Release Date: October 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bajaj Finserv Ltd (BOM:532978, Financial) reported a strong AUM growth of 29% year-on-year, reaching INR 374,000 crore.
- The company added nearly 4 million new customers in Q2, bringing the total customer base to 92.1 million.
- Net interest income grew by 23% to INR 8,838 crore, with overall net total income increasing by 24%.
- The company maintained a strong liquidity buffer of INR 20,200 crore, with a cost of funds at 7.97%, indicating financial stability.
- Bajaj Finserv Ltd (BOM:532978) received an investment-grade rating from Moody's, aligning with its sovereign rating, which enhances its credit profile.
Negative Points
- Loan losses remained elevated, with gross loan loss and provisions at INR 1,934 crore, impacting profitability.
- The net loan loss to average assets is expected to be higher than initially projected, between 2% and 2.05% for FY25.
- The company's deposit growth was slower than expected at 21%, due to a competitive pricing environment.
- Credit costs were a dampener for the quarter, with a net increase in Stage 2 and Stage 3 assets of INR 542 crore.
- The rural B2C and SME lending segments were highlighted as areas of concern, with elevated GNPA levels leading to cautious growth strategies.
Q & A Highlights
Q: Could you give us more color on what gives you confidence that slippages and credit costs may have peaked? Also, where might NIMs go over the next year with a potential rate cut?
A: Rajeev Jain, Managing Director, explained that bounce rates are still lower, and portfolio quality is holding, with flow rates being higher. Investments in debt management and underwriting actions give confidence that credit costs will improve by Q4. Sandeep Jain, CFO, noted that a 25 basis point drop in repo rate could lead to a 10-12 basis point NIM improvement, which will be used to grow secured and new business lines.
Q: When do you expect normalization in the rural B2C business and business and professional loans? Also, what is the medium-term outlook for cost to income?
A: Rajeev Jain stated that rural B2C showed double-digit growth after several quarters, and they foresee 12-14% growth for the full year. Business and professional loans are seeing elevated flow rates, but they are managing risk. On cost to income, they aim to improve operating efficiencies using GenAI, but a significant drop to 31% OpEx to NII is not expected soon.
Q: What would make the elevated credit cost cycle prolonged, and how is fee income performing?
A: Rajeev Jain mentioned that actions by the Reserve Bank have slowed the unsecured market, and they are pruning segments and reducing exposures. Fee income was impacted by the transfer of collections activity to RBL Bank, which affected the fee income sequentially.
Q: Given the environment, why is the growth outlook still strong despite increasing credit cost guidance?
A: Rajeev Jain explained that new lines of business, such as two-wheeler and tractor financing, are contributing to growth. The existing business growth is around 24-25%, and they have used the last 24 months to complete their product suite, maintaining AUM momentum without compromising credit quality.
Q: Can you provide insights into the asset quality of the urban B2C segment, given the elevated Stage 2 levels?
A: Rajeev Jain stated they remain watchful of the urban B2C segment, acknowledging pressure across lines. They prioritize managing risk over growth and noted that Stage 2 and Stage 3 movements have improved compared to the previous quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
