Bajaj Finance expects AUM from MSME business to grow 10-12% in FY26

Cuts AUM growth guidance to 22-23% for FY26

Bajaj Finance’s shares fell more than 7 per cent on Tuesday after it trimmed growth guidance for FY26, from 24-25 per cent projected earlier to 22-23 per cent.

 

The non-bank lender expects its asset under management (AUM) from MSME business to grow 10-12 per cent in FY26, compared with 18 per cent growth in the second quarter, said Rajeev Jain, vice-chairman and managing director of Bajaj Finance, in analyst call post earnings.

 

Shares of one of India's largest and most diversified non-banking financial companies closed 7.46 per cent lower on the BSE at Rs 1,005.35.

 

Jain said the company has cut unsecured MSME (short for micro, small and medium enterprises) loan volumes by 25 per cent. “Additionally, captive two- and three-wheeler [segment] is in a phased-out zone in order to strengthen overall asset quality trends from FY27 onwards perspective.”

 

“The company decided to take a prudent and balanced stance on AUM growth for FY26, with growth in the region of 22-23 per cent as compared to our earlier assessment of 24-25 per cent due to a set of risk actions taken in MSME business,” said Jain. As of September 30, MSME lending was at Rs 51,718 crore, up 18 per cent from the previous year.

 

“While it is already running down its captive auto book, as a further corrective action, Bajaj Finance has cut 25 per cent of its loan volume for the MSME segment. Accordingly, Bajaj Finance cut its growth guidance for FY26 to the 22-23 per cent level from 24-25 per cent previously, despite the strong volume seen during the festive season,” said Suresh Ganapathy, an analyst with Macquarie Capital.

 

Jain said non-performing assets (NPAs) ratios are expected to improve through FY27 as the company moderates its captive two-wheeler and three-wheeler segment, which currently causes 9 per cent of total loan loss while accounting for just 1.5 per cent of AUM.

 

Gross and net NPAs stood at 1.24 per cent and 0.60 per cent, respectively, as of September 30, compared to 1.06 per cent and 0.46 per cent at the same time the previous year.

 

Bajaj Finance expects credit cost to be around 1.85-1.95 per cent in FY26 and improve significantly the next year. Cost of funds improved 27 basis points to 7.52 per cent in Q2 FY26 and is expected to be around 7.5-7.55 per cent in the year.

 

“We should see a much lower credit cost in FY27. If the trajectory that we are seeing today should continue for the next year, we should definitely see a significant improvement in the credit cost ratio,” said Jain.

 

Looking ahead, the company’s focus will be on new lines of business such as gold loans, new car loans, commercial vehicles, and tractor financing.

 

The lender’s gold loan book is at Rs 12,000 crore and it is expected to reach Rs 16,000 crore by the end of FY26, with a medium-term target of Rs 27,000–30,000 crore by March 2027.

 

In a market dominated by a few large players, the company has successfully established itself as a strong challenger through a well-calibrated and profitable model, Jain said.

 

The focus has not only been on expanding assets but also on ensuring sustainable profitability, with return on equity now in line with leading competitors. Performance is based on disciplined risk management and operational efficiency, enabling resilience across varying gold price scenarios. The company plans to add around 900 new gold loan branches and convert 500 existing ones, driving structural expansion and deeper market penetration over the medium term.

 

Amid a cut in GST during festivals, the company disbursed 7.4 million loans overall to clock a growth of 26 per cent from the previous year. It added 2.3 million new customers, with 52 per cent new to credit — on par with previous years.