Bajaj Fin: Worst case scenarios play out as stress builds across portfolios

Bajaj Finance has indicated that its rural and urban consumer businesses were at 91 per cent and 72 per cent of year-ago volumes and so far the lender has restructured only Rs 252 crore of loans

Bajaj Finance’s results in the September quarter (Q2), the third consecutive quarter of weak performance, suggest that recovery may be pushed to FY22. Despite the Street’s muted expectation, the 36 per cent net profit decline (worst since FY15) marred by elevated provisioning was a huge let-down. Q2 numbers missed estimates on multiple counts — asset growth, net interest income (NII), and net profit growth.

The stock was volatile, falling nearly 5 per cent intra-day after the results were announced, before closing with marginal losses (down 0.88 per cent), perhaps taking confidence from the non-performing assets (NPA) number, which was better than anticipated. At 1.03 per cent gross NPA ratio in Q2 (1.34 per cent, without Supreme Court’s stay on NPA recognition), extended m­oratorium put a lid on overall asset quality and bettered Q1’s 1.4 per cent.

But the devil is in the details. While provisioning cost for stage-3 assets (90 days past due) declined by 29 per cent year-on-year (YoY), that for stages 1 and 2 (30 days and 60 days past due, respectively) shot up from Rs 129 crore a year ago to Rs 1,370 crore in Q2. Stress is elevated in consumer durables, auto, digital products, and small business loans segments (see table).

Bajaj Finance has said rural and urban consumer businesses were at 91 per cent and 72 per cent of year-ago volumes, respectively, and it has restructured only Rs 252 crore of loans. However, with 80 per cent retail loans lent to salaried customers and swelling up of stage-2 assets, this could increase by December. Prudently, the lender will not restart lending through its REMI app and wallets before Q4. It has also indicated that provisioning cost will remain higher by Rs 2,600-2,900 crore in H2FY21, taking total Covid-led provisioning to Rs 6,000-6,300 crore.

What worked for Bajaj Finance in Q2 is its ability to contain cost. At 27.8 per cent operating expenses to NII ratio, efficiency was at its highest, leaving little room for further cost curbs. For now, the lender is hopeful of a full-blown recovery only by FY22. With clearer credit bureau scores available from November, the management is confident of an increase in new borrowers from Q3. Rebound in new customer acquisitions to the historic run-rate of 20-22 million a quarter (12 million in Q2) is critical. Until disbursements recover, analysts expect stock to remain under pressure.

Gloomy asset quality picture

 

 

 

 

Stage-2 assets (%)

Change

 

Q1 FY20

Q1 FY21

(bps)

Comsumer durable + lifestyle

1.04

7.80

676

2 & 3 wheeler

10.17

25.19

1502

Digital products

1.37

11.14

977

B2C 

1.33

9.03

770

Business & Professional

1.10

6.10

500

Rural B2B

0.51

7.11

660

Rural B2C

1.02

8.29

727

Loan against property

0.60

2.36

176

Home loans

0.13

1.40

127

Stage 2 assets represent loans 60 days past due

 

 

 

bps-basis points; B2C-Business to customers; B2B-Business to business

 

 

 

Source- Company presentation