Ladies and gentlemen, good day. Welcome to Bajaj Finance Q3 FY 2023 earnings conference 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 participants' lines will be in listen-only mode. There'll be an opportunity for you to ask questions after the presentation concludes. I'll now hand over to your host, Mr. Subramanian Iyer from Morgan Stanley to begin. Thank you. Over to you, sir.
Thank you, Charlie. Hello, everyone. This is Subramanian Iyer from Morgan Stanley. Thank you very much for joining us for the Bajaj Finance earning, discuss the Q3 FY 2023 results. To discuss the results, I'm pleased to welcome Mr. Rajeev Jain, Managing Director, Mr. Sandeep Jain, Chief Financial Officer, and other senior members of the management team. Thanks, Rajeev and Sandeep, 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 will open the floor for Q&A. With that, over to you, Rajeev.
Thank you, Subbu. Thank you, Morgan Stanley. Good evening to all of you or good morning, depending on the geography. I have, along with Sandeep here, Atul Jain, who's the Managing Director of BHFL, Anup Saha, Deputy CEO BFL and a few other colleagues from the company. I'll jump right in to the investor presentation that is uploaded in the investor section of our website. Jumping on very quickly, I'll try and speak for 20-odd minutes, from there on then we can take on questions. Jumping right onto page panel four. Overall, a good quarter, I would say across all financial and portfolio metrics, albeit marginally lower AUM growth. On track overall to deliver INR 50,000-INR 53,000 crores of core AUM growth in FY 2023.
That leaves only one quarter left. So far the growth has been around INR 39,000-odd crore of core AUM growth. Q3 clearly witnessed highest ever loans booked and new customer addition, and I'll talk about it in the next panel. In terms of going fully digital, now we have 31 million consumers on the app in terms of net installs. Phase II of consumer app has started to now go live in sprints. On track both on app and web to fully go digital by March 2023. Some quick stats. AUM grew 27% to INR 2 lakh, just a tad below INR 231,000 crore. Out of two NII came in at INR 34.7 crore, and I'll talk about it as we two panels later.
PAT came in just a tad below INR 3,000 crores at INR 2,973, a year-on-year growth of 40%. ROE at 24%, just a tad below 24%, on an annualized basis, and NNPA at 41 basis points. As, as I said, good quarter on financial and portfolio metrics for the company. Diving deep in on panel number five. Core AUM growth was INR 10,476 crores, slightly shorter, mainly due to in the mortgages side of the b usiness, due to intense pricing pressures. Predominantly, the growth was slower on account of slower mortgage disbursements, and I'll cover that when we talk BHFL. AUM 27%, we talked about. New loans came in at 7.84 million.
Last year, same time, we had booked INR 7.5 million, INR 7.44 million. B2B disbursements were INR 16,026 crores on a year-on-year basis, up 6%. October was pretty good for B2B for, you know, consumer discretionary. November, December, the demand slowed down significantly. So far, January first 27 days, 26 days of the month is looking much better. In terms of new customer addition, we added first time we crossed 3 million customers and added 3.14 million customers in a quarter. Overall, it looks like we started the year thinking we'll do 9 milion-10 million. It looks like we'll cross 11 million new customers in the current year. Our customer franchise, 66 million, will probably end anywhere between 60 million-69 million customer franchise ending March.
Location, clearly we are present in where out of 140 odd crore population, we are currently present in 110 odd crore coverage. We added 29 locations. We forecasted we'll grow. We'll probably add 400 locations. It looks like we'll probably add 250, 300 only in the current year. Competitive intensity, I've talked about this point for last three, four quarters, remains highly elevated. Everybody seems to want to do retail. Between growth and margin takes precedence. That's our fundamental view at a management philosophy level. We continue to protect, which is evident in point number nine. Cost of funds went up, you know, was 7.14%. It increased by 23 basis points, the overall NIMs didn't go.
Remained flat. It didn't dilute. That's the principal point that we are making, that between growth and margin, choose margin. We of course want to grow. We are a growth-oriented business. We want to grow well, but between choosing between the two, the choice is clearly on margin, because it creates a greater sustainability of business from a long-term standpoint. Our liquidity buffer was strong at just a tad below INR 13,000 crores. Given the overall strong ALM management, as you can see, the pass-through even in cost of funds is very gradual. Quarter two to three was 23. Before that, it was another 20-odd basis points in the first nine months of the year to total increases 45 basis points at rate base.
Given that we run a liability maturity longer than the asset maturity, we'll continue to see a lot more gradual pass-through on cost of funds as we move along even into the next year. Deposits book slower in the last quarter versus the first two quarters. We clearly took a lot more aggressive stand. In the first two quarters, it was the right thing to do, but we had to deploy all that re-originate. Our rate increases in Q3 have been slower than what it was in Q1 and Q2. Having said that, the balance sheet still grew by deposit balance sheet grew by INR 3,562 crores. Overall now it's 21% of the balance sheet.
On a standalone basis, I think it's 28% of the balance sheet. We're very clear on a consolidated basis, it'll be 25% of the balance sheet sometime in the medium term. NIM grew 24%. Actually, actual growth was 28% last year in Q3. IPO financing was at the peak, and the company earned during that period INR 203 crores of IPO financing, which of course since then has been discontinued from April 1 based on due to regulation. Adjusted on a core basis, the NIM growth is actually 28% versus the real number that you're seeing at 24%, and that will become evident as Q4 gets done. OpEx to NIM improved.
We're beginning to see some level of operating leverage emerge, move down from 34.9% to 34.7%. As the core balance sheet starts to build up, quarter after quarter with a similar kind of product mix, we should start to see some level of, you know, operating leverage emerge. It'll still be marginally higher than it was at pre-COVID level. Let me just flag that as well. Q4, we are reasonably comfortable that we'll be able to sustain these metrics. As we get into next year we'll it will be lower than the current year. We're clear about that. I think next year, so we've peaked on building out the operating expenses, you know, investments frame.
As the balance sheet builds out, we should see improvement on that. Loan losses were INR 841 crores, 1.4%-1.5% of average assets. We continue to hold INR 1,000 crores of management overlay for uncertainties at this point in time. GN3 and NPA were lowest, when I say lowest, I think we're lower than that only when we were INR 13,000 crores of balance sheet in 2013.
Six months NPA.
Sorry?
Six months NPA.
It was six months NPA classification, clearly lowest ever, that we've been in the last 16 years. Definitely, as Sandeep is saying, classification was different. Came in at 114 and 41 basis points. Stage two down, Stage three marginally up. As you can see, balance sheet is built out, building out, it's up by INR 780 odd crores. All portfolios are green, including the AIF portfolio now. Product mix was steady across all different line verticals that we publish across B2B, B2C, and so on and so forth. Consolidated profit after tax, we talked about. Capital adequacy remained pretty strong. Tier 1 capital was at 23.6%. Move. Employee headcount stood at 40,708.
We added I think INR 1,500.
INR 1,500.
INR 1,600.
INR 1,400.
INR 1,400
INR 1,300.
INR 1,300 employees in between Q2 and Q3 across the three companies. You're aware, we disclosed it to the street, point number 23, that we've taken a 41.5% stake in SnapWork Technologies to strengthen our technology roadmap. BHFL, where, as I said earlier, the quarter was a little slower. Approvals grew 14% at to INR 14,514 crore. Disbursements were INR 7,429 as against INR 7,000, adjusted that will be INR 8,000 crore in Q3 last year. It was in the quarter a de-growth, but overall AUM is still up 33% on a nine-month basis to INR 66,000 crore.
portfolio composition, pretty steady between 61% of the balance sheet is home loan balance sheet, and so on and so forth. Cost of funds increased by 49 basis points. The entire balance sheet is principally variable, the pass-through has happened equally. To that extent, this balance sheet is protected from interest rate risk. Liquidity buffer was quite strong, as you're expecting stronger disbursements, as you can see, liquidity buffer remained pretty strong. They're well capitalized. Borrowing mixes was steady. OpEx to NIM came in at 24.5%. There's improvement because NIM has expanded. Loan losses were down 50% YoY. BHFL also holds a management overlay of INR 242 odd crores.
They are clearly the lowest risk business in India in terms of mortgages. Regross NPAs at 23 basis points and 10 basis points net NPA. By far, as for that scale, it's amongst the lowest risk balance sheet in India with a 61% home loan business. Stage two assets hardly anything to talk about given the number. Stage three assets at INR 135 crores. BHFL added 77,000 pretty other than disbursements, which was slow, and as a result, AUM growth was slow. I would say quarter for BHFL was also good on all financial metrics other than the disbursement and corresponding AUM growth. We are hopeful between Q4 and Q1 should come back to growth as well.
BFSL added 77,000 customers, 24 locations they've got branches in now. It added six locations in Q3 alone. It'll end the year with 30-odd locations at BFSL. We did a significant upgrade to the app and the web platform, added 45 new features. We'll be adding another between 55 and 60 new features in Q4 as well. The asset should be a lot more solid and strong as we exit Q4 or the current fiscal to significantly grow this, the BFSL as a business in the next fiscal. MTF book, which is our core proposition we bring to the table, continues to grow and profit came in at INR 3 crores. Last year, we also had a similar benefit, like we had IPO financing benefit on account of, you know, IPO allocation.
They had a INR 7 crore one-time profit sitting in there. Their head count is at 532 people. That's really the quarter in substance, in terms of financials and growth metric. Omnipresence, very quickly, you know, I'll just jump right in just in the interest of time to, as I said, we'll fully go live across web and app by March 2023. I'll not cover page number 10 and 11, but just cover the metrics that we published. Locations will be a little short. We'll probably do 300 odd locations in the current year as to 400, 450. That's why you see yellow there. Otherwise on downloads, net installs, in-app program, we are looking super green.
Top five in financial domain in Play Store, we are right there at top five. Service requests are growing quarter-on-quarter, 20%-25%. Significant improvement in service metrics as a result of us going. This is of all the service requests raised, of all service requests that customer makes, now 23%, 22% of them are coming through the app and are migrating to app. We foresee that this number in the medium term could probably go to 40%-45%. Wallet accounts is the only one which is yellow. Otherwise, UPI annuals, bill pay transactions, we are fully green. 18 million rewards we issued in the quarter. QR deployment has now started to gather pace.
We are now adding 7,500-8,000 merchant QR's on a daily basis. We foresee that in the current quarter, we'll probably add just a tad below h0.5 Million new merchant QR's because the entire functionality and the infrastructure went live in November. We tested that in December. Currently, we are adding anywhere between 7,500-8,000 merchant QR's on a daily basis. We expect to start becoming visible as at the point of sale universally in the next fiscal. What we have done to the app this year, from nowhere we've become top five in terms of downloads. Monthly downloads now are on an average, you know, between 5 million-6 million.
We intend to do that for the payments business from a merchant QR standpoint in the next fiscal. Let me move. Panel. Let's go to panel. Yeah, these are all green, as you can see there. Our customer franchise matrix, this is a panel that we published in the second quarter. Clearly, you can see that as the franchise grows, despite the franchise growing, the profit per customer and AUM per customer continues to grow. Now that's the acquire and cross-sell strategy. This is, so, we remain confident that for, that it, that despite growing franchise, we don't foresee that our AUM per customer, PAT per customer will get compromised in any given manner. Move.
This, you know, from now on, fourth quarter of, you know, with the third quarter results, we'll start to publish to the street, in general, a long-range strategy update on a rolling basis. We as a company have been doing this for 13 years. We thought time has come from a maturity standpoint to start to publish that to investors as well. What you see is a very quick abridged version of what we do. Let me just, given that we're talking about it for the first time, this is on panel 16. What do we do as part of what we call long-range strategy? It's an annual five-year rolling strategy plan with an execution plan of 12 months-24 months.
We look at the macro as part of the rolling framework and look at the industry outlook, look at the technology mega trends, look at business mega trends, select a benchmark company to learn from and create a bottoms-up financial plan. It's a highly institutionalized and rigorous process that involves the top 500 people in the company on an annual basis for a 45 day-50 day period. We've been doing it for the last 13 years. We thought we'll start to, given the maturity of the company, time has come for us to start to update that to investors as well. Very quickly, it's weaved around a basic construct. Basic construct of the company is on six key pillars. What is our ambition as a company? What is our strategy as a company?
What is our approach as a company? What is the philosophy around which we have built the business? What do we expect our market share and profit share to be as a company in this country? If you go to ambition, clearly ambition is to be a leading payments and financial service company. Have 100 million consumers. We'll end this year with 70 million consumers, as I said earlier. 3% of payment GMV, 3%-4% of total credit and 4%-5% of retail credit. That's clearly the ambition for us as a company from a long range standpoint. Strategy is to be an omnipresent financial service company. Wherever the consumer goes to branch, goes to app, goes to web, goes to social, goes for rewards, and eventually goes virtual.
We want to be omnipresent, offering all our products and services. Approach simple has remained simple for the last 13 years: acquire and cross-sell across all assets and liabilities and broking products to consumers, small business, commercial and rural consumers in India, across all consumer platforms. Philosophy: build business with a 10-year view. We're very clear financial services are built with a 10-year view and deliver through cycle, through the cycle 19%-21% shareholder returns. We've done that, adjusted for COVID, done that successfully for the last 12 years, 13 years, and we intend to continue to do that. We think because of construct has helped us deliver that, at a design level because we take a longer-term view on building our businesses, helps us anchor our business much more strongly.
The market share, clearly among the top five in every respective product that we're in. That's the ambition at a design level and profit share to be among the top most, you know, 20 most profitable companies in India, and five to six most profitable financial services companies in India on a sustainable basis is really the frame. That's the construct. If you take that construct and say, "What does that convert into strategy from a rolling standpoint?" is really what you see on the next panel. We see industry growing. It grew, the past data is factual. The next data is our forecast. Like everybody's right to forecast, we were right to forecast.
Our forecast is in the total credit will grow from INR 149 lakh crore to INR 237 lakh crore and grow by 12.5% CAGR over the next five-year period. This is the panel that you see, panel 20. This is the overall retail mix of India. Largely steady over the last 10 years. We foresee that not to change. When we look at it, we find that, and we do know that for a while, that we are not there in 28% of retail credit categories at a fundamental level, which is auto, CEs, and agri, which is what you see penciled in here at 16, eight and four, if you take FY 2023 estimates.
That's really where we see the market headed, where we see the forecast from a retail mix standpoint. From a mega trend standpoint, what you see in this panel 21, is these are 15 mega trends at a management level we've identified that we're investing in across India Stack platforms, products and technology. These are the 15 areas they'll go through. The mega trends don't change, but they get versionized over time. Clearly we see in India Stack, Account Aggregator to be one of the big game-changing moments for retail financial services the way we see. On platforms, we see 500 million Indians are on social platforms. We think it's a big game changer. We think rewards is a big frame when we look at leading companies which are in retail business, and so on.
We think pre-owned, given where prices of new products have gone to at a design level from digital products to motorcycles to cars, is a very thematically a very big change as you move from here. In technology, AI has become, becoming consumerized. It's become real. Vernacular and voice is really how the rural consumer is engaging with any of the companies who are in deeper into India. These are the 15 mega trends that we've identified, and we'll provide a update on this every at the end of every third quarter on an annual basis. If we take all these three, the strategic constructs, any retail business organized as products, geography, platforms, horizontals. You know, this is really where any retail business organized.
I'm not gonna get into detail, but clearly on products, the intent is to be among the top five players in each product line. On geography, we are already in 4,000, just a tad below 4,000 cities in India. So far our strategy was where TV, there's Bajaj Finserv. We are now saying wherever there's Bajaj Finserv, all products of Bajaj Finserv should be there or Bajaj Finance should be there. On platforms, clearly build out social and rewards, the way we built out app and web over the last 2.5 years, build on the foundation of that and build that out as big over the next 18 odd months as you built out app and web to be. On horizontals, clearly STP across all products.
As we go fully digital, we need more and more and more STP on service, SPC and so on and so forth. Now, as we grow larger in size, continue to diversify liability profile. On subsidiaries, leverage our platforms to drive to originate mortgages and broking accounts for subsidiaries. 12%-15% of their business, we think, of retail mortgages and 20%-25% of broking accounts would or should come from us as we take a five-year view. We will and we'll build this out as we deliver this. What that means from an execution standpoint is we will launch... You see, I don't have to go through it.
It's mentioned in very clear terms, but we took a view that we were so far used to do LAP only in Bajaj Housing Finance. As we came to a conclusion that as we build out MSME, it's one of the core products, so BHFL would also do and BFL would also do. We looked at external market benchmarking, we found that one of the largest players, which has a non-bank and a bank, also always did it that way. If you want to grow MSME, then we'll probably have to take do LAP in both the entities. Bajaj Plus, which is so-called Finance Plus, in January, we already rolled out, launched new autos. I think after mortgages, it's the lowest risk category.
Makes less money, we've invested four years in building out used cars, we are among the now top four or five monthly originators of used cars. We think on the back of that given that of the total outstandings in India of auto loans, 33% sits on our current franchise of INR 70 million. The experience that we're having with two-wheeler open architecture, we launched the business in June, we already now originating 8,000-9,000 open architecture two-wheeler loans, gives us significant confidence that we can build out a business in the new PE loans as well. MFI, given how deep we've gone into India, is a business that we launched in a phased manner in Q4 and tractor in Q1. In the...
On the commercial side, emerging corporate business in Q3, B2B on QR and ADC in Q4 and so on and so forth. That's really the eight mega trends out of 15 that I showed you we would do in FY 2024 and balance seven in FY 2025. That's the sum and substance gist of it. We'll start to provide what that means on a rolling basis is that, at least our forecast says that 4.5 years from now we'll have INR 110 million-INR 120 million consumer franchise. We'll have cross-sell franchise of INR 65 million-INR 70 million. India payments GMV, versus our 3% ambition would be between one and 1.25. Share of total trade would be between 2.5 and 2.75.
You can see the numbers there. They are large and self-explanatory. Profit per customer would continue to move in tandem, and AUM per customer should continue to grow in line with nominal GDP, and return on equity should continue to sustain. We thought that's really what we'd share with you. As I said, on panel 25, we'll start to share along with Q3 results every year from here on. The process for us starts in October every year as a company and ends in December. That's the quarter. Last point, as my team is reminding me, panel 59 composition remains steady, six-five , eight-seven , 2020, so on and so forth.
As I've always said, between 1% and 2% plus minus, that's really where as you can see, because mortgages are slower for the quarter. Sorry. Actually, AUM disbursements were slower. Mortgages on AUM basis went up actually from 32%-33%. Last point, you know, and part of it is a point that it's important I make that we originate customers through our B2B business. Balance sheet stack is now down to 9% so the seasonality that used to exist at a particular point in time in Q3 and Q1 for us increasingly has gone away. The contribution of B2B as a balance sheet business will keep going down.
It's possible sitting here next year, the 9% number, which looked like 10% last year, same time, may look like 8%. It's very much possible because balance sheet is becoming shorter and shorter. Churn is higher and higher. It would continue to generate disproportionately high customers to whom we excel in cross-selling. You know, that's really what we do. That's how we've created a business model. Increasingly you will not see, you know, Q3 or Q1, which is really where B2B at a point in time when this contribution used to be 14%, 15%, we would see swings. The swings will not be there. In fact, if I take the reverse point that the Q2 balance sheet grew faster. Q2, the balance sheet grew INR 14,700 crores.
In Q3, it's grown only INR 12,700 crores. A seasonality effect in the balance sheet mix is largely gone away. It's an important point that I thought I'll anchor. I think we are fine on portfolio metrics. Happy to take questions between me and some of my senior colleagues.
Thank you very much. We will now begin the Q&A session. If you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to withdraw your question. When preparing to ask your question, please ensure your phone is unmuted locally. As a reminder, that's star followed by one on your telephone keypad now. Our first question comes from Piran Engineer of CLSA. Piran, your line is open. Please go ahead.
Yeah, yeah. Thank you. Congrat s on the good set of numbers. Just a couple of questions. Firstly, you know, earlier this month in Davos, Mr. Bajaj said that Bajaj Fin is looking to hire 3,000-4,000 engineers. It was a
CNBC interview. I don't know whether he was referring to Bajaj Finance or Finserv, but just wanted to get your thoughts on, you know, what the strategy is out there. It seems to be a slightly larger number in context of the Fintechs that are out there.
Yeah. We have hired already for the current year 650 engineers from colleges. Just to give you texture on the freshers just being hired by us as BFL in I don't know.
I can talk for BFL, clearly I'm sure that must be happening for other group companies as well. We've hired 650 odd engineers as freshers. Last year we hired 300. The year before we hired 150. Clearly we do foresee that next year we will be hiring 1,000 odd people, and that gets decided in June because we go to campuses in August from engineering colleges standpoint. I'm we as BFL.
Okay. from our perspective-
I just measure 600 PR people. Yeah.
Okay. Okay. That makes sense. Secondly, just, not related to the quarter, but when I look at, you know, I'm trying to understand what sort of fee income potential is out there from insurance cross-sell. Then when we see the commission income you all earn from Bajaj Life and Bajaj General, it's only INR 25 crore-INR 30 crore annually. Am I reading this data wrong in terms of, you know, you know, is there more in terms of what can be done here? Because it seems to be a very small number.
Piran, you're only referring to life insurance business. I think there is health insurance business, there's general insurance business, there's extended warranty, et cetera. All these products carry different commission structures, and they do contribute significantly in terms of overall financial outcome. Short is the reply.
We are open architecture.
We are open architecture. We work with 27 insurance companies.
We work with nine.
We work with now 9 already. We can do tie-up with 18 more, insurance companies.
Would you be willing to just share broadly what sort of fee income you all earn annually from Insurance cross-sell, like overall, out of all your tie-ups?
Piran, as I said, they do contribute materially to the overall numbers. We have not disclosed it separately. We'll see if there's a possibility for us to disclose separately in the annual report.
Okay. Fair enough. Just lastly, can you cross-sell a DBS credit card to an RBL customer and vice versa? Is the contract that once you go in, the customer is locked with that?
Yeah. Manish is asking. Yeah.
As a governance principle, we do not cross-sell a DBS co-brand to an RBL and vice versa.
Okay.
However, if the customer has closed his card-
On either side.
... on either side, then as a governance
After the cooling period.
Yes.
After the cooling period.
Governance after a particular cooling period, it is then allowed to be crossed to the other card. We do not do it while the card is still alive. That's the governance principle that we apply.
Got it. Okay. That makes sense. Thank you and all the best.
Thank you.
Thank you. Our next question comes from Ashish Sharma of Enam Asset Management. Ashish, your line is open. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Rajeev, fabulous update on the LRS. Just one question on LRS. As per the strategy, we would want to do everything organic or is inorganic also part of this whole.
Organic
long range plan?
We build businesses.
Okay, great.
All organic.
Perfect. Second question would be on the BHFL. You mentioned about the competitive intensity. Just also wanted to get some perspective on, on the, I mean, how the demand has sort of panned out given that there has been a very, very sharp increase in interest rates, I mean, the home loan rates. Is it only competitive intensity, or there also has been some sort of, some impact on the demand because interest rates have moved so rapidly?
I'm looking at the, you know, in the alcohol, looking at RBI data, if I'm not mistaken, which is published. If I take a nine-month data that shows the housing loan, including priority sector loans, growth is only 9%, 8.89%, if I'm not mistaken. I think that's really what I saw the number to be, if my memory corrects me. If memory is correct. Clearly, nine months view looks like a 9% all kind of number at this point in times in terms of addition. Rest Atul can add on.
Yeah. Competitive intensity and that also is fueled by, you know, lot of rate increase. As of now on the primary sales, because, the market has two part primary and secondary, which is a, balance transfer on the primary. In the primary side, in the demand, we have not seen any significant downturn, of the rate, rates catching up. On the secondary side, given the rate increases happening at a regular side, there is a bit of a compression. Not on the primary side, but in the secondary side, there is a compression.
Okay. No problem.
As we said, we have to choose our bets in terms of how do we price. Mind you, we only do salaries. We don't do self-employed mortgages. In fact, in home loans also, it's the most intensely competitive space. Everybody wants because self-employed home loans are in our assessment not priced for risk.
Absolutely.
It is the most intense part of home loans that we are competing in or continue to compete in. You know, a quarter here and quarter there really doesn't bother us, but don't want to lose margin. Whatever is little is there in the home loan business. Any which way.
Sure. Sure. Yeah. Just lastly on this performance of operating costs being lower than the revenue, I mean, you expected that we can sustain now given that we've already done our investments and now I think. Just one, some color on that, Rajeev.
Yeah. As I said, Q4 we will sustain from a guidance standpoint. Largest part of our OpEx lines are salary increases, so on and so forth, new hiring. As we build out, we'll provide an outlook by, for next year by Q4, Ashish, you know. We're clearly seeing operating leverage emerge. That is super clear. Where will it anchor? I think by end of Q4 we'll provide guidance on that as well for next fiscal.
Perfect, Rajeev. Thank you, and all the best for the next quarter. Thank you.
Thank you.
Thank you. Our next question comes from Abhishek Murarka of HSBC. Abhishek, your line is open. Please go ahead.
Hi, Rajeev and team. Thanks for taking my question. My first question is on this long range strategy. A conversion to a bank is not part of it. How are you thinking about that as part of a long range? Because if you get to 100 million, 110 million customers, you would already be among the largest, out there. How are you thinking about the conversion to a bank?
Yes. I said this in in our in our AGM in July, Abhishek Murarka. There's no plan to convert into a bank. In a reasonably uncluttered manner, let me make a point again. I think that's as uncluttered as I can get or as clear as I can get. There's no plan to be a bank and we foresee that even these numbers get us to be smaller than the current largest non-bank, just about there. At today's level, I'm talking 4.5 years forward.
Yeah.
You know, so, if, and, our growth NPA, net NPA sustained performance over a long period of time does not give us any kind of, poses any kind. If you continue to manage the business as well as you've done over the last 10 years, does not create any kind of reason for us to be a bank. You know, these numbers don't assume a bank, and we don't plan to.
Got it. Got it. Sure. Sure. The second one is, again, you know, in your long range plan you said you'll do LAP or LAP in both BFL, BHFL and roughly modeled on the business model followed by somebody else. What will be the difference again? Will it be like a customer profile difference or will it be similar?
No, it's very similar, except, you know. Let's just step back for a moment. The business loan business of ours, we are amongst the, we are 22, 23, as per bureau data, and when I say market share, I'm talking on a run. We only look at verifiable source. We are not interested. Either it's a RBI data which says, this is. That's a aggregate credit data. If I otherwise, in product lines, only data that we're relying on is bureau data.
If bureau says how many loans are booked as consumer durable loan over trend line on a long term sustainable basis, I take business loans booked in India on a one quarter lag basis that shows that 21%-23% of the loans business, booked as business loans in India is with us. Okay? They're all small businesses or professionals. When we look at the MSME sector in India, that market is INR 23.5 lakh crores. The business loan market of that is only 4%. We want to dominate and we want to be leading player in MSME space, we came to a conclusion that just we are successful doing half the multi-distribution and that business of ours is a lot more B2B. We are very strong from a geography.
Distribution is very, very strong. We have sustainably the only two players in India who have done business loan for the last 15 years, never shutting it, and we are one of those. gives us very high credibility with the distribution ecosystem. I think, we've already, as I said, started it. I think it's starting to move with all guns blazing already. Atul is here on the call. In fact, he is a big votary of the fact that the market is very, very large. You know that the BHFL can continue to gather and we can continue to gather without any kind of compromise or conflict in any given manner on the loan against property business.
Understood. Thanks.
Priced at a price and market basis, adjusted to emerging market price differently from tier two markets, price difference from tier one markets. We offer business loan in 2,000 cities in India.
Plus product differentiation.
Yeah. Plus a level of product differentiation in terms of, you know, that's... Okay?
Perfect. Perfect. Yeah. Just a last question. In your fees and commission expenses, now that has declined QoQ, whereas your new loans booked and customer acquisition and sequential AUM growth, all of those have been pretty strong. How do we think about this? Is it that you're doing something yourselves or through the app and therefore you're getting some operating leverage, or how should we think about this?
Abhishek, we are on an advance base accounting, so the origination cost doesn't fit in OpEx, right? That get amortized along with the income.
Yeah.
What you see a large portion of that is recovery commission. As the portfolio quality continues to improve, the recovery commission has come down actually.
That's where you go more and more deep.
Okay. Got it. Got it. Thank you so much. Thank you. All the best for the quarter.
Thank you.
Thank you. As a reminder, if you wish to submit a question, please press star followed by one on your telephone keypad. Please limit yourself to two questions so we can complete the queue. Our next question comes from Harshvardhan Agrawal of Bandhan Mutual Fund. Harshvardhan, your line is open. Please go ahead.
Hi. Hi, sir. Thanks for the opportunity. Can you please tell us what are the rate hikes that you've taken across products, apart from home loans, if you have taken that, and what's the broad quantum of it?
Quantum would be... As you can see, as we said that so far we managed to neutralize the impact of increasing cost of funds and increasing and having increased in a staggered manner, pricing as well. In the fixed rate businesses, you would have probably so far passed through 67, 50, 60-...
Yeah, 50, 60.
Depending on business to business, 50, 60, 70 basis points. I mean, you know.
Sure.
That's how, I mean, it would differ to business to business, differ on our, differ on level of competitiveness in the business, differs on our moat in the business. Quantum would be hard to.
The variable price business would have got completely repriced in line with market risk.
Okay.
The fixed rate businesses would see incremental repricing, which is, as Rajeev said, 50 to 70 basis point depending on business to business. The impact of it will become visible over a period of time.
Sure. Sure. Thanks. sir, another question is, what percentage of our book will be PSL compliant today?
PSL compliant. We don't track. In BHFL we track. Also in ICICI.
I don't remember.
Yeah. I mean, as I said, anyway, part is not to be bank, as I told Abhishek earlier. There's no need to track. If I tracked it was probably anywhere between anywhere between my sense is across on a consolidated basis, 14%-16%. I mean,
Sure.
If we track this. Last we did this exercise in 2020. We've not done this exercise since then. We do track it in some of our processes in BHFL, but not in BFL.
Great. Sir, one last question is about, you mentioned that we'll be getting into MFI business and tractor financing. Those are like very competitive businesses. What kind of right to win we have in those areas?
Look, two, three things. You could ask the same question even for autos, so that we're on the same page, right? Autos, as I mentioned, we have a very large existing franchise sitting, so to be fair. MFI, clearly the core moat that we're looking at is we are very, very deep. We are now in, as I said, INR 110 odd crores penetration. There's still INR 30 crore coverage left. We understand the market. We understand the state, understand the market, understand the local district level understanding we have, having done various businesses.
Right.
That's point number one. Our plan is to start with two states. I must flag one thing. None of these are gonna grow overnight. As I said, we build businesses with a five year-seven year view. It will be staggered frame. As I said, we've launched two-wheeler in June. We are only in two states in India. When I launched two-wheeler open architecture in June, we've launched only Gujarat and Maharashtra. It's only now we are going into top 15 cities in India. It will be a staggered frame. Business must find its feet first and then we grow. There's no urgency.
Right.
When we have looked in the past or when we launched a business and when it became materially significant to balance sheet and P&L, it appears to us that it takes anywhere between three and a half to four and a half years. By that time it becomes material either from a profit pool standpoint or from a balance sheet standpoint. I think it's important I flag that. We launch MFI in UP and Tamil Nadu. We are looking at two states and over a period of four years build out in 10 states in India. Tractors.
Sure.
Okay. When we look at even tractors, we find there are 600,000 of our customers who have a current active tractor loan, just to give you texture. Same thing that applies for PV, applies for tractor as well. MFI, I must also flag, as RBI came out with the new requirements in September, which became effective October, and when we looked at those metrics, we found that there are a set of loans that we do on a monthly basis in personal loans, cross-sell, 3%-4% of them qualify, and we started to tag them as MFI. When we look at the performance, we come to a conclusion that there is merit in us pursuing the business as well.
There is some level experience even there, sitting there based on the new RBI regulation requirements. That's the background on these three existing customer and deep knowledge of the geography from an MFI standpoint.
Sure. Sure. Thanks. Thanks a lot, sir.
Thank you. Our next question comes from Kuntal Shah of Oaklane Capital. Kuntal, your line is open. Please go ahead.
Hey, hey, Rajeev and team. Thanks for this update on LRS and credibility you're building with distribution ecosystem. My questions are two. What is the status of credit card approval by RBI for us and any NBFC in general? Where do you think then and what timelines you expect for us to begin that business? Secondly, this quarter saw addition of only 27 locations, and for 27 also you are guiding only 600 odd additions. Are we slowing down on geographical reach or how do we read this? These are my two questions. Thank you.
Credit card, we applied, Kuntal. We are waiting. We are hopeful is all I can say. We'll go by whatever RBI would do. They would do it for the industry in general, I would like to believe, so for the non-bank pack and based on credentials is the response on credit card, Kuntal. In terms of geography, the economics must work. Principle number one. I don't have to be present in all INR 40 crores of population in India. The economics must work. As I tell people that from west of India to south of India, every 30 km on the highway, we have a branch now, you know, if you stayed on the highway.
This is from Gujarat to the large parts of opportunity, resilient part of opportunity from a population coverage and the economics would work, we principally now see only UP and Bihar and some parts of Northeast. That's really one of the frames that you see. We foresee that in a stated horizon, we'll probably now end up opening only 445 odd locations. Let me give you a specific number. Of that 400 will actually come in UP, Bihar and Northeast. Only 45 is the gap that we see in rest of India. Sorry. Other than as Anup is correcting me, other than MFI. Urban/rural business, as you know it today, will have a eventual net addition from here from next five-year standpoint of 4.5 Years for only 445.
That to 400 in UP, Bihar and Northeast and balance 45 are some of the blind spots in rest of India. As you build out MFI, it'll happen. That should give us INR 123, 124 odd crore coverage at a redesigned level. The bigger frame, Kuntal, from the next five years for us from a strategic standpoint on LRS is, as I said earlier it used to be „Jahan TV, wahan Bajaj Finserv. Now it is, „Jahan TV, wahan Bajaj Finserv ke saare products. When we look at it, let me give you texture, that, only 3% of our locations have 80%+ of our products. We know that. But those products give us experience. They gave us a brand. They gave us understanding of the market.
They gave us understanding of the consumer. The next step on geographic infrastructure is about in a templated manner, get all our products. That's really where we are headed. Sometime in maybe next year, LRS update or the after, we'll start to provide update on how some of these things are moving as well, to create greater degree of transparency in the process. Strategy is 445 more locations in 4.5 Years, but focus on Jahan Bajaj Finserv, wahan Bajaj Finserv ke saare products.
Thank you.
Thank you.
Our next question comes from Nischint Chawathe of Kotak. Nischint, your line is open. Please proceed.
Yeah. Thanks for taking my question. You know, again, what is the same point about, you know, going into the below prime segments of the market? You've always focused on the prime segments and the mass affluent class. Now, I understand that you know, you by now have a reach, you know, across the country, across every 30 km on the highway. Still, you know, this is a very different market run with a very different mindset. Most of the companies who have been successful out here are sort of, you know, hyperlocal companies who have morphed into regional players. You know, these are, again, largely collection-based models. You know, how are you changing the entire business for this?
I mean, is it something that's, you know, you are kind of trying to do it on an experimental stage? Or would you kind of build a completely, you know, different, you know, mini enterprise within Bajaj Finance kind of brand businesses like other NBFC?
It's a good point. It's a very good point. As the company grows larger, in fact one of the frames of the company, and we've done that, Nischint, good you made this point. We've come into conclusion as we grow larger, we need to create... Few of the businesses have to be parallelized out. In a way, actually we now have, with microfinance, we'll have three parallelized units in the company. The two existing parallelized units in the company are actually payments business, the technology operations, business development, HR sits as a parallelized unit, adjusted for risk. Payments has some very little risk from the fraud and so on and so forth standpoint. Otherwise, adjusted for risk, sits as a parallelized unit. We've done the same thing and it's good you raised the point I forgot to...
I missed making that point. If you go to our omnipresence update on the panel number, you will see that we've actually upgraded our Gold loan branches from 179, full year estimate was 225. It's at 375. By FY 2024 we've signed off. FY 2024 we'll have 650 standalone Gold loan branches. We've actually even parallelized. We came to a conclusion that we need to parallelized Gold loan as well. You now parallelized it out, adjust it for risk, as I said, otherwise operations, cash, sales, administration, HR of that unit has been parallelized out. MFI will also be parallelized out. We understand fully that these businesses have different nuances. They are to be run differently. What do we bring to the table in MFI?
Unfortunately, Krishnan, when I look at the industry, I still find very poor stroke, relatively poor technology adoption. If one has to scale these businesses, they must have significantly deeper technology adoption, is what my observer point of view is. As a practicing manager, that view may change as we launch it. Today our view is we can bring lots greater and deeper technology intervention from a last mile standpoint to the business and will be parallelized out.
Sure. Just one smaller one is, you know, you mentioned that the festive demand was sort of or whatever the post-festive demand was sort of weak for the first two months, and, despite that, you had, I think, a record number of client addition. You know, typically you would have the B2B customers sort of, you know, driving these client additions. How do we reconcile these two parts?
Two things, as I said, clearly deeper geography continues to add NTB customers. That's point number one. 61%-62% of the customers continue to be existing. 38%-39% of the customers on a sustained basis. Any difference, the numbers between 65, 35, continues to be digitally. I mean, continues to be NTB. That has not changed. If you go to the panel 13, you see the customers acquired digitally, EMI cards, acquired digitally are already now driving at INR 6.5 lakhs support. The number, of course, as in Q1 was, as you can see there, 122,000, 664,000. I have to also still remind people that 60% of these customers pay a fee.
If 637,000 came, 60% of them paid a $8 fee and went. Got fully underwritten, fully digital. I spent less than INR 100, across all kinds of marketing infrastructure and 60% of them pay a fee. 40% become active in a 12-month rolling basis and balance, we continue to stimulate. That's how you should reconcile the number. Just on the demand outlook, 55% of the B2B loans are now digital products. Means mainly phones. While laptops, et cetera, also are digital products, but take phones. Month on month, if you take September, October, November, December, if you take the IDC shipment data, continues to trend downwards. That's the real data. I mean, you know, the shipments in India. Sorry.
7% de-growth. Annualized 7% de-growth and last quarter looking like 12%, 13%, 12%, yeah, 12%, 13%. I think it will recover. I think it is also coming at a high base. 2021, 2022, children were all online. Everybody was online. India could not buy as many laptops as it would have liked. Life had to go on, people got a lot more phones. There will be some degree of year-on-year averaging. That also one has to take into account before one takes a view that is it a structural downturn or a transitory downturn? I think it's transitory. You should start to see pickup. As I already said, January is looking better.
Perfect. Thank you very much.
Nischi nt, it's been a long time. Me and Sandeep are remembering you just on a lighter vein.
Oh. Yes, that's nice. Yeah.
Thank you. Our next question comes from Krishnan ASV of HDFC Securities. Krishnan, your line is open. Please go ahead.
Yeah. Hi, Rajeev and team. I hope I'm audible. Thanks for taking my question. This is more a governance query or an observation, if you may. I mean, clearly, you have been setting an example in say, in all the right ways on so many financial, I mean, parameters. It's a little unusual when, you know, you see the level of open speculation on the likely transition around KMPs within BFL. Especially for a franchise that's been driven so scientifically is either reflecting a complete lack of good governance controls or it appears to be a deliberate ploy. I mean, it's just an observation and probably a feedback if you need.
Be more specific.
there's something.
Be more specific, Krishnan. I've not understood your point.
Uh.
Can you be more specific?
In case there is a likely transition within BFL that you seem to be aware of at a board level, et cetera, I think this is ideally something that we should bring out in the, I think the public domain, instead of letting, I mean, there are pockets of speculation open up, I guess. That's just an observation, Rajeev. I didn't want to-
As and when we do, As and when the board decides, or such discussions happen, we will of course let the street know. I mean, there's no discussion on it at all, so there's nothing for us to disclose.
Great. Okay. My second question is a little bit now to do with the business per se, and this goes back to one of the earlier queries around how do you pivot from being a mass affluent franchise to something that becomes a little more mass-oriented and what kind of risk controls you have in place in order to prepare the franchise for that. Maybe if you could just elaborate a little bit.
It's horses for courses, Krishnan. you know, as I said, it's horses for courses. Even in the businesses that we are in, somebody could argue that is gold loan a mass business or a mass affluent business. The way we run the businesses, our average ticket size is 3x of that of what a non-bank lender runs. Because we think share of wallet eventually, works better than number of customers. Even within, as we get into some of these businesses, we look for pockets. If you take the two-wheeler financing business that we've launched in open architecture, we are doing at this point in time more Honda than we're doing, let's say, Hero. If you.
It's no secret that customer, scooter customer is better than another motorcycle customer. We tend to, at a philosophy level, identify pockets where customer has better behavior from a consumer standpoint, has a larger wallet for us to cross-sell to. That's the philosophical response to the answer. May there be such opportunities in MFI? I mean, the business is to go live only in Q3, we will, as we get deeper into it, we are already in January, we'll take a view there. Otherwise, for PV, the industry itself has transitioned to mass, super mass affluent rather. If you see the structure of the industry, the mass cars are not selling, only affluent and super affluent cars are selling.
Gold loan, I gave you example, two-wheeler I gave you example. We look for wallets rather than look for balance sheets.
Numbers. Got it. Got it. Thank you. Thank you. Thanks.
Thank you.
The final question we have time for today comes from Dhaval Gada of DSP. Dhaval, your line is open. Please go ahead.
Thank you for the opportunity. Congrats on good set of numbers, Rajeev. Just one sort of question more from a clarification or understanding perspective. From the LRS slide, you know, it sort of implies about INR 6.3 lakh crore of AUM by FY 2027 and about INR 26,000 crore of profit, which sort of implies 26%-27% AUM growth and 23%-24% profit growth. The question is basically, you know, you've given a three-year sort of target of doubling the AUM, which sort of again implies 26%-27% AUM growth. You have a long-term guidance on timing 30, which again implies similar outcomes.
Normally most companies we see that as you grow in size, in many companies, you know, the growth starts tapering off or even size sort of comes into picture. In our case, actually we seem to be, you know, in a zone where we'll be sort of steady compounding for a fairly long period of time. What would you attribute this to? Is it the funding franchise which determines this? Is it the product suite that is driving it? I mean, what exactly is the reason for this, you know, fairly long period of compounding at a similar pace of growth? Thanks.
I am 10% of the loans booked in India, ± between 9% and 10% of loans booked in India every month, but only 3% of assets. Let me give you one single metric. If I take long-term bureau data, that means just on the franchise is a gap of 7% sitting there. One, you need full product coverage, goes back to the LRS conversation. Two, you need platforms. That's really where the investments in existing in the last 2.5 years in app and web platform, and in the next two years in a social and a rewards platform. Between products and platforms and consumers you already have, we just, and with the long-term orientation that we have, just keep playing along. I mean, you know, is all we need to do.
I don't think we need to reinvent anything. Just we got to keep mining, and as I said, product coverage will get completed. Platforms you built out over the last three years and a 70 million franchise with a 40 million best customers is some ending this year. All we just need to do is continuously mine those clients. That's what gives us the confidence, let me make a point. you know, and I'm not... Sandeep wants to say something. Yeah. That I think remains tremendous opportunity. To do it too quickly, it's a problem. Do it too slowly, it's a problem. Just at a cruising altitude, growth-oriented, so that we are all on the same page, don't see this to be a challenge.
Mind you, I'm not making a new point. In July, we made the point in AGM that we'll get to INR 4 lakh crore. I'm not, you know, that was three years hence. This is five years hence. In that one year is gone. We will add this year, I've said already INR 53,000 crores of balance sheet. You know, June to March, INR 50-INR 53, between INR 64-INR 67 and INR 75-INR 80. You sum up the number. As I keep telling people, it took us 15 years to get to INR 2 lakh crore, and it'll take only 18 years for us to get to INR 4 lakh crore. That's compounding.
We are very clear, we are not letting this opportunity go to build a once in a while opportunity that comes our way in building this business out.
Got it. Thanks. Thanks, Rajeev, and wish you all the very best. Thank you.
Thank you. This concludes today's Q.&A. session, so therefore I'll hand back over to the management team for any closing remarks.
No. Thank you. Have a good weekend. Thank you for your patience.
On behalf of Morgan Stanley, that concludes today's conference call. Thank you for joining. You may now disconnect your lines.