Ladies and gentlemen, good evening, and welcome to Bajaj Finance Limited Q3 FY 2024 Earnings Conference Call, hosted by JM Financial Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Bhise from JM Financial. Thank you, and over to you, sir.
Thank you, Nirav. Good evening, everyone, and welcome to the Q3 FY24 earnings conference call of Bajaj Finance Limited. From the management team, we have Mr. Rajeev Jain, Managing Director of Bajaj Finance; Mr. Sandeep Jain, Chief Financial Officer of Bajaj Finance; and the entire senior management team of Bajaj Finance Limited. As usual, we will first start with opening remarks from the management team, post which we will open the floor for Q&A. At the same time, I would also wanted to thank the team of Bajaj Finance for giving us the opportunity to host this conference call. With that, I hand over to the management team. Over to you, Rajeev, sir. Thank you.
Thank you. Thank you, JM. Good evening to all of you. Good morning, depending on the geography. I have with me, Anup, Rakesh, the two executive directors, and whole host of, Atul Jain, Managing Director, BHFL, Manish Jain, CEO, BHFL, and, of course, Sandeep. I'm referring to the presentation that we have uploaded on BSE and NSE stock exchanges. We're having some DLP issue on the website, so on uploading it, so please refer to the stock exchanges for the presentation. I'm referring to the investor deck. It's a long agenda. Jumping right straight into panel number three. As part of this, there are four key updates I'm gonna share today.
First is, of course, quarterly financial performance, an update on regulatory matter, long-range strategy, because it's the third quarter of the year, which is really when we annually, last year on, we started to share our long-range plan, and the set of key senior management portfolio changes that we've embarked on. I intend to take not more than 25-30 minutes so that I can leave sufficient time for Q&A. Jumping right to panel number 5, executive summary. Mixed quarter. Good quarter on AUM, customer acquisition, portfolio metrics and operating efficiencies. Strengthened capital position with a capital raise of INR 9,100 crore. Dampener for the quarter were elevated loan losses and impact of regulatory action.
Overall delivered AUM growth of INR 20,700 crore, booked just a tad below 10 million loans, 9.86 million loans, and highest ever new customer acquisition of 3.85 million customers. Bajaj Finserv app now has 49.2 million customers. In terms of AUM, AUM stood at 300,000 crore, just a tad below INR 311,000 crore, growth of 35%. Operating came in below 34% for last two quarters consistently. PAT came in at INR 3,639 crore, a growth of 22%, ROE at 22% and net NPA at 37 basis points. Some more texture on the quarter, on panel six. Just quickly, you're aware of the AUM growth.
In terms of B2B, overall disbursements are up 32% at INR 21,686 crore, as against INR 16,500 crore. In terms of customer franchise, company now estimates overall customer addition at 13-14 million for full year of FY 2024. In terms of customer overall franchise, we expect to end the year at 82.5-83 million customers. In Q3, the company added 158 new locations and 9,500 distribution points. Overall geographic footprint is now at 4,100 locations. Clearly, cost of funds inching up slowly, but given our diversified profile, it's a very slow movement. In Q3, cost of funds came in at 7.76%.
It was an increase of 9 basis points over the previous quarter. Deposits book grew in line with the balance sheet, grew by 35% and stood at INR 58,000 crore. Deposits now contribute to 22% of consolidated borrowing. In terms of operating efficiencies, net interest income grew by 29%. NIM compression in Q3 was 11 basis points. As you saw, cost of funds itself rose by 9 basis points, and given the increase in risk weights and higher incremental cost of funds across all businesses of the companies and our portfolios, Company effective January 1 has increased interest rates by 20-30 basis points to mitigate the impact of higher cost of funds and higher risk weights.
In Q3, OPEX to total income, operating came in at 33.9. The company's, as we get into next year planning cycle, the company's working to enhance operating efficiencies by implementing a host of GenAI capabilities and other digital initiatives to ensure that we can continue to keep bringing this number down. Employee count today, 54,200 people, 54,300 people. We net added 3,200 people. The annualized attrition came in at 13.8% versus 19.1% a year ago. Credit costs, which as I said, was one of the dampeners of the quarter, let me spend two-three minutes on it. Loan losses and provisions were INR 1,248 crore. The loan losses were primarily on account of two portfolios of the company.
For rural B2C business, for the last two quarters, they've been elevated. They remained elevated even in Q3. The AUM growth of that business continues to slow down as a result of risk actions. In March quarter, it grew by 26%. In December quarter, that portfolio has grown only by 10%. The second reason why credit costs were elevated in the quarter was urban B2C business, but they were high due to lower collection efficiencies. The urban B2C portfolio principally sees a transition frame. Lower rural B2C, as you have observed, continues to be a inside-out problem.
I've said this in previous calls as well, and between risk and data, call is always risk, and that's why the growth rates of the business has constantly been brought down until such time that we can start to see gross flow rates in that portfolio improve. Annualized loan loss to average AUM, excluding management overlays, if you account for it, was 1.79%. On a full year basis, we expect annualized loan losses to average AUM to hold at 1.79%. It's important just in the context that pre-COVID, we used to be at 1.89%, in FY 2020. FY 2018, 2019, we used to be at 1.6%.
We foresee the numbers to continue to straddle between 160-180 basis points as we move forward. As a result, GNPA and NPA came in at 95 basis points and 37 basis points, remains amongst the lowest, probably the lowest in the industry, and lowest for us by a mile. On a year-on-year basis, it came down from 1.14 to 95 basis points, and 0.41 to 0.37. Risk matrix, as I said, across other than rural B2C business, continue to remain in good shape. On panel eight quickly, as a result of the consolidated pre-provisioning profit grew by 27%, given good control over operating expenses. Consolidated profit before tax grew 22%.
As you can see, while NIM continues to soften gradually on account of lag effects or cost of funds, in Q3, the elevated loan losses and impact of regulatory action has led to profit growth being lower by approximately 5%-6%. In absence of these two, and there's no such thing as absence of these two, but just at a mathematical level, the normalized frame would have been 27-28%. But that's mathematics. The real numbers are a growth of 22% for the quarter. Consolidated profit after tax grew 22% to INR 3,639 crores, and ROE came in at 4.92%, and ROE came in at 22%.
Capital adequacy remains strong, but as a result of the RBI's increase in risk weight from 100 to 125%, the overall it had an impact of 290 basis points on the company's CRAR, and adjusted for this change, CRAR is now at, is now at 22 point, is at 24. Otherwise, it would have been 26.75. Additional updates are known, so I'm gonna, I'm gonna jump forward. Just quickly on BHFL. BHFL had a good quarter. AUM was up 31%. Home loan to AUM grew 21%. Loan against property grew 15%, LRD grew 70%, and DF grew 74%, albeit on a low base. Mainly DF and rural mortgages grew 19%.
Portfolio composition remained at 56, 9, 19, 10, 4, and 2, which is principally very similar to where it was four quarters ago. Net interest income grew 17%. Clearly, there is a margin pressure in that business as well. As a result, the NIM growth was 17%. OPEX to NIM continues to come down gradually and came down to 23.2% versus a year ago of 24.5%. Credit cost clearly, the GNPA stood at lowest in the industry at 25 basis points and 10 basis points. The profit after tax grew 31% to INR 334 crore. Very quickly to BHFL.
BHFL is tied around the corner, added 38,000 customers, but principally on the organic, does not do business with affiliates anymore, given that the the model was not economic in nature, at least from our standpoint, and does most of the business from the Finserv app. Margin trade financing business grew given the changes in regulation. Profit before tax came in at INR 22 crore for the quarter, and profit after tax came in at INR 16 odd crore. Continues to invest in new features on the app and net platform. Jumping right over to Omnipresence, there is a noise in the data given the embargo, so, downloads in the quarter were marginally down, post sixteenth November. Net installs were marginally down, on the next panel.
Wherever you see stars, principally have a transient impact as a result of the embargo. Otherwise, we continue to invest in the digital assets to make it more the UI and UX, more and more convenient for the consumers. So I would ignore these two panels from a quarter standpoint, given that they had some impact as a result of the market. Jumping right over to panel 32 now, which is, this is the quarter-on-quarter. As you can see, assets under management grew 35, NII grew 29, net total income grew 25, pre-provision profit grew 27, and PBT PAT grew 22. Operating expenses to NII came here 39, annualized loan loss to average AUM, I've already shared the numbers.
What I do want to spend two minutes, is on nine months so far look like 35% balance sheet growth, 29% NII growth, total net income growth is 26%, and profit after tax growth is 27%. And so far, the, you know, for nine months, the, operating expenses look like 34 OPEX to NIM looks like 34%, and annualized loan loss year to date looks like 1.61%, and, ROE looks to be 22.3%. Let's now jump quickly to, to, to panel, to the portfolio mix, which is, which is panel 49. I'm, I'm rushing through a little bit because I have some more, sections to cover, some more important sections to cover. I'm on panel 49.
The composition of the balance sheet remains largely stable, ±1% on a year-on-year basis. Two-wheeler and three-wheeler instead of on 5.1 is 6.2. Urban B2C 20.7, 19.8. Rural B2C, and as I've said earlier, it includes gold loan from March quarter on- I mean, June quarter onwards, which is as we get into next year, we'll separate gold loan, 8% down to 7%, still does not take into account the impact of gold loan. Adjusted for that, this number would have been, like, 6% to the point that I earlier made. SME lending, so ±1%, the mix remains largely, same. Jumping to GNPA and NPA, data, on a year-on-year basis, marginal movement plus minus.
On an aggregate basis, we're down from 1.14%, we're down to 0.95%, and the NPA down from 0.41% to 0.37%. You see some movement, as you can see, on a GNPA basis, rural B2C is sideways. On NNPA basis, there is a 13 basis point movement. And urban B2C, there is an 18 basis point movement. Mind you, these numbers are lower than what they used to be in pre-COVID times. On portfolio credit quality, the bars that we've been publishing for many years, from a management assurance standpoint, the only yellow remains, rural B2C.
As you can see, 98.32 pre-COVID is at 97.98, and 1.09, which is stage two assets, is 1.5. But since there's a noise in the quarter on account of urban B2C, it's important for me to spend one minute on it. Just go back to panel 56. So it used to be at 98% current, it's at 98.6% current, and around 43 basis points of stage three assets is at 95 basis points. So it's principally a transient moment at this point in time, but we remain watchful. That largely completes the first part of my section on quarterly. I just thought we'll also provide an update to you on the regulatory matter. I'm on panel 60.
RBI directed the company to stop sanction and dispersal of loans under its two lending products, mainly eCom and Insta EMI Card, on account of implementation of deficiencies and implementation of digital lending guidelines, mainly non-issuance of KFS statements. In compliance, we've already published to the street that the company temporarily suspended sanction and dispersal of new eCom loans, which used to be 250,000-280,000 loans in a month, between marketplace and eCom loans and Insta EMI cards, effective November sixteenth. Also, it temporarily suspended sourcing and issuance of new EMI cards, and levy of annual renewal fee, which is levied on those clients who do not use the card once in a year.
Since sixteenth November, the company has conducted a comprehensive review of the guidelines on digital lending and KFS. It has sent the KFS to the entire active base already and is implementing requisite corrective action. We've scanned through the entire frame to ensure that we are in full compliance of the executive order. Everything else is done except for two areas that we thought from a complete spirit standpoint that we ought to complete, which was a digital signature on every KFS account and a vernacular in 20 different languages, given our scale and breadth. So that's just getting completed, and sometime very, very soon, we'll be filing for compliance. But these are, given our scale and complexity, were large changes and that's taken...
But we wanted to make sure that we are fully compliant in form and spirit, and that's how we are making sure that we are completing them and filing for compliance. So that's really on the regulatory matter. Let me now jump to long-range plan. We shared last year that the company for the last 14 years runs on an ongoing on an annual basis a long-range strategy exercise, which allows us to seize the India opportunity and seize the financial services opportunity. It's the 14th year of our long-range planning process, and as part of that, we published a construct and a strategy. So to stay to the spirit of that trend, we are here to share the second update on the LRS 24, 25.
In terms of business construct, last year we had shared six key dimensions, which drive, which guide our basic construct as a company. It was ambition, strategy, approach, philosophy, market share, and profit share. This year, as part of sharpening the pencil, we've added two new dimensions of customer share, which is to grow our share of customer. You know, acquire and cross-sell has been our strategy, but, customer share, which we started to publish two quarters ago as part of our product per customer metric, we thought, from a construct standpoint, the franchise grows larger and larger, it's important to add this dimension as part of our basic construct. So, the intent is to deliver, reduce friction.
Intent is to deliver highest customer satisfaction score, and intent is to, in the process, grow products per customer. In terms of technology and data first, while you may say that's really what, how we built the company over the last 17 years, but what we are principally saying is that using technology and data first to solve all our problems, and be an early adopter and invest in emerging technologies and data practices, and it should eventually, in the process, result in sustained growth, superior customer experience, improved productivity, and robust control. So these are the two new additions to our construct.
And as we continue to grow larger in size and more complex, clearly, some of these construct dimensions will ensure that we are we remain within the guardrails of what we what the company to be here. This is an update on what we said last year. We last year identified on panel 65. This is an update on what we said last year. It's good to identify mega trends. How well are we doing against it is more important than identifying mega trends. As you can see clearly, out of 15 mega trends, 12 are in progress. Around aggregator, we expect to end the year with consent of 7 million customers by March 2024.
Social as a platform, ONDC will go live by June 2024, social as a platform by June 2024, rewards as a platform by March 2024. Offline to online, it's already gone live on five events, if any of you is a customer. And all offline to online and offline to online to offline, even should have gone live by June 2024. So between whether you're a store or you're an app or you're on the web, you will have a synchronized experience by June 2024. In terms of work in progress, clearly two areas, which is vernacular and voice, which are work in progress. On products, pre-owned has gone live. Bajaj Plus would generate this year 2 million loans. UPI is open architecture. The technology infrastructure is ready. We are awaiting regulatory approvals.
Monetizing digital assets from an infrastructure standpoint would be ready by March 24. Just a quick update on strategy that we articulated last year. Good products across key strategic blocks of products, geography, platforms, horizontal functions, and subsidiaries are on panel 66. On products, companies launched five new product initiatives, went live with emerging corporates, auto loans, microfinance and tractor finance, and as products in the last one year. On geography, we have added 139 locations in UP, BR and have created a template, which in a sustained manner should allow us to launch all our products in all our locations in a sustained manner over the LRS period.
On platforms, well-positioned from experience standpoint and from new platform launches standpoint and continue to invest in horizontal functions in reducing friction and improving resilience and scalability. Just jumping to now, what the future holds for us from a rolling standpoint. I'm on panel 68. Clearly, from our internal forecast standpoint, we think the next five years rolling, including the current year and +4 , the total credit market will grow by 12.7%. Commercial in our assessment will grow by 6.8%, and retail in our assessment will grow by 15%. That's just outside-in view.
In terms of inside-out view, we are principally a, primarily a retail company with 86% of the portfolio being retail and SME, and panel 69 is really what is relevant for us. By 2025, what we foresee is that other than agri, we as a company should be able to offer all products that our retail and MSME customers may require from us. It would have been a good 18-year journey, in which, which is the time we would have taken to offer in a, in a gradual manner and profitable manner, offer all our products to our customer franchise. From a mega trend standpoint, we've identified overall, 10 new mega trends, CBDC, nothing on the platform in the current year, four key areas of products....
Now while we cannot do credit on UPI, but we think it's a trend, so it's a mega trend, so we'll keep watching it. Non-banks are not allowed to do, as you are aware, but plastic is a form factor, future of device. Now, in technology, clearly generative AI. Generative AI, digital fraud, cybersecurity, and blockchain. So these are four areas and, in three of them, we intend to make significant progress as we move into next fiscal. Now, clearly, climate risk, while we are a retail company, but it's a practice we've started to build in the risk side of the business to start to seriously look at the impact that it has on, whether on retail or on MFI-MSME clients.
In terms of strategy, very quickly, I am coming to the end of monologue. Please bear with me for five more minutes. In terms of strategic construct on panel 72, clearly on products, the ambition is to be among top five players in each product line in LRS period. We'll continue to invest in new product lines, clearly to seize India opportunity. You know, people argue, I get questions: "Is it because you're growing slowly?" That is not the point. It is to seize India opportunity and to grow in a sustained manner. That's really our objective. As India per capita grows, as India grows, and given the capital, talent, and long-term orientation that we have, we would like to offer all the products that our clients need. So it's not like, you know, this conversation keeps happening.
We're not launching new lines because we're not seeing growth. And for that matter, if you, if you went back to, for a moment to panel, to the mix point, which I missed actually talking about, the growth in the quarter across just in one second. On panel 49, you know, two-wheeler, three-wheeler grew 64, urban sales finance grew 44. These are businesses that are 17-year-old. Urban B2C grew 29, rural sales finance grew 40, it's a 10-year-old business. Rural B2C, of course, I articulated because it's a risk view that we have. SME lending grew 39. So it's not we're launching new lines because we are short of growth. Last is a 17-year-old business, grew 49%, and so on and so forth.
It's because we want to seize India opportunity that, and your longer term view on, given our ambition, is why we launch new products. Going right back to 72, on geography, clearly, we are at 4,100 locations. We increasingly foresee that, we are really deep. It's more products in those locations and branches rather than more locations. So clearly, that's the way forward, rather than more branches or more locations, and that's why you see the frame to be all products in all locations. On platforms, clearly dominate all digital platforms. We're today at 5 million organic downloads a month. We've got to get to 10 million organic downloads a month. Two years ago, we were doing virtually nothing.
If from zero to we can get to 5 million, we have clear strategy roadmap to get to 10 million a month, to get to 100 million overall net installs as a company in a LRS period. On consumer web, clearly, to be more efficient, we've got to focus on organic rather than inorganic. We do very little inorganic any which ways, but even otherwise, given our growing breadth, the goal is to generate 1 billion organic hits on the web assets as we move ahead. On horizontal functions, given our growing size and scale, the goal is to solve the hardest problems in our business. To reduce friction on one hand for consumers, scalability, for us as a company, and resilience.
I think so clearly business by function by function, the goal is, you will see, is on zero, zero, zero. On DMS, zero complaints to on operations or service, zero paper, to zero identity mismatch, and so on and so forth. In treasury, zero liquidity drag. So clearly start to focus on solving the hardest problems is really where the horizontal functions frame is headed to be. Now, we deliver all this, which we have so far done over the last many years.
In FY by FY 2028, we could look like 130-140 million customer franchise, 80-90 million customers, cross-sell franchise, 3.8%-4% of total retail credit, and 3%-3.25% of retail total credit, and should be present in 5,200 odd locations with 130-150 million installs. So I think, we remain anchored, and committed, to generating these outcomes on a long-term basis, and ensuring, that, we remain accountable, to do that. As we are to the majority shareholders, we intend to do that for minority shareholders. That brings me to the last section of, you know, on a set of key senior management portfolio changes.
As you can see from the LRS update, the company remains pretty excited about its long-term growth prospects and remain highly committed to continuous transformation of the company, shareholder value creation, good customer service, and fostering a supportive and dynamic work environment. In order to prepare the company to achieve its long-term growth objectives, the board of directors, as part of its nomination and remuneration, have approved the following senior management portfolio changes. They are subject to, the first one is subject to, shareholders' approval, balance are, internal changes. What we have, what the board of directors have recommended is for Anup Saha, who's been with us for the last seven years, subject to shareholders' approval, to move as, from executive director to move as, to be designated as deputy managing director.
Now, in addition to assist Anup, we are creating three new chief operating officer positions. Deepak Bagati, who currently runs debt management, would incrementally run debt management operations, service, and public relations. Sandeep Jain, who currently runs, who's a CFO, runs treasury and and investor relations and FP&A, would also run human resources, administration, and legal. Anurag, who currently is the CIO and strategy head, would run marketing and digital platforms as well. Lots of noise about me on an ongoing basis. I thought we'll just put all of that to rest as to what would I do.
I'll continue to be actively involved in shaping the strategy of the company, of and its subsidiaries, and I will remain, will engage with the CEOs of the operating subsidiaries to achieve short-term and long-term objectives of the company, of BFL and its subsidiaries. Anup will work for me. The commercial lines of businesses will work for me. Risk, compliance, internal audit, and CISO, which are important statutory positions, will also work for me. Rakesh, me and Rakesh go back 30 years, who's been an important member of the management team in shaping the company, its innovation, and its various control functions, has resigned from the services of the company. He's an outstanding leader, and really helped us achieve various milestones.
He will be deeply missed. He'll remain with the company till June thirtieth. After June thirtieth, he'll remain as an advisor to the company and will work with me. These announcements should make the company stronger. Of course, not Rakesh's departure. He'll be deeply missed, as I said. Subject to shareholders' approval on Anup's appointment, these changes are effective first of April. That brings me to, in an uncluttered manner, all that you guys have been asking. The four key areas of course, quarter is quarter, but otherwise update on regulatory matter, long-range plan for the company and senior management appointment changes. I'm sorry for the monologue.
I hand it over to you guys for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Viral Shah from IIFL Securities. Please go ahead.
Yeah. Hi. Thank you for taking my question. So I have two questions. One is, basically, what gives you this confidence on the urban B2C, where the rising delinquencies, you mentioned that it is transient. I get it, that it is lower than what it has been pre-COVID, but given the trends that we are seeing in the other segments of unsecured loans, even including credit cards, are you seeing higher delinquencies even in the higher ticket size TL segment? And how should one think of it?
No, don't think of it. Go by the data, right? I mean, that's why I made the point that, that clearly you see, in rural B2C, our numbers slowly go down, which is not how you see in, urban B2C. So we'd rather be, data dependent than anything else. I think that's the only point I would make at this point in time. Does not mean we are not to remain watchful, is an important point. But remain data dependent. At this point in time, it looks transient, is what I would say.
Okay. And also, as a corollary to this piece of the question only-
Mind you,
Sorry.
Just as a separate point, if you look at the last four quarters of growth, given what we saw on B2C, on the margin, we have cut even urban B2C. We've actually cut quarterly close to INR 450-INR 500 crore of business because at some point, India starts to be rural and urban as a mix. So we have in urban B2C on a preventive basis in the last two quarters, more so, actually three quarters, have taken action already and reflected in a 3% lower growth on a year-on-year basis. If you look at it, March quarter was 32%-33%, is down to 29%. So on a preventive basis, that action has been taken.
Fair enough. And how do you see it going ahead? I know we are data dependent-
Yeah.
But any sense on how we are seeing?
Yeah. Yeah. So clearly as Viral, you said that we foresee the number to remain anchored from a guidance standpoint between 175-185 basis points, which is really where the number was pre-COVID. So, and mind you, during this period, there are reasonable level of changes that we made to our provisioning policies. You know, customer-level GNP, just to give you an example, never used to exist. There are a whole host of things that never used to exist pre-COVID, but I'm still going by that to make the point. So as we guided, as part of this presentation, that we foresee the number to be between 175-185 basis points. That's really where the number is likely to be.
Sure. Thank you, Rajeev. And one more question I have is on, basically, with regards to your entire digital, and the tech, setup we have. So over there, are you seeing some, the progress of the adoption on the digital platforms kind of slowing down? Because I see, again, I'm not referring to the segments, which are impacted because of the regulatory restrictions.
Yes.
But, if I look at the growth in the digital app downloads, that is slowing down. The credit card acquisition on app is declining.
Viral, as I said, focus on the star marks, that principally, it's a transient, because from the sixteenth of November, we could not do Insta EMI Card. Insta EMI Card alone, quarterly used to be 150,000 accounts just from the app. The numbers are published, 140,000 to 150,000 accounts. So take these two panels, as I said, on a transient basis. We continue to invest deeply. I mean, I said in the last call actually, that by June 2024, the asset would be, is getting mostly fully refreshed, you know? And as the January sprint and the March sprint goes live, you will start to see visible changes. So we continue to invest, and digital assets require ongoing investments and ongoing deep investments and deep commitment.
So, and as I said earlier, from 5 million a quarter, we have planned to get to 10 million a, sorry, 5 million a month, we have a plan to get to 10 million a month. All organic, mind you. To get to this 49 million, we've not spent... We spent very little money. We just integrated the infrastructure, to make it meaningful for the consumer. So answer is no, we, we remain-
Got it.
Just one point, Viral, I missed, I should have mentioned it probably, that the purpose of the platforms and it's part of the deck, is to generate eventually 25% of the business. So to give an example, that's why these star marks are creating a transient frame that, let's say, instant personal loan, we stopped on account of KFS. That's why the metrics are looking slower. So, just ignore this for until such time there's an embargo, post that, we should be back in a growth mode. We should be back in significantly high growth mode.
Got it. And just last very small question, more directionally. I noticed that last few months back there were some changes in the articles of association enabling the company to issue credit cards. So is there anything on the anvil in terms of making an application to RBI?
No. No.
Okay. Fair enough. Thank you. That's it from my end.
Thank you. Thank you.
Thank you. Next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Yeah. Thanks, Rajeev. Thanks for taking my question. So my question is on growth. So you can see that there are, you know, sort of elevated NPA pressures in the system. Also, you know, probably elevated regulatory scrutiny as well. But for you, the growth continues to be pretty strong. And do you see any risk to that or your intentional slowdown, you know, that you've done for maybe a couple of businesses? But on a broader basis, do you see that sort of overshadowing the distribution-driven tailwind that you have for growth?
So, the good part of it is that... Okay, so there are two, three dimensions of this. Growth and risk, margin and growth margin. The fortunate thing for us is the tailwind is that there is strong growth. Okay, so that means we have the latitude, if you want, to calibrate. I'm not saying slow down, I'm saying to calibrate between these three dimensions of risk, growth and margin, to ensure we deliver what we call the optimized return on asset and return on equity. As I said earlier, Abhishek, we've launched new lines. The new lines are... So nine-month growth, as I said, is secular across businesses.
B2B was strong, two-wheeler and cruiser financing volumes were strong, commercial lending was strong, product mix we expect it to remain stable. So I think we'll just continue to pivot and re-pivot between growth, margin, and risk, and remain committed to deliver a rightful outcome to shareholders. So growth is tailwind, margin is little bit of headwind, risk is little bit of headwind. I think that's... Does it answer your question, or you have a follow-through question?
Yeah, actually, I do. So let's say, are there any particular segments where you see that for a prolonged period, you need to slow down, basically because systemic risks are rising, or maybe you're not making the kind of margin?
I mean, look, I mean, monthly personal loan disbursements are INR 70,000 crore. We know that our franchise takes of that INR 70,000 crore a month between 40 and 42-43 thousand crores. Between 38 and 42-43 thousand crores, we only get INR 4,000-5,000 crore of it. I mean, that's, So, there remains significant opportunity without diluting risk or margin. So I think the franchise is extremely strong and it's, the optimal frame is really very famous.
Got it. And my second-
New line of business have gone live. Auto is now already doing INR 200 crore, new auto is already doing INR 200-250 crore a month. LAP, which we started in BFL, is now already doing INR 250 crore a month. So, those are new lines, but they, as I said earlier, existing lines themselves remain, a lot of opportunity and excitement in. We'll calibrate between the three, is all we'll continue to do.
Got it. Got it. And my second question, Rajeev, is on asset quality. So, one thing if you can, you know, provide some comment on, you know, what exactly is happening. Some of, you know, your peers are saying that, you know, personal leverage has now become a systemic issue. You've been saying that for a while. And if you look at your own GNPA numbers, in some cases, in two quarters, it's increased 50, 60% or more, absolute numbers. So what's happening in the system? How do you, how do you calibrate that, or how do you control that in your portfolio? And second is on the 1.8% credit cost. Does that assume that you will not use any of the management overlay, or you can dip into management overlay going forward? Thanks. Those, those two questions.
So look, let's take us as an example, right? We remain at ever low GNPA and NPA. And this is, as I said, despite the fact that there have been significant regulatory changes, like I give an example of, I mean, once a customer, always a customer, and so on and so forth. Eventually, I have a fundamental point of view, and which is really how we are organizing ourselves as a company, is that eventually everything will go back to pre-COVID. Let me make that point, eventually. Now, whether it happens in FY 25 or it happens in 25, 26, I am, I, I don't know, or nobody knows. But eventually, everything will go back to pre-pandemic levels. When I look at across our portfolios worse...
And now coming to risk, across our portfolios, numbers are still significantly lower. Let me give you an example. We talked rural B2C and urban B2C. The bounce rates are lower than pre-COVID. The flow rates are a little higher. Okay? Bounce rates are materially lower. Now, so now I'm just giving you a texture to make the point. So we'll just keep watching data, Abhishek, rather than go by the casualness of the frame. And, I have said this in the past, that rural B2C is not an outside-in problem, it's an inside-out problem. I've said this, so it'll be there in the transcript in last quarter.
Right.
Because, because you, you may say, "Why do you say that?" You look at rural B2B number, because that is actually across millions of consumers. You know, rural B2C is actually across lakhs of customers, whereas rural, rural B2B is across millions of customers. That number was 99.33 pre-COVID. It's still at 99.62.
Right.
It used to be 32 basis points of stage two, it's in final 57, Abhishek, it's at 23. Now, that's the same rural consumer that I gave a personal loan to, so I don't believe it's a system issue or leverage issue. And mind you, our B2B reflects significant mood, on one hand from a purchasing power standpoint, and behavior from a credit standpoint. Both urban and rural B2B are not showing that in any given manner. So, it's just as a data point to leave you with.
Got it. Got it. Just on the credit cost part,
175, 185, we'll keep, I think-
Now, does it assume that management overlay will not be utilized?
Management overlay, CEO can answer.
Yeah. So, Abhishek, I think, the number that Rajeev quoted at 179 basis points for the nine-month period-
Yeah.
- is gross of any release from overlay.
Exactly.
When he's giving reference to 185 as a corridor-
Yeah.
On the outer side, he's still not counting the overlay release. I think we remain watchful of the external factors which can impact us and the industry. The GNPA remains strong at 95, NPA remains strong at 37 basis point. We have final INR 90 crore of management cum macroeconomic overlay. I think, Fakhri is sitting here, he's listening to the call. I think we do annual review of our ECL provisioning methodology, and it is due for revisit in quarter four. We'll take a final view on the overlay position and what needs to be protected for macroeconomic purposes. So we'll give a final guidance on overlay in quarter four.
Intend to remain prudent.
... Of course. Got it, got it. Thank you so much, and all the best. Thank you.
Want to reemphasize on the numbers that I talked are gross off.
Gross off.
They are not net off, because if you see the nine months financials is INR 161, whereas if you see my management commentary is INR 179. And as written there, it's excluding because eventually management overlay will either get adjusted,
Resenting is your model.
Resenting is your model or eventually get consumed. It's not a permanent frame. What is the normalized cost of credit? I think that's more important or the most important rather than anything else. And that number is 175-185 basis points. I have said that-
Got it.
which is what it was in FY 2020, but which was 179 basis points.
Got it.
Intention were to 180.
One eighty-nine.
189... Sorry, 189. Now, 189, intention would continue to remain below.
Got it. Got it. Thank you so much.
Thank you.
Thank you. Next question is from the line of Kunal Shah from Citigroup . Please go ahead.
Yeah, hi. Thanks for taking the question. So firstly, with respect to the management changes, now if you look at it, there were two executive director position which were created. Now we have seen, Mr. Saha becoming the Deputy Managing Director. So would there be any thought in terms of the executive director position ship, or maybe that seemed to be more like a transient into this, management changes which were there?
I think, look, as the company grows in size and scale, and as the need to create more mature organization design emerges, we'll continue to invest. I think our business is about talent, it's about investing in people. The three new chief operating positions are new positions that have been created to reflect growing size, complexity, and a need for a more mature organization design. I think that's really... and it's for NRC on an ongoing basis to debate on it and make the decision.
Okay, sure. Secondly, when we look at it in terms of this entire RBI's embargo. So, with respect to the submission, you mentioned maybe in terms of the digital signature and vernacular language is something which is still pending, but otherwise, are we largely done with the submission out there? What has been the early feedback from the regulator? When do we see the embargo getting lifted? If you can just share some sense out there, yeah.
I would not like to make too much comments on it. Have we submitted? Yes. Are we holding on to submit on account of these two areas when we look at it highly rigorously? I think as a regulated entity, we'll go by, regulators prerogative of determining, the timing of, satisfaction, to the changes and, eventual lifting of embargo. I think that's really all I would, like to state, Kunal, and you should-
Yeah, but in terms of the submission, it's largely done except for the digital signature and vernacular language.
Yes.
Just to be, just to be absolutely clear, Kunal, we had given an initial submission to the, to the RBI team. The final submission after incorporating, as we said, digital signature and vernacular, is yet to be done, yet to be done. I think Rajeev did mention as part of the opening remarks that we should be able to do it, very soon, in the, in the next couple of weeks time.
Okay, sure. Lastly, in terms of the new product rollout, be it with respect to, say, MFI, if we have to look at it and the other products, what has been the experience and in terms of the acceptability? Because there were, there are already existing competitors out there in many of these new segments. So if you can just highlight in terms of the initial experience with the rollout of these products, yeah.
So new auto loans, as I said, we launched in 85 locations. We are now doing INR 240-INR 250 crore odd. 50-55% of the customers are existing customers. On two-wheeler, which is open architecture two-wheeler, we went live 18 months ago. We are now doing 27 to between 27 and 30,000 accounts a month. Again, 50-55% of the customers are existing customers. We are in 250 locations in that business. MFI is a completely different category for us. So only three lines are off to what I would say, very good start. LAP in BFL, new passenger vehicles in BFL and open architecture two-wheeler. MFI, I've said, Kunal, over time, is clearly a LRS view.
It'll be. It's a slow burn train. We'll build this. It's a new segment as well as we are concerned. We will take our time and build it out. So it won't be like when we are sitting here next year, won't be doing INR 200 crore like passenger vehicles is doing or LAP is doing. It will take its time, and we are in no hurry to. When I say we are in no hurry, we won't build in a hurry, it'll take. So we'll be in only 100 villages by March. We'll be in 200 villages by September. I think Alok is trying to make a point. Sorry? Anup is just reminding me that gold loan is now reset. It will cross, this year it's growing in the rural B2C.
This is a point, Kunal, that I made earlier, that, majority of the growth is coming from there. It's clearly now, we have in the last 12 months or so, fully cracked the model, and that's growing, in three-digit, growth. Base is small, but I think over the next two years, I would say we are very, very excited about the business, and currently we have fully turned that, around. So these four lines, will be meaningful drivers. MFI et cetera will be, will be a longer horse, and we are clearly prepared for it.
Sure! Okay. Yeah, got it. Thanks. Thanks, and all the best. Yeah.
Thank you. Next question is from the line of Kuntal Shah from Oaklane Capital. Please go ahead.
Thanks, Rajeev, for taking my question. First question is, Rajeev, there was a news flow of RBI-RBL and Bajaj not getting the credit card extension beyond one year, and normally the extensions are given for longer period. So wanted to solicit your comments and what is the issue out there on the regulatory front? And second is, what's stopping RBI or you to activate credit card, given the fact that worldwide credit cards are run by non-banks?
So Kuntal, I can't comment on regulatory view, but I can comment on that RBI has granted one-year renewal for a co-branded credit card partnership with RBL Bank. RBI has communicated with the company that has noted certain deficiencies in its co-branded card operations, and we are engaging with RBI and our partner, RBL, and are committed to resolve all the deficiencies to the full satisfaction of RBI at the earliest, and may not even wait for one year extension, one year, to together working with RBL to file our application for renewal. Good you raised the question because I'd not covered it, but allows me to respond to that to clarify this stance as well.
So how is the partnership with the DBS coming along?
So whatever, on a proactive basis, whatever we would do for RBL, we would do for DBS as well. On a proactive basis.
Again, I know you answered this question on the deficiencies in our documentation on digital loans, but shouldn't the signing of digital and the vernacular be an easy proposition to solve, given the technology tools that's available on DocuSign, Adobe, et cetera?
At scale, at 105--25,000 or 150,000 loans a day, for one year, for on a runtime basis, 150,000 loans in a day, is where the complexity emerges, Kuntal. For one language to two languages, yes, for 20 languages across all products, we have taken a decision as a company that we will do KFS for all our products. So we are not even doing this for these two. We have taken a decision that we will do it by March 2024 for all our products that we offer as a company. So, that's, that's just one added point I wanted to-
Let me rephrase the question, Rajeev. How many lenders, bank and non-banks, are giving vernacular documentation?
I, that you guys will have to do benchmarking of. We are benchmarking ourselves.
Okay, thanks. Thanks for answering my question.
Thank you.
Thank you. Next question is from the line of Antariksha from ICICI Prudential. Please go ahead.
Yeah. Hi, sir. Are you audible?
Yeah, yeah, we can hear you.
Good. So the first point, I'm sorry to harp on it again, but just picking up from you, from maybe left off last time, this rural B2C problem or the personal loan, issue at large, again, is it restricted to the lower ticket segment as you highlighted last time? Or do you think given the stress levels being elongated, it's now spreading to higher ticket loans also? And I see the PCR on your ECL chart is still between 62 and 65. So is it fair to say that even now, when the loan becomes NP, you're able to recover 35-40%?
On an aggregate basis, yes. On aggregate, on aggregate, balance sheet, the answer is yes. So that's, that's the easier part. Antariksh, sorry, the first question was?
The ticket size, less than 50, or is it spreading to higher ticket size also?
Look, as I said, even in rural, the numbers have come from lower ticket and the value has come from high tickets. I mean, we are at one level shocked that, 5 lakh plus growth in even the thousand city is very, very high if I take a four-year view.
Right.
Of course, adjusted for pricing, the flow rates of a, if you don't adjust for the pricing, the lower ticket is higher than the higher ticket. But adjusted for net outcomes that one would want, which is to run a risk-adjusted portfolio, it is our sweet spot, Antariksh. It's important for me to make that point, remains between INR 200,000 and INR 400,000. It's always been so.
Right.
Rural, 125,000-350,000. I think that's urban corridor is 200,000-400,000. Of course, we straddle across all the way to, you could take a INR 40 lakh personal loan from us, like banks would do, and which we do... in large volumes as well, but our sweet spot is 200-400 in urban, and 125,000 to, I would say, 350,000. We don't do less, as Fakhari is saying, less than 50, we do not do across portfolios actually. 50-75, some very small part and so on and so forth, because most of the lending is to existing customers. You know, most is being polite, it's to... In fact, it's interesting, right?
That even to an existing customer where you take a B2B loan, you pay all of it, you've not never defaulted, we give you a personal loan, which is only normally to 25% of the clients, and then, you see performance with these levels. Imagine if it's an MFI customer. If it's a new-
Right
to bank customer, the performance would look significantly worse off.
Right. So if you were to look for markers of this, you wouldn't say that the newer geographies that you are entering, the newer customers you're entering-
No, no.
or any particular age bracket or any jobs, nothing like that?
Nothing. Nothing, nothing.
Sure. Okay.
There are no in rural B2C, as I said earlier, Antariksh. Look at the B2B data. It is reflecting millions-
Got it.
- from a performance standpoint, not showing. Rural B2C, yes, it is showing, as I've said, it's inside out, we're active, growth is down from 26% three quarters ago to 10%. And as I... The management team knows that I'm not scared of cutting business, because we know we are in the business of risk.
Mm-hmm.
We are not in the business of lending, we're in the business of risk. All reduced business eventually leads to control in risk metrics.
Right.
So, so it'll come around.
Sure. The second question I had is, while we definitely are one of the biggest retail financing companies, given the growth rate differential, the non-retail portion is also increasingly getting larger. I think it's only natural that will happen at this scale. Can you give us some texture on the non-retail segment, in the sense, commercial, SME, LAS, all these segments that are growing so fast? One, are there also existing customers who are, I mean, the existing retail finance customers who are overlapping in these segments? If not, how do you go about acquiring in these segments? What are these like? Who are the competitors, and how is it growing that fast?
Yeah. So SME is actually MSME for us. It's important I make that point. Normally, up to INR 50 crore of turnover, that's important. We are present in 2,000 cities in India, where we serve MSME customers from city number 1 to, I would say, 2,000-odd cities and towns, to small businesses and to professionals. So that's MSME. Significant overlap of that in autos, significant overlap of that, I think that mainly autos and LAP. These are the two clusters that both on MSME and from retail, that they merge. So that's one part.
Mm-hmm.
The commercial business is principally INR 250 crore and above turnover. 70% would be BBB customers. Investment grade, prime rate, prime pricing, compete head on with leading banks, built originally on domain specialization and in sectors, and over time, as we gain confidence, moved more generalist. It principally reduces risk in the overall balance sheet and delivers stability to the balance sheet. It's purely commercial lending business. The LAS business runs at 2.3-2.4x margin and serves HNI clients. Very low on retail. Average client exposures would be INR 5 crore, which means he's-
Got it
... investing anywhere between INR 12 crore or so of holdings to become a client. Very low on retail, but we're building slowly, retail as well.
Sure.
As the markets grow, that's an area of growth from an opportunity standpoint.
Got it. Thank you. And just one last point, you mentioned this PL disbursement of INR 70,000 crore is a market as a whole. Did I hear you correctly, that INR 4,000-INR 5,000 crore is what you eventually disburse, and the rejection rate is about very high?
Not rejection. We can't seize that opportunity. Their customer, either I'm not reaching them in time or, the price at which he wants doesn't work for me, you know?
Got it.
Uh-
Has the INR 70,000 crore increased, decreased of late in the last one or two quarters?
No, it is not, but if you take pre-COVID, it's significantly grown. So it's, it's grown significantly between pre-COVID and now. So it's a lot more structural. The adoption of personal loans is, is a lot more structural, that is very clear, you know?
Sure.
Thanks. Thanks so much.
That's okay.
I don't have the number offhand, but we do have the numbers even for what was the... Because our franchise was also much smaller, right? Than we are talking four years ago, the franchise was 40 million, probably, maybe less, 35 million. So, sorry, even-
Since then grew pre-COVID.
Yeah, so-
This is the entire market.
Yeah, and entire stock. Yeah, but franchise also grew during this period.
This is on the entire market?
On the entire market. So as Fakhari is saying, that if you take absolute to absolute size of the market four years ago to today, it's grown 89%.
Just, just in absolute basic,
absolute. 100 has gone to 189.... So, yeah. Okay, maybe last one or two questions.
Yes, sir. The next question is from the line of Piran Engineer from CLSA India. Please go ahead.
Yeah, hi, team. Congrats on the quarter, and thanks for taking my questions. A few ones. Firstly, on credit cards, and not just this quarter, but last several quarters, you know, the sourcing has sort of stagnated at 1.5-2 lakhs a quarter.
Yeah.
What, what really has led to this, and how should we think about delinquencies and credit cards impacting your fee income?
No, it's a correct question. It's a good question. Clearly, we were, you know, we understand from our partners that they've also experienced deterioration, like as you're observing across the industry, and have contained the growth, based on their AIP engines. So, so clearly, growth has been restricted, based on our partners' input, on tightening the filtration criteria, to reflect prudence.
Okay, so it's on their part, on the part of the banks, potentially?
They run the balance sheet. I originate on their behalf.
Got it. It's fair to say that higher delinquencies will lower your fee income or collection fees, right?
Higher delinquencies? I mean, there is no, no causality between the two directly. I can argue both. If the... Actually, it's a reverse point, Piran, as I made earlier, a point that the default rates versus pre-COVID are significantly still lower.
Yeah.
Okay? Whether in B2B or in B2C, if I take aggregate bounce rates, they are lower. Actually, and as a result of, you may say, what? I think clearly improved banking, improved banking has had a significant role to play, because we've only gone deeper and deeper into India. But portfolio by portfolio we see versus pre-COVID, the bounce rates being lower. In fact, that means lower fees, because these were... If I, if my default rates are lower, my default rate is lower, my GNPA is lower, there were accidental defaulters who are not there anymore. They are not accidentally defaulting anymore, so it has led to lower,
Fee
charges, fees and charges. So there's no direct causality between the two, Piran, is the only point I'm making.
I think the only point, Piran, I would try and draw a correlation is, if there's a high delinquency, I'm assuming that the partner would also take risk action, and that will lead to overall volume being lower. To the point that you're asking, are we 150,000-200,000, is where the number is stagnating. It is, it could also be because of the partner is currently seeing some stress, based on which they have put a cap. So is there a correlation? Answer is yes, but the correlation is in terms of incremental volume that we can do.
Got it. Got it. And then secondly, just probably a little more philosophical, but, when we started rural lending 7, 8 years back, at that time, the thesis was that rural is actually better than urban because it's less penetrated. We are not, you know, tapping farmers, we are taking salaried people. And I think even until COVID, our performance in rural was actually better than urban, and correct me if I'm wrong.
No, no, it's correct.
Now the tables have turned.
Absolutely correct.
Yeah. So I just want to understand, what has changed in the last two, three years, that we are actually more concerned about rural than urban-
No, I think access has improved.
But that would be for urban also, right? The INR 70,000 crore you mentioned, and I would assume 80%-90% of that is in urban, or is that not the case?
No, your principal point is correct. But clearly we could pick and choose more earlier than now, given massive supply. I think is the only logical response I would give. I mean, I think, so clearly, our ability to pick and choose, given significant competitive activity and increase supply side, has sharpened the funnel. I think that, that's the, that would be a reasonable logical conclusion. Having said that, I think I'll repeat it a third time, there is work to be done there.
Yeah
... in inside out, which we will do. So,
Okay. This significant increase in competition is from banks, right? Because I can't fathom other NBFCs having the distribution that you have.
Yes. It's mainly banks, I would say. How do I say it? Mainly. Mainly.
Got it.
Significant supply side increase is from banks, because they only have the distribution, not for anything else.
Exactly.
I'm not making any other point except just pure access in the smallest of the market that we're talking about.
Got it, got it. And just lastly, one clarification: you mentioned you've increased deals by 25-30 bit.
Yeah.
This is across all unsecured products or across all products?
No, secured has a bigger problem. So, so it's across all, all products. I mean, the cost is rising. Yeah, even more, even more it is. I mean, the headline rate may not have changed, but we are being a lot more, lot more choosy in pricing and picking up transactions. Clearly. I mean, look at where liquidity is gone, look at where cost of funds are going, and at our scale, every, every month, and we run a short balance sheet, right? On aggregate, the aggregate balance sheet churns in 25, 26 months. If you take a behavioralized maturity, the balance sheet churns 25, 26 months. So we've got to act quickly, because then we can make up quickly. If we act later, then we'll make up later.
Got it. Got it.
Exactly. I mean, and I go back to the point that in the process, Abhishek was asking that, and I was telling him the calibration is between risk, growth, and margin. You know, you just keep calibrating. Right now, to me, the greater weight is on, risk and margin, than on growth, because we have tailwinds on growth any which way.
Got it. And lastly, what is the customer level GNPL thing you had mentioned once? Is it that if a customer NPL with another lender, he's NPL with you?
Sorry, sorry.
You referenced customer GNPA. You said things have changed.
Yes.
I think Rajeev was referring to the once NPA, always NPA circular of RBI.
Oh, right.
Which says that only when the customer all dues are paid, then the customer is upgraded. That's a change that has come in November, I think, 2022, if I'm not wrong.
Correct, sir. Okay. Okay, fair enough.
I'm making that as a point. There are many such changes between 2019, 2020, and now, that is March, to draw a parallel to the GNPL and NPA conversation, and to loan loss to average assets conversation.
Got it. Got it. Okay, that, that's all my end. Thank you, and wish you all the best.
Thank you. Thank you. Camille, we can call it a day.
Thank you very much. Yes, sir. Ladies and gentlemen, we'll take that as the last question.
Is it? Okay.
I'll now hand the conference over to Mr. Sameer Bhise for closing comments.
Yeah. Thank you very much today for joining this conference call, and thank you to the management team of Bajaj Finance for giving us the opportunity to host the call. You may now disconnect. Thank you so much.
Thank you. Thank you all. Thank you all for participating.
Thank you very much. On behalf of JM Financial Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.