Loan loss provisioning in Q4 at Rs 290 crore is the highest in the last five quarters and signals 86 per cent jump year-on-year. However, provisions for the quarter were higher due to an additional charge of Rs 89 crore on account of demonetisation. "Post demonetisation we estimated the resultant impact on our book at Rs 100 - 120 crore. Of this, we have provided Rs 89 crore in Q4. So, there could be some spill over in the next quarter also," explains Rajeev Jain, managing director, Bajaj Finance. Jain attributes much of the incremental provisioning to stress in two-wheeler loans and loan against property. Further, he believes that while lending to consumer durables has returned to normalcy, the small and medium enterprise (SME) segment may take a quarter or two.
Therefore seen against an environment of gradual recovery from the note ban, Bajaj Finance's Q4 performance is nothing to complain about yet. The financier's net interest income at Rs 1,689 crore grew by a strong 49 per cent year-on-year, while its net profit expanded by 43 per cent year-on-year to Rs 449 crore. Healthy growth of assets under management (Rs 60,194 crore; up 36 per cent year-on-year) is also positive. Much of the growth has been helped by pockets such as consumer finance, home loans, personal loans, vehicle finance, and loans to professionals.
While this pattern is more-or-less a constant now, there is a couple of things the street would closely watch in FY18. For one, the pace of growth in consumer durables loans (a critical component of loan disbursements) has slowed down a bit in Q4. Seen against a year-ago's growth of 33 per cent, Q4's run rate at 19 per cent growth seems pale. A benefit of doubt though could be considered given the operating climate and the growing high base. Likely impact due to the implementation of goods and services tax (GST) also needs monitoring. Jain, however, states that it could be too early to predict how GST plays out in the coming months.
Any slips on these front would make is difficult for Bajaj Finance's stock to justify its lofty valuations at 9.8x FY18 estimated price-to-book. "The Street is still positive on Bajaj Finance's ability to grow its loan book and maintain a decent asset quality. However, any change on asset quality front would make it tough to justify the valuations," says an analyst reviewing his recommendation on the stock.
 "Lingering impact of note ban on Bajaj Finance")