Bajaj Finance Q4 hit by rural loan losses, RBI restrictions

Mumbai: Bajaj Finance’s managing director Rajeev Jain on Thursday said the company faced challenges on two fronts in the March quarter: higher loan losses in personal loans to rural customers, and the ongoing impact of Reserve Bank of India’s (RBI) restrictions on its business. Bajaj was speaking in a call with analysts after announcing the company’s latest quarter results.

Last November, RBI had asked the lender to stop giving fresh loans under its lending products eCOM and Insta EMI Card, citing non-compliance with digital lending guidelines.

Also read: Rural loans, small biz see stress rising

Meanwhile, the consumer financier has been speaking cautiously about the rural b2c (business to consumer) segment that comprises personal loans to salaried, self-employed customers and professionals.

Bajaj said in a statement accompanying its presentation that it has made required changes in response to the regulatory restriction imposed by RBI.

“The company has formally requested RBI for review and removal of these restrictions. To ensure compliance in form and spirit, the company, in addition to digital lending products, has implemented KFS (key fact statement) for all lending products effective 31 March and made it available in 20 vernacular languages,” it said.

A KFS is a document that shows the true cost of what a borrower is supposed to repay.

RBI curbs

While imposing restrictions on Bajaj Finance in November, RBI said that it found the lender to have not issued KFS to borrowers under these two lending products (eCOM and Insta EMI Card). The regulator added that it also found deficiencies in such statements issued for other digital loans sanctioned by the company.

On rural b2c, the lender has, as a strategy, decided to go slow on growth. The assets under management (AUM) growth of rural b2c — excluding gold loans — has shrunk from 25% in March 2023 to 6% in March 2024. 

The AUM stood at ₹17,607 crore, comprising 5.3% of aggregate consolidated AUM as on 31 March, as against 6.7% in the same period last year. In fact, Bajaj Finance said that risk metrics across all businesses were stable except rural b2c.

“Good quarter on AUM, customer acquisition, portfolio metrics, and operating efficiencies. Dampeners for the quarters were elevated loan losses in rural b2c and continued impact of regulatory restrictions,” said Jain.

Total loan losses and provisions in the March quarter were at ₹1,310 crore, up 53% from the same period last year.

For the current year (FY25), Bajaj is expecting to grow its AUM 26-28% compared to 34% in the previous financial year. This growth, it said, will be supported by its newly launched secured businesses like loan against property (LAP), new car financing and tractor finance.

It also expects a 30-40 basis points (bps) compression in net interest margins over the next two quarters. According to the lender, NIM has been moderating throughout FY24 due to increase in cost of funds and a gradual shift in AUM composition towards secured assets. “It is a pivot that will happen gradually,” said Jain.

Bajaj Finance posted a consolidated net profit of ₹3,825 crore in Q4, up 21% year-on-year (y-o-y), beating analyst expectations. Bloomberg estimates had pegged its Q4 profit at ₹3,785 crore.

Its net interest income grew by 28% to ₹8,013 crore in Q4, as against ₹6,254 crore in Q4 of FY23. The lender faced a net interest margin (NIM) compression in Q4 over Q3 of 21 basis points (bps). Bajaj Finance’s gross NPA (non-performing assets) and net NPA stood at 0.85% and 0.37% as of 31 March, respectively, as against 0.94% and 0.34% as of 31 March 2023.

A basis point is one-hundredth of a percentage point.

Bajaj Finance shares on BSE closed at ₹7,293.9 on Thursday, down 0.46% from the previous close.

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