Bajaj Finance loan loss provisions breach, NBFC to focus on collection capacity | Mint

Mumbai: Bajaj Finance’s loan loss provisions increased in the first quarter (April-June) of this financial year, largely driven by muted collections and higher disbursement requirements for aging delinquencies.

This, said the Pune-based non-bank lender, has led it to now focus on improving its collection capacity, which reflects the portion of loan repayments being collected.

Gross loan losses and provisions for the quarter were ₹1,790 million. During the quarter, the non-banking finance company (NBFC) used a management component of ₹105 crore towards loss of loans and provisions, due to loss of loans and provisions has occurred. ₹1,685 million.

A backup plan is a type of security system designed by companies to be used during emergencies or disasters. In this case, Bajaj Finance has built this cover a lot during this pandemic.

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In an analyst briefing late on Tuesday, management said that while portfolio values ​​remained stable and delinquency rates were lower compared to the March quarter, the significant movement of delinquent loans from the 1 to phase 2 due to silent collection has led to a rise in loan losses. during the June quarter.

Phase 2 assets, which allow for higher allocations than phase 1, have increased by ₹865 crore respectively.

“The company is increasing its credit management infrastructure as a mitigation measure,” it said in a statement to investors, with management adding that it remains vigilant to stress levels across the business and is “minimizing” exposure to specific customer segments.

“BAF (Bajaj Finance) reported a higher-than-expected cost of 1.97%, an increase of 33 points sequentially. The increase in loan costs was due to the success of collections affected by the elections,” Emkay Global Financial said in a note, adding that the cost of credit is expected to normalize over the next two quarters and be 1.75-1.85% for FY25.

A basis point is one hundredth of a percentage point.

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The company also saw an increase in loan losses during the previous elections in 2019 and is seeing similar trends this time, executives said, adding that the increase in loan losses was due to higher prices. or silent collections, taking one to three. quarter to stabilize the situation. As a result, loan losses are expected to remain at current levels in the ongoing quarter and should start normalizing in the third quarter (October-December) onwards, they said.

The company will have a clearer view of whether the muted collection trend is temporary or not in the October quarter, they added.

Bajaj Finance’s non-performing asset (NPA) ratio improved marginally to 0.86% in the June quarter, from 0.87% last year. However, the total NPA worsened to 0.38% from 0.31% last year, due to higher provisions. In the previous quarter, the total NPA was 0.85% and the total NPA was 0.37%.

So far, the stress is most evident in two- and three-wheeler financing, business-to-consumer, or B2C, (retail loans) and SME (small and medium-sized enterprises) loans, such as rural business growth. the -to-business segment is still strong. Asset quality for the city’s B2C segment is also stable, but management is wary of any signs of stress.

The management clarified that the rural B2C portfolio has been witnessing a sluggish growth of 5-6% over the past year, including the 5% growth seen in Q1FY25. However, it expects some uptake going forward, projecting credit growth for FY25 at 10-11%. The company has been improving its credit rating over the past year and is looking to expand its customer base to pre-Covid levels, it said.

Rural B2C lending for Bajaj Finance mostly involves the sale of individual loans, which has had a strong impact following the increase in the risk weighting for that segment by the Reserve Bank of India (RBI). This has led to a slowdown in earnings from November 2023 to June 2024 and is expected to reduce the growth of unsecured loans for the industry going forward.

Bajaj Finance’s share of exclusive customers, excluding the use of existing loans, has fallen to 58% in June 2024 from 63% in March 2020. This means that of the current customers, 42% are already still has a relationship with the market in terms of insecurity or the individual. loans, an increase of 3% per year.

However, the company said the overall credit situation remains healthy, with the share of customers with personal loans declining from FY23 to FY24 in percentage terms.

RBI, on May 2, removed restrictions on sanctioning and disbursement of loans under ‘eCOM’ and ‘Insta EMI Card’, after which NBFCs started EMI card business from May 10 and eCOM trading from the first week of June, leading to a pullback in rates during Q1. Both should continue during the next three quarters, the company said, estimating FY25 gross loan growth at 26-28%.