has constantly been brought down until such time that we can start to see gross flow rates in that portfolio improve.
Growth and risk, margin and growth margin. The fortunate thing for us is the tailwind is that there is strong growth. So that means we have the latitude, if you want, to calibrate between these three dimensions of risk, growth and margin, to ensure we deliver what we call the optimized return on asset and return on equity.
We are not in the business of lending, we're in the business of risk. All reduced business eventually leads to control in risk metrics.
Loan losses have begun to stabilize, or have rather stabilized. Came in flat in terms of percentage points virtually between Q2 and Q3.
We are well on course to cross 100 million customer franchise. It'll be a big milestone, I would say, for us as a firm.
We have pruned businesses. We've talked about it over the last two quarters. Three businesses I would flag out. The largest increase in contribution was two-wheeler. That's a winding down book.
We are not testing AI. We are deploying AI across the board, across lifecycle.
If there is only one red flag that I continue to have is that consumer leverage continues to remain an area of concern.
We want to ensure we want to use this opportunity to ensure that the balance sheet and the P&L are shockproof.
We expect FY 25, the way we see it at this point in time, to be a year of normalization to pre-COVID metrics.
Rural B2C, growth actually came down from 25% on a AUM growth basis to 6% in March 2024. So clearly, we still don't have a full handle on rural B2C.
If I may use the word in a lighter vein, the madness in terms of competitive activity in the mortgage space.
We are a credit business. We want to make sure credit first and then growth. We'll fix that. We are pretty confident of that.
Our core objective at this stage is first to get to the credit cost corridor, which we have laid out. The early vintage is looking good.
If things were to improve significantly, maybe the model can show ECL release number as well. That's not certain.
We are entering the year on credit cost with tailwinds. Headwind over headwind virtually would consume twice the fuel. Thankfully we are entering the year with tailwinds.
The principle difference between deploying use cases and transformation... transformation is about reshaping the business model.
We are not pulling back any stops in investing whatever it takes in being front of the seat and center.