Margins for Bajaj Finance should decline another 25-30 bps over the course of the current financial year, but the lender should be able to build operating leverage to sustain RoA (return on asset) of around 5 per cent.

RoA fell to 5.16 per cent from 5.4 per cent a year ago due to NIM compression, which is pulling RoA back to pre-Covid levels, MD Rajeev Jain said in an analyst call.

The funding environment remains volatile and cost of funds elevated, also due to high replacement demand for two-three year-old funds raised at much lower rates. While the impact was minimal in Q2, cost of funds will continue to rise in Q3 before peaking in early Q4, he added.

Jain said 46 per cent of the loan portfolio is variable rate, but the lender has not yet evaluated hiking lending rates. The focus will be on operating leverage and cost optimisation to mitigate the impact of decline in margins.

Unsecured loan growth

On growing concerns regarding the pace of growth in unsecured loans, Jain said that other than below the ₹50,000-ticket segment, customer leverage rates have been improving. In this segment, the company has cut exposure to borrowers with multiple lines of credit, as research indicates that these borrowers are not necessarily more leveraged but more imprudent. The lender has reduced the urban business by 8 per cent and rural business by 14 per cent.

Bajaj Finance said it is closely monitoring monthly data and taking decisions to protect credit and portfolio risk across asset classes, but at the moment it has only felt the need to take corrective action in the rural B2C portfolio based on the bounce and slippage rates and portfolio efficiency.

Jain said that while the AUM and disbursement rate of unsecured loans is starting to ease from the peak levels, the number of loans has not been impacted. However, this should improve going ahead as the impact of RBI’s digital lending and FLDG guidelines plays out.

The company has plans to raise up to ₹10,000 crore equity capital via a QIP and promoter preferential issue. The funds will be used to support the new business lines and accelerate growth in newer segments.

Bajaj Finance is giving about 20,000 non-Bajaj Auto two-wheeler loans per month, and recently launched loans against property and new car finance. It plans to go live with tractor finance from January, is in pilot stages for microfinance, and will introduce emerging local corporate loans from December 2023.

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