Ladies and gentlemen, good evening and welcome to Bajaj Finance Limited Q1 FY2025 earnings call hosted by Morgan Stanley. This event is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. Please note that this call and your questions will be recorded and may in certain circumstances be distributed to clients and or made publicly available. By participating in this event, you consent to such recording, distribution and publication. All participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. I now hand the conference over to Mr. Subramanian Iyer from Morgan Stanley. Thank you. And over to you sir.
Thank you, Elliot. Hello everyone. This is Subramanian from Morgan Stanley.
Thank you very much for joining us for the Bajaj Finance Q1 FY2025 earnings call to discuss the results. I'm pleased to welcome Mr. Rajeev Jain, Managing Director, Mr. Anup Saha, Deputy Managing Director, Mr. Sandeep Jain, CFO and COO and other senior members of the management team. On behalf of Morgan Stanley, I thank Bajaj Finance Management for giving us the opportunity to host you. Without further ado, I now invite Rajeev to take us through the key financial highlights for the quarter post which we'll open the floor for Q and A with that. Over to you Rajeev.
Thank you Morgan Stanley. Good evening to those who are in this part of the geography and good morning to those who are dialing in from Western Hemisphere. I'll take you through the investor presentation which is uploaded on the investor section of our website.
Let me just quickly jump over to Panel 4 of the Investor Deck. Overall I would say next quarter for the firm, good quarter in terms of volumes, assets under management growth, operating efficiencies, portfolio metrics and ROE. But loan losses for the quarters were elevated as you must have already gone through overall delivered AUM growth of INR 23,600 crore, booked 11 million loans and added 4.47 million new customers in Q1. Since our app now has just a tad below 57 million customers on May 2nd. As you're aware, RBI lifted restrictions on sanctions and disbursal of loans under E-com and Insta EMI Card and the firm went live offering Insta EMI Card from 10th of May and started to do E-com from 1st of June and fully went live across all platform partners by 15th of June.
In terms of AUM, as you can see, grew by 31%. OPEX to net total income came in at 33.33%. PAT, PBT grew by 16%. PAT grew by 14%. 16%, PAT grew by 14%. Because of last year in BHFL we had a one-time gain on account of deferred tax liability. Otherwise PBT grew 16%, PAT grew 14%. ROE came in just a tad below 20% at 19.9% and Net NPA came in at 38 basis points. On Panel 5 quickly I've talked about AUM, I've talked about new loans growth. I've talked about 4.5 million new customer addition. Customer franchise is at 88.11 million. Cross-sell franchise stood at 55 million. We added 57 new locations and 9,000 distribution points. Liquidity buffer remains strong at INR 16,235 crore. Both in BFL and BHFL.
The liquidity buffer, given strong treasury markets, we managed to raise reasonable amount of long-term money in Q1. Cost of funds was 7.94%. It was an increase of 8 basis points on a sequential basis in the quarter. We expect that cost of funds should principally peak by August or so or July. August, September is the last leg of increase in terms of cost of funds that should happen and from there on cost of funds should start to go sideways and hopefully as rate cycle, rate cut, cycle comes in, we should see numbers go down in terms of cost of funds. Deposit book grew by 26% and stood at just a tad below INR 63,000 crore. Net growth in the quarter was INR 2,600 crore. Deposits accounted for 20% of consolidated borrowings. NIM grew 25%.
NIM compression despite the fact that NIM compressed by 23 basis points. 13 basis points was on account of cost of funds and 10 basis point movement was due to AUM composition. OPEX to net total income came in in line, came in at 33.2% again 34% in Q4 last year. Employee headcount stood at 55,000 and annualized attrition was 16.8%. Credit cost. That was not. It's not a great quarter from that standpoint. Gross loan losses on provisions was INR 1,790 crore. Gross loan loss to average AUM was 2.12%. Net was 1.99% which is 0.17 point.
We had managed the conservative management overlay of INR 105 crore of INR 105 crore in the quarter and that's a differential between 2.12% and 1.99% net loan loss to average AUM for the year we project it to be between 1.75% and 1.85% and we expect improvement in H2 of the current year at this juncture. However I would say for FY2025 we have marginal upward bias on this metric. GNPA and NNPA came in line at 86 basis points and 38 basis points as against 87 basis points and 31 basis points. Principally as we look at the loan losses and provision performance in our assessment is principally contributed by muted collection efficiencies.
When we look at the default rates across portfolios, they are lower than March or on a year-on-year basis. However, collection efficiencies were muted across portfolios actually in the quarter that went by, and as a result, Stage 2 assets went up by INR 865 crore in Q4. We clearly augmenting our we had because even in 2019 when elections happened, if you go back to our results the fourth quarter, the Q1 when 2019 elections happened, there is so much of disruption and dislocation that happens that even in that quarter you would see that the loan losses went up from INR 400 crore to INR 551 crore. So we expected it won't happen but clearly expectation was not sufficient so but we have experienced this in the past in 2019 and it's happened again in fact so that's just a point to make.
Consolidated pre-provisioning profit grew by 25%, profit before tax grew by 16% to INR 5,265 crore and consolidated PAT grew by 14% on account of one-time reversal of deferred tax liability of INR 73 crore. Annualized ROA came in at 4.63%, ROE came in at 19.86-19.9% and capital adequacy came in at 21.65%. Lastly point number 27 that Bajaj Housing Finance which is 100% subsidiary has filed the RHP on 8th of June with SEBI and stock exchanges for potential IPO equity shares in an and we are awaiting clearance and based on market conditions we take a view for BHFL quickly now from consolidated results point number 28 for BHFL it was a good quarter. AUM was at 31% to INR 97,000 crore.
Home Loan grew by 25%. Loan Against Property grew 21. LRD grew 41. Developer Finance 75. Portfolio composition remained largely steady on a year-on-year basis between 58, 10, 20, 11 and 2. The NIM grew by 10%. OPEX to income ratio rolling down improved from 24% to 21%. GNPA and NNPA stood at 28 basis points and 11 basis points. Profit before tax grew by 20%. As a result of the deferred tax liability point that I made for consolidated, profit after tax grew by 5% to INR 483 crore. Annualized ROA came in at 2.35% and annualized ROE came in at 14.32%. Capital adequacy remains strong at 24%. As you're aware, BFL infused INR 2,000 crore of capital in April as rights issue in BHFL. On BFSL, the Margin Trade Financing AUM was up 65% to INR 4,400 crore.
Profit after tax grew by 500% basis very small to INR 30-odd crore and we think on a full year basis the firm could make INR 104-160 crore of PAT. As we traverse the balance of the year very quickly to Panel 12 , some of the Omnichannel metrics net installs are now up year-on-year 41%. Total traffic on web is up 23%. Personal loan disbursed in the quarter were INR 4,500 crore through the Omnichannel strategy. In terms of customer franchise, AUM per cross-sell franchise stood at INR 64,235, [audio distortion] AUM cross-sell franchise. That per cross-sell franchise came in at INR 709. It is down of course as you can see from INR 776 to INR 709 because last year ROA was 5.4% which was historic high.
Our long-term guidance is for an ROA of 4.5%-4.7% and that's why you saw the last year number. Look this way, I'm jumping straight to Panel 47 which is consolidated AUM mostly on a year-on-year basis in line Two-Wheeler and Three-Wheeler Finance in line, Urban Sales Finance down because E-com whose balance sheet has run down is sitting as part of that. Otherwise 8.3% would have been 7.6% would have been 8%. But E-com businesses and the travel businesses restarted again. So that balance sheet should build out over the next 45 months. Urban B2C flat, Rural Sales Finance flat. So portfolio mix largely remain flat except for car loans. We launched New Car Finance last year so that number was 1.6%. It's up at 2.5% and rest of the numbers are remaining sideways.
Mortgages at 30.6%; it's at 30.9% in terms of, in terms of provisioning coverage Gross NPA a year ago, as you can see there is movement across lines but absolute numbers. So you can see movement across lines to that extent. But if you take Urban B2C the number movement is for INR 31 crore. So but you can see that it's not portfolio determined, it is muted collection efficiency determined and that's why you're seeing some level of worsening marginal otherwise across the board in the quarter that went by as a result GNPA is looking higher on a sequential basis. Overall graph aggregate GNPA is sideways and NPA is also sideways. But on a year-on-year basis you see number having moved from 87 to 86 and 31 to provisioning coverage stood at 56% from last quarter we had 57%. Is this marginally down to 56%?
This is on Panel 51, the consolidated provisioning coverage. As I said, it's 57% at 56%. So it's mainly as a result of overlay release. That's the principal differential on portfolio quality. So clearly under Ind AS methodology you land up accounting for loan losses ahead rather than later. So you may see these numbers are green here. Then how come loan losses and provisions are higher, mainly contributed by the Ind AS and ECL that you'll end up eating loan losses much early on otherwise as you see the portfolio quality there if you see Consumer Durables 99.38%-99.45% if you look at Urban B2C 98.45%-98.33% there is a 12-13 basis point differential in Stage 2 assets and so on and so forth. You will find that most of the portfolio metrics are looking green, but the loan losses for the quarter are looking elevated.
There is marginal difference everywhere other than 2 Wheeler and 3 Wheeler which is seen movement. But the reason is this green is because sequentially if you see February 20, this number used to be at 11-odd%, it's at 5-odd% and again due to better collection efficiency. Otherwise the default rates in the portfolio bounce rates are still at March levels. In Panel 5, you can see Rural B2C because the portfolio is not growing. You know you even in Q1 it grew by 5%, it grew by 5%. So on a full year basis we forecast this portfolio probably to grow by 10-11% on a year-on-year basis.
But we are beginning to see that how the good year and the bad year can start to also make a difference because for the last one year now the 15 months, this portfolio has actually been growing at 5%-6%. That's really all for me to communicate in the quarter questions.
Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. Please limit yourself to maximum of two questions so we can accommodate as many as possible. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from Chintan Joshi with Autonomous. Your line is open.
Please go ahead.
Hi, thank you. Can I ask one on your NIMs and one on asset quality on NIMs. You know, you highlight 10 basis point in compression this quarter coming from AUM composition. This follows about 20 basis points from the last quarter. How should we think about kind of NIM progression? Because your EMI composition trends appear to be clear and following that, you know, if I kind of think about it on a longer term view, 3- to 5-year view, should we kind of continue to expect somewhat NIM compression from this mix shift over time? That's on NIMs. And I have one more.
Yeah, go ahead Chintan. Sorry.
The other one is just on asset quality. You've given you know, decent comments on collection efficiency. Should we take away that underlying. You don't see any, any problems at all?
This is purely an election-related issue or is there more to read? Especially you know, things like you've highlighted two-wheeler, three-wheeler, you know those, those areas where there is a bit of elevation. Is that purely election-related? Thank you.
Fair question. So Chintan, maybe by October quarter onwards you should see stabilization earnings. I think that's point number one I would make. That's really how we are modeling the portfolio model. So you will see one more quarter of movement as a result of NIM compression. But from there on the portfolio mix should largely hold in terms of portfolio quality. Look, we are in a risk business. While I could argue with you that it's a transient frame, as a firm we are a risk-first business.
We remain watchful across portfolios and based on the data we've already started to proactively prune segments, we've started to cut exposures. So you know, if it turns out to be transient, great. If it doesn't turn out to be transient, which we will have a clearer view by October on, we would have at least acted ahead.
So on NIM, we should not expect like you know, a medium term compression because of the mix shift becoming more. Okay, you don't. Okay, thank you. Thank you.
The Scale Builders and as we call Profit Builders and Scale Builders, we remain committed to anchor them at the level.
I just look at the last five years of Scale Builders versus profit maximizers. There is a differential in the five year CAGR that would kind of indicate that, that that kind of differential may continue over the next five.
That's why I'm asking that, that question.
It's a very fair question. It's a very fair question. And the response is stabilization from, you know.
Okay, thank you.
From September onwards.
Sorry. Our next question comes from Piran Engineer from CLSA. Your line is open. Please go ahead.
Yeah, hi team, congrats on the quarter and thanks for taking my question just again on asset quality. Really. Firstly, if you can just quantify what is the impact on credit cost from the write-off policy change you had last year. So that's one. And secondly really gives us the confidence of improvement in the second half of the year in credit costs. And why hasn't Urban B2C been as impacted as Rural B2C?
There's been no change in our impairment policy in the last one year Piran. So I think that's the first.
You were accelerating it, right?
No change in write-off, correct?
My understanding that's correct. So pre-COVID, we used to have a differential write-off policy wherein I would hold the asset for a much longer period of time. Post-COVID, I think from 2021, 2022 we have revised the policy. We write off quickly now. In the last one year there has been no change in the write-off policy.
Okay. Okay.
And as I said, given that you've seen some level of worsening across the board, we are proactively pruning segments and we remain watchful. We are cutting exposures as well. So you know, so far we've not seen worsening in Urban B2C. But we're watching external data, we're watching internal data carefully.
Okay. Okay.
Regarding the...
between risk and growth, if you have to choose, we'll choose risk because longer term is more important than the shorter term.
That's fair. That's fair. No, just, I mean continuing on the question of the previous participant, like whether this is transient or not really, because you are highlighting, you're still sticking to our 1.75%-1.85% credit cost guidance. So just wanted to get a sense of what gives us the confidence of an improvement in the second half.
So Piran, if you notice the disclosure that we have done on stage-level breakup of the overall balance sheet, you will see that the movement has taken place in Stage 2 and to the point that Rajeev was making that when the delinquency go up little bit, whether on account of bounce going up or collection efficiencies going down, it takes probably 2-4 for it to normalize. In this case, the customers have migrated to an extent because of the lower collection efficiencies Q1 from Stage 1 to Stage 2, we have reason to believe that we'll be able to control the subsequent flippage into Stage 3. However, at this point in time we will assume that that will happen in Q2 and after that.
Because incrementally, as Rajeev said, in the month of June or July, as we are seeing the bounce rate should be, they are looking better than where used to be January to March. That gives us confidence saying that from quarter three onward we should have some improvement in the overall collection efficiency as well as on the loan loss number.
Okay. Okay, that answers it. Thank you so much and all the best.
Our next question comes from Kunal Shah with Citigroup. Your line is open. Please go ahead.
Yeah, hi. As indicated, maybe because of this we are toning down a few of the segments.
But any revision with respect to the growth guidance which we had given earlier at 26%-28% odd because maybe at the same point in time on credit cost also you have indicated that there could be some marginal upward bias on that metric as well. So anything in mind in terms of toning down on the growth and the guidance out there?
So Kunal, if you see current quarter number, we have seen a balance sheet growth of 31%. INR 23,500 crore would be growth for the quarter. We are pulling down exposures wherever we deem appropriate at this point in time based on the incoming data. However, that doesn't change. The guidance for the year we had said 26% and 28% with an upward bias towards 28. We continue to maintain the same guidance at this stage.
Okay, so there's no revision out there.
There's no change. There's no change here.
Okay, but
As I said earlier, we are watching. We are watching the same. We are watching the default rates. Are we seeing July default rate lower than June and lower than March? Answer is yes. But default rates were not a problem even in April. It's a collection efficiency so we are watching and we are acting as well as from a prudent standpoint.
Yeah. And secondly on the fee income side, so can we say that we are closer to the normalization out there maybe post the lifting of the restrictions or there is maybe still more to flow in wherein we could see the gained traction on the overall fee income.
Sorry Kunal, as I said we could go live on EMI Card only on 10th of May. So.
E- Com went live only in June, middle of June rather between 1st and 15th of June. So there was drag for at least 50, 60 days even in Q1. So there is some level of residue that is sitting there which should flow through or we should come through as we move through the next three quarters.
Okay. Okay. I'm not sure if you earlier highlighted in terms of this entire other income within the non interest side any, any reason for the sharp rise out there.
Yeah, that's definitely a kind of one seasonality in the overall volume which also has relevance from a cost perspective. So that's one reason. Second is restart of EMI Card sourcing starting from 10th of May as Rajeev highlighted the second reason.
Third is we also had a one-time gain on account of a small write-off portfolio sale that we did that has also come through in the current quarter.
Okay, one-time gain on write-off and that would be a significant one.
That's about INR 45 crore for the quarter.
Okay. Okay. Yeah, thank you. Thanks.
We now turn to Antariksh Banerjee with ICICI Prudential AMC. Your line is open. Please go ahead.
Yeah, thanks. I'm audible right?
Yes. Yes.
Yeah. So thanks for the explanation. I just wanted to clarify this point on credit cost and collection efficiency. What you're saying sir is the quarter, the bounces or the volume flows into the next buckets were not as large but basically the LGDs went up across segments. When you mean collection efficiency, it is the volume, it is the value. Is that right? Understand me?
So the number of customers who are bouncing earlier, which means I present 100 cases on a monthly basis X number were bouncing. Did we see a rapid increase in bounce rate? Answer is no. However all the customers were bouncing. It will see a little collection efficiency in the recovery is slower. As a result, customer has migrated from Stage 1 to Stage 2 where the PCR versus say 80 basis point in Stage 1 is roughly about 30%, 35%, 40% in case of Stage 2 customers.
Got it. And just related to this, you know we've been calling out some stress in Rural B2C for some time at the system level there are various noises around this entire topic. Are there markers that you can identify for these stress apart from this 1/4?
Is it multiple loans for the customer who are, you know, more prone to these lower recoveries? Is there a specific type of exposure in some region, cohorts of age, anything that you have identified in terms of marker?
So based on the internal lessons that we have carried out using the bureau data, one, I think based on the action taken by RBI on risk- weighted assets, there seems to be, I would say, stagnancy or a flat number that we see on a disbursement month after month starting, I would say, November, December 2023, slight till June month. That's one. Second. I think as we look at the overall AUM growth of the overall balance sheet that we are seeing for the industry also seemingly easing out a little bit.
As these disbursements on a monthly basis stable remains stable for some more 1 or 2 or 3 more quarters, we'll also see the AUM growth rate slow down a bit for the industry. That's one thing. However, when we look at the overall customer profile in terms of set of customers who are having multiple loans, say before COVID versus today, have you seen a much bigger increase? The answer is yes. Is it significant? Answer is no. The movement between customers who did not have any loan of unsecured out of our active banking was 50.63% in March 2020. That has come down to 52%. Customers whom we bank on a monthly basis have some of the loan relationship in the market. All of this had more than one loans.
There is a 3% increase in the customers who have multiple loans at this point. Stage 3,
Sure, but that is not
So as this number moved versus pre-COVID the answer is yes. But is there a significant movement at least in our portfolio that we see we are banking right now 21 million unique customers. 21 million unique customers. We were banking 10 million unique customers in 2020. 63% had no unsecured loan. Now 58% don't have unsecured loans. So in five years only 5% number has actually moved. But in that, in that to the point Sandeep is making are we seeing movement on 1 unsecured and 2 unsecured and 3 unsecured? The answer is yes. But nothing, nothing to conclude that there is that is a problem.
In fact I think versus FY2023 to FY2024 we have in fact seen the number of customers who have outstanding personal loan has actually come down in percentage term. So as Rajeev said, 58% customers don't have a personal loan at this stage. The number was 60% in the. Sorry, the number was 59. 57% in the last year is 1% improvement in terms of number of customers who don't have personal loans. So sure. Giving a third number 63% did not have. Now 58 don't have. When we look plot this data on FY2023. It was 57.
Got it. Got it. Okay, thanks. That's clear. Just a small thing, Sandeep, what is this policy on utilization of contingent provisions? Is it formula driven basis something or is it subjective?
So we have created provisions predominantly for COVID situation. Since we have come out completely come out from COVID in entirety.
We have cleaned up the provision that we were carrying as management overlay for the same purpose. At this point in time I think there is only a small amount of provision that remains in Bajaj Housing Finance Limited as far as BFL is concerned. We don't carry any overlays. Whatever is the overlay that you see now is purely because of macroeconomic conditions that needs to be baked in as part of the ECL model itself.
Sure, got it. And just one small data point. Is there any impact of this RBI, you know, regulation on penal interest versus penal charges in our other income?
No, we were never capitalizing penal, penal interest, penal charges. So we did not have any impact from this.
Sure. Okay, thank you.
We now turn to Dhaval Gada with DSP. Your line is open. Please go ahead.
Hi.
Thanks for the opportunity. Just one question on growth. So I mean if you could just talk a little bit about the new products. You know how the scale up is taking place. And just in that same context, medium term may not be FY2025, 2026. But just directionally the book mix as it progresses to your target level. How should one think about sustainable credit cost which I think last time you had explained that should be about 175 based on the revised RBI guideline and the write off policy change that you talked about earlier. So just any comments around that would be useful.
So growth clearly we see we have Dhaval, we have.
Ladies and gentlemen, we've lost connection with our speaker. Thank you for your patience as we reconnect them.
Yeah. Sorry Dhaval .
So Dhaval , as you guided the full year grows to be in the region of 26%-28%. That's point number one in terms of the outlook for the current year. And I would say, you know 2.2-2.3x of bank credit growth is really where you should pencil in the number. So we remain well anchored on long-term growth guidance. Now coming to long I mean medium-term loan losses and provisions outlook. See pre-COVID number was 192 basis points the number and 172 basis points full year. Yes, nine months was full year. 172 basis points. If you knock off one-timers since then there have been changes too from a regulatory standpoint there'll be changes if you adjust that number the 170-185 you should pencil in between 175 and 185 basis points from a medium-term standpoint.
Understood. Thanks.
Thanks and all the best.
We now turn to Abhishek Murarka with HSBC. Your line is open. Please go ahead.
Yeah, hi. Hi everyone. Thanks for the opportunity. So two questions. One, one on this Rural B2C, you know, almost for four or five quarters we've been cautious, we've not been growing. So what needs to turn, you know, for us to get a better or rather more comfort to grow in this segment. So what, what are the things you're looking out for? The second question is regarding this products per customer slide. So how do we read this? So if I see there's a bit of a plateauing out of the products per customer at 6.1-6.2 and your 2-year-old 2-year month on board, I mean 24-month on board customers also close to 6.2.
So, are we more or less at a peak at 6.1-6.2 in terms of cross-sell and does that mean that now you need to spend much more on, you know, spending selling the next product or increasing customer acquisition costs? So how do we read this?
Yeah, so hi Anup here. On the Rural B2C, as Rajeev clearly articulated, in his last 1.5 years we have been fine-tuning in terms of risk cuts. But having said that, when we look at Rural B2C because these are all cross-sell personal loan, our rural B2B growth has been very, very robust. So that gives us a significant latitude to actually offer the product to right customers.
That is one second is what we have been doing is you know as you looked at the whole collection efficiency as a metric because the affordability is the real call out when you go to rural. And at a design level we are looking at pegging the loans at right average ticket size. So I think more broader base of customers being offered the loan with a lower EMI is where we are anchoring the rural and that's how we used to do it pre-COVID but what happened during COVID and post-COVID obviously what was left to us better customers and we thought they possibly can service little better higher EMI and that does not seem to work as well in rural because rural is all about affordability and EMI and your ability to repay. So I think that's the larger part.
Having said that, the B2B growth of rural continues to remain robust, which gives us reasonable confidence that we will start climbing that number up. I think that's about 10%-12% this year and forward from there. So I think that's the first point on products per customer. Look at those metrics and that metric is a combination of our lending products products, payment products, deposits and distribution products. The larger movement there has been because of the payment products because as we move more digital we wanted consumers to use the payment products and that's the large movement when it comes to the lending product that number is I think 2.6-2.7. Right. That's broadly how that gets anchored but the larger part part of the PPC is payment products and that drives our digital engagement strategy.
Lastly, I just want to add, Abhishek, that when we look at the total franchise of 89 million, if India dispenses monthly, in our assessment, INR 72,000 crore-INR 75,000 crore of personal loans a month, this franchise gets between INR 36,000 crore-INR 40,000 crore a month, whereas our coverage of that is only 10%. So there's PPC metric. Quite honestly, as Anup made the point, we track it, but we track it only once in a quarter. I mean, 6 products per customer on a 2-year basis—it's an outcome rather than input. It's not a metric which is; it was a need from investors who decided to populate it. Otherwise, businesses are organized vertically in the company. There is independence for respective units to cross-sell as they deem appropriate. It's just the last point I would make.
So, franchises, the power of the franchise is not an issue at all, and Anup made an important point that more less to more rather than more to less. And what we did then was not wrong because in hindsight COVID led to customers with a margin drop off. So the only thing that was left to do that those who survived or continue to perform well could be offered. So in hindsight it looks okay, but at that point it is the right thing to do. I would just make that point as well.
No, fair, fair. So appreciate that and just when does this readjustment, you know, come into the base for Rural B2C?
It's underway. It's underway. To the point Anup is making. It's underway. You already as I made earlier Abhishek point that we are already.
So we have not just done this in rural, we've done this in urban as well. So as I made a point that we remain watchful on so we have exposure on both sides of the aisle. So we've got exposures and more to less to more we've done in both urban and in rural, you know, so it will further create greater granularity in this in the process. And if I keep making the point on a point I keep making is normalizing to pre-pandemic, I think we like it or not. It's a, it's a, it's something that is that that ought to happen. At least that's my personal view.
Sure, sure. No, thank you so much. Thanks and appreciate your answers. Thank you.
We now turn to Avinash Singh with Emkay Global Financial Services. Your line is open. Please go ahead. Hi.
Thanks for the opportunity.
A couple of questions. I mean the loan segment if we see of course it's growing at a very strong pace. Size is still moderate but there has been a kind of a sequentially for the last 3, 4 quarters. I mean strong growth yet a very very marginal increasing vintage to there as well. Now here one would expect that typically the customer segment to be prime. And also what is going on there? I mean I am sort of alluding to that. Yeah, I am talking of car loan segment. In car loan segment if we see last 4, 5 quarters of course it is small, it is growing very fast. But there has been sort of a percentage Stage 2 percentage increase happening last 3, 4, 5 quarters. So what is the sort of a trend there? Because their customer segment typically will be urban and prime.
So what is going on there one and on BHFL? I mean, do you think that—I mean, now with this developer finance and LRD also gaining size—will the growth differential between home loan and these be sufficient enough for you to maintain a kind of a balanced yield, or will the growth going forward converge and that will put pressure on your overall yield? Thanks.
Yeah. So particularly on car loan financing, it is mainly on account of launch of new car financing that we did in July 2023, and it is that business which is leading to significant growth in the overall auto loans segment that you are witnessing at this point in time. So far until July 2023, we used to only focus on used car financing. From July 2023 onward, we have started focusing on new car financing itself.
Regarding mortgage, Atul Jain is here. I'll request Atul to give comment or he's making a point on his. Just on that previous point, you're talking about inching above delinquencies. That's what you meant or you meant growth.
Yes, yes, yes, yes, yes. It's inching up of delinquencies for last three, four quarters.
You know just one point I, I do want to make is that if you look at the Panel 56 now technically we're talking about 99.34% was current in September '23. I mean you know the, the baseline numbers for us are very very low. I think that is one point I want to anchor. It's a 98.8% current. So these and this includes mind you this is 65% of the portfolio is used car portfolio. Okay. 35% of the portfolio is new car portfolio.
These, mind you, the threshold levels of delinquency are extremely low. This is one point I want to leave you with just a design level. Right. So and you will see this number stabilized somewhere. Now based on our internal models, these numbers remain quite low. So you will see them move up. We'll probably, you know, many years ago we used to have a benchmark line. We'll probably just reestablish the benchmark line so that as we launch new businesses the investors are well seized of what the benchmark line is. So I take that input away from the conversation.
Yeah. So yes, on car alone. Exactly. So I mean now, now you're INR 8,000 crore. At some point the growth will start to moderate to where the baseline where you. Exactly. That is a sort of point I'm trying to make that.
Okay, of course that I told that. Okay. It's very very low. I mean 0.8% still is a very very low delinquency involves you things. But where the sort of that your line you see that okay. INR 8,000 crore maybe doubles another so reach to INR 15,000 crore.
We will publish next quarter onwards even the benchmark number.
Okay. No, no, I mean with the developer finance and LRD book now getting a significant in size and probably going forward the growth of home loan converging with these two. Do you see sort of a you know pressure on yields in the BHFL segment or will these segments will continue to outgrow the core home loan.
So Atul here. So in BHFL we have a regulatory construct of something called a principal business criteria which is laid down by RBI.
So the portfolio construct is largely going to play within the large asset kind of a built or a portfolio mix. We have ±2-3% is the margin which will which can be there in the product concept. But 60% of the assets have to be housing assets and out of that also 50%+ has to be individual home loan. Now LRD as an asset class is not ROE decretive, it is a ROE optimizer. As far as because between LRD and a LAP we play in between both assets at a point of a time. If I have to say last one year or one and a half years. We have found LRD to be more risk-adjusted better returns because it's versus LAP versus loan against property. Because as a housing finance company 60% has to be the home loans part.
So that goes there plus developer finance which is required both from ROE enhancer and as well as it is tightly integral. It is very. It's an integral part of our home loan business because we get significant part of a home loan boost through the developer where we are funding now between the rest part of the portfolio is between LAP and LRD. Depending upon our risk return view we take a stance of being heavy. We right now continue to be heavy on LRD and as a return it is not return dilutive because it's a very low OPEX direct source business and quite risk adjusted returns are good enough here.
Okay. Okay, thanks.
We now turn to Sandhya Agarwal with Unicorn Asset s. Your line is open. Please go ahead.
Hi sir. Good evening sir.
First question is on the lines of the previous participant as well and on the vehicle finance, car loans and two- wheeler loans. So we see some kind of trend building up in both the vehicle finance and slowly the collection efficiency and the credit cost increasing. So any view on particularly the vehicle finance division because they nearly constitute 25% of our Gross NPAs.
No, that's not correct. Two wheeler plus. No, they are two different journals. They're not comparable at all. They're completely different. Even in auto loan. I would say that as the actually to the previous question of Avinash, as the share of new car in this portfolio increases which is also pegged. So this portfolio will eventually be published only auto loans. But internally the model is organized as 55, 45, 55% used autos and 45% new autos. That's point number one.
Today it is 70, 70: 30. So actually the net, net the stage two or the current portfolio in this will only go up actually which will improve okay. As new auto builds up. But the problem with new auto is it's very hard to make money. So that's why it has to be backed at 55:45 I think just to give you that texture related to Avinash's question is that two wheeler is a completely different genre. That business is a good business. Different, very different risk adjusted rates of return. So as you can see even when it is 11% stage two it is still a profitable business and at 5% stage two it still remains a profitable, reasonably profitable business.
Thank you. And secondly on just a longer term guidance.
So as we see that like obviously we are growing our new customer base with around 15%-20% and going forward we may see some slightly modest numbers like mid-teens new customization numbers in mid-teens %. So do we also look to add a new product line in terms of business segment like MSMEs or any other like government is also promoting too much on their SMEs part. And the other side because maybe we are looking, we can look for new segments for faster growth.
No. So we principally have a reasonably large market share in business loans which is a 716-year-old business. We have reasonable market share in that business. That's through MSMEs. The loan against property in last January that was started in BFL is also two MSMEs. So we are, we pretty well capture the full MSME space.
That's one.
No, I mean the supply chain financing and other products,
sorry
the supply chain
financing to emerging local, emerging corporates. But don't do it in MSME because it doesn't. It's not risk-adjusted.
And just lastly on the BFSL part. So we, the franchise is really growing faster and faster day by day. So what kind of things we are looking in terms of technological spends in BFSL because I heard that on election day the application and website went down.
So as the profitability of the business starts to come through we took a clear view that we first got to generate profitability before we make deep investments in building out the retail broking and the business. So the business as I said earlier in the opening remarks that should make between INR 150 crore and INR 160 crore of PAT. It should make. We've just hired a new CIO.
We are now rapidly accelerating the tech development infrastructure. It did go down to the point that you make is correct. You will see significant movement in that space over the next 6-9 months time. A colleague of mine who left us, who was our chief operating officer has moved on their board as well to advise them on tech stack.
Thank you. Thank you so much. All the best.
That's all the time we have for our Q&A. I'll now hand back to Subramanian Iyer with Morgan Stanley for closing remarks.
On behalf of Morgan Stanley, I thank Rajeev, Anup, Sandeep Jain and team for their time and insights. Rajeev, will you want to make any closing remarks?
No, I'm good, thank you.
Okay. Wish you all the best and thanks.
People wanting to ask questions or I can see on the....
If there are no questions, we are fine. I mean,
but yeah, I think we can possibly take one more question.
Our next question comes from Umang Mantri with Oxbow Capital. Your line is open. Please go ahead.
Thanks. Just one question coming back, you know, to the asset quality comments basically in the calls. Yeah, yeah, sorry, yeah, yeah. No, what I was asking that, you know, are there many any like correlations or anything to read into the trends in B2C and maybe the trends in MFI as well? Because that's another segment where you know, the industry has already seen higher delinquencies. So I mean if you can highlight, if there's any overlap to think about, that'll be useful. And secondly, collections part.
Go ahead.
No, I'm sorry on the collections.
Just wanted to understand if it has any implications for the way we are thinking about the OPEX growth for this year, given that we'd probably be looking to spend more on collections potentially.
So the overlap with MFI is very, very little. So that's point number one. Point number two, we should continue to see OPEX to NIM gravitate downwards despite the, despite the augmenting the debt management infrastructure work that we're doing.
Okay, thanks.
We now turn to Bhavik Dave with Nippon India Mutual Fund. Your line is open. Please go ahead.
Yeah, I hope I'm audible. Just one question, sir. If you could just talk about the competitive intensity in the urban B2B and B2C segments because we last one year we've been talking about competitive intensity being quite high in terms of personal loans wherein a lot of large banks and even PSUs have got quite aggressive.
How are things there in terms of both aggression in terms of pricing and the push towards this product, both on the B2B and B2C side.
Thank you. Bhavik, very clearly on the B2B business we continue to maintain the market share. The market share has remained rangebound I would say for the last four quarters consecutively. We had seen some loss of market share during April to December 2022. Ever since then we have made significant investments in terms of field capacity and subsequent to that we have seen holding up market share at the levels that used to be pre-COVID impact. It's not just about offline market.
Even as we have restarted our e-commerce financing business post election embargo, we have seen reasonable, I would say, coming back of customers wanting to take e-commerce loans through EMI Card in the current quarter, more particularly in the second half of June on the restart of e-commerce. Sure. In terms of PL, any thoughts in terms of these quite competitive?
Sorry, sorry, sorry. I was trying to understand, sir. We'd mentioned that large banks had got really aggressive in terms of personal loans in urban wherein the ticket sizes were going up, the rates were not being commensurate. Have things changed there considering the RBI directive in terms of slowing down in terms of unsecured? Have things changed there or things are still highly competitive?
At an aggregate level, we do see the moderation of unsecured loans.
However, as you see the data, the largest lenders there are the public sector banks, so I think that number is possibly 35%-40% of the total lending is happening on unsecured is the public sector, and of course the fintech numbers are very very small in terms of value, those are most count. We do see moderation there. So overall our market share remains where it is. In fact we have lost little market share there. It is around used to be 7% of our market share would be 30% lower. By and large we're maintaining but we have run this business by and large at a similar growth rate. We have not changed our trajectory there.
Right. That helps me. Thank you.
Ladies and gentlemen, this concludes our Q&A and today's conference call. We'd like to thank for your participation.
You may now disconnect your lines.