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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.
Colored figures show movement against the previous available record.
Guidance to track
- Management expects annualized loan losses to average AUM to remain in the 175-185 basis points range, consistent with pre-COVID levels.
- 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 portfolio growth was deliberately reduced to 10% in Q3 from 26% in Q1, reflecting risk actions to control elevated delinquencies.
- The company plans to implement Key Fact Statement (KFS) in vernacular languages and digital signatures for all products by March 2024.
Risks flagged
- 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.
- Regulatory restrictions on two key products have temporarily impacted loan volumes and digital metrics. Full compliance submission is pending digital signature and vernacular KFS.
- Analyst questioned whether rising delinquencies in urban B2C could persist. Management called it 'transient' but acknowledged preventive cuts of INR 450-500 crore quarterly.
- 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.
Key quotes
- 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.
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