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Bajaj Finance reported a mixed Q2 FY26 with AUM growth of 24% to INR 4,62,261 crore, but credit cost remained elevated at 2.05% of AUM, leading to a revised full-year credit cost guidance to the upper end of 1.85%-1.95%. The company lowered its FY26 AUM growth guidance to 22%-23% from 24%-25%, driven by deliberate risk actions in the MSME business (now expected to grow only 10%-12%) and a phased reduction of the captive two-wheeler portfolio. Positively, customer franchise expanded to 110.6 million, OpEx-to-NTI improved to 32.6%, and festive season disbursements surged 26% YoY. Management highlighted strong vintage improvements and expects significant credit cost improvement in FY27. Key risks include sustained stress in MSME and potential margin compression from passing on cost-of-fund benefits to customers.
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Guidance to track
- Management lowered AUM growth guidance from 24%-25% to 22%-23% due to risk actions in MSME and revised BHFL outlook.
- Full-year credit cost expected to be at the upper end of the guided range, with significant improvement anticipated in FY27.
- MSME growth moderated to 18% in Q2; full-year growth expected at 10%-12% due to deliberate volume cuts.
- Cost of funds improved 27bps to 7.52% in Q2; full-year expected in 7.5%-7.55% range, with NIM held flat.
Risks flagged
- MSME GNPA increased significantly; management cut volumes by 25% and expects stress to abate only by March-June 2026.
- Captive two-wheeler book (1.5% of AUM) contributes 9% of loan losses; run-down may take time to fully benefit credit costs.
- Management intends to pass on cost-of-fund improvements to customers, keeping NIM flat, limiting upside to margins.
- Analyst noted that other lenders are not flagging similar MSME issues, raising concern that Bajaj Finance's experience may be idiosyncratic or sector-wide.
Key quotes
- 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.
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