Ladies and gentlemen, good day, and welcome to the Bajaj Finance Q2 FY 'twenty Earnings Conference Call hosted by GM Financial. As a reminder, all participant lines will be in a listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Singh from GM Financial.
Thank you, and over to you.
Thank you. Good evening, everybody, and welcome to Bajaj Finance's earnings call to discuss the second quarter FY 'twenty results. To discuss the results, we have on the call Mr. Rajeev Jain, is the Managing Director Mr. Sandeep Jain, who is Chief Financial Officer Mr.
Atul Jain, who is CEO, Bajaj Housing Finance Mr. Anoop Saha, who is President, Consumer Business Mr. Deepak Bhagati, who is President, SME Business and Collection and Mr. Ashish Panchal, is President, Rural Business Insurance and Liabilities. May I request Mr.
Rajiv Jain to take us through the financial highlights, subsequent to which we can open the floor for Q and A session. Over to you, sir.
Thank you. Good evening to you all. I'll be referring to the investor presentation that we have uploaded on our website. Let me quickly take you to Panel four and five. These essentially capture the quarter in essence.
We remain focused on all three dimensions of growth, profitability and sustainability in the current quarter. Assets grew 38%. Core assets in Q1 had also grown 38% to INR135500 crores. New loans booked grew by 23%. Overall, Q2 in terms of loan growth was slower than Q1 given the general demand slowdown on one side and cautious view of growth on the or cautious view of risk on the other side.
So if you look at our Q1 accounts growth, Q1 accounts growth was percent, 20 and it came down to 23%. As I said, poorer outlook from a demand standpoint on one hand and our cautious risk view on the other hand. Overall, the growth was pretty granular. S and I businesses grew 19% versus 23% in Q1. B2C grew 46%, rural grew 35 SME grew 34% mortgages grew 43% auto, 61% commercial lending, 18% and so on and so forth.
So pretty granular growth between two quarters sequential as well, pretty narrow range in which both are more. So it's pretty granular growth from a balance sheet standpoint. New customer acquisition, we acquired 1,920,000 customers. Overall franchise is just a tad below 39,000,000 now. Existing customer loans were 70% of the loans were existing customers in Q1 versus 66%.
Happened in a in general, our long term view is 72%, 74% of the loans eventually, in a medium term horizon, should come from existing customers as they are better risk customers. But given our cautious stance and whenever we have to manage risk better, the right way to do is to reduce new customer acquisition. So it's more by design than by anything else that 70% of the loans in Q2 were existing customers and 30% were new customers. We added 102 locations, taking us just a tad below 2,000 locations. We will add another 200 locations in the next between 160 to 200 locations in balance second half of the year as well.
Cost of funds continue to go down given surplus liquidity in the banking system in general. We versus 8.49 in Q1, we came down to 8.38% in terms of cost of funds. It could fundamentally still be lower, if not for the overhang that we are continuing to carry in the balance sheet in terms of cash. As of September 30, we stood at INR 8,000 crores of cash. As of today, actually, we're sitting on 10,000 crores of cash and cash equivalents.
It does create a cost of carry, but given the environment, that's probably the in our internal ALCO assessment, the right thing to do. ECB, we raised, raised at a pretty attractive price, raised at $790,000,000 all in cost from a three year fully hedged facility standpoint. We've also taken a Board approval today to go and seek approval from RBI for to raise another $700,000,000 in the balance half of the year, subject to RBI approval. Deposit book continued to grow well. Both ECB and deposits are creating significant amount of diversification on a liability profile for us as a company, grew 60% on a year on year basis.
15% of the liability profile is now retail and corporate deposits, INR 11,000 of this is retail and thousand 100 is wholesale. Focus on fees and commission remain, grew 66%. The differential mainly contributed by three core lines, came from credit card fees, came from penal fees and other fee lines like financial fitness report, convenience fee, etcetera. Loan losses were higher than in general what it's been so for the past few quarters, in line with Q1. Overall number grew by 80% in Q1 as well.
Stage three asset loan losses and provisions grew by 80% in Q1, grew by 80% in Q2. In general, the way it's looking like is that your hello? Are you there?
Stephen? Yes, You may go ahead.
Yes, yes. Okay. In general, the way the year is looking like
Ladies and gentlemen, the line for the management has disconnected. Please stay connected while we reconnect them. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.
I was on point number 12. The way it's in terms of credit costs, the way it's looking like, it's looking like more like FY 2017, which was a demon year. Our credit cost in that year came in at 162 basis points. If you add ECL to it, fundamentally, you'd add anywhere between 12 to 14 basis points depending on which portfolios are moving or slipping. So the number is likely to, on a full year basis, look like 175 to 178 basis points.
That's really how our outlook at this point in time is on credit cost for the year. It doesn't change the operating metrics, doesn't change the earnings profile of the company. But and given the cuts that we're taking in incoming and by tightening underwriting standards, we think by we should start to see reduction by fourth quarter or the first quarter of next year. OpEx to NIM continued to improve, came down further sequentially and on a year on year basis. Year on year came down from 35.5% to 34.5%.
Overall NIMs were strong. Gross NPE and NPA year on year, there's a movement because of the IFRS. Sequentially, they were up they were flat. As a result of the tax cut, adjusted for DTA, profits grew by profit before tax grew 41%. They grew 43% in Q1.
Consolidated profit for the quarter post tax grew by 63% to $15.00 6 crores. Return on equity as a result of the tax cut is looking very strong, is looking at annualized return on equity is looking like 28%. Capital adequacy, we actually added to the capital in Q2. Q1 was 15.66%. I think we've come in at 15.9 There was accretion to the capital, actually, in terms of core Tier one capital in Q2.
I think we've got the Board approval, as everybody is aware. Standard asset provisioning was steady at between eighty seven and ninety one basis points. VHFL continues to grow well. It delivered a profit after tax of INR130 crores, pretty solid and steady growth. Vidya Financial Securities, and if you are happy to become our customers, open a DMAT account and start access to our Broking Services.
That's really quarter in general. There are detailed slides that are there. I think what I would do is to open up for questions and try and refer to the slides in the event of based on the questions.
The first question is from the line of Deviash Mehta from Investec Capital. Mr. Mehta, your line is in talk mode. Kindly go ahead with your question. Hello.
Can you give us some clarity regarding the write offs
Yes. In the last two Write off is referred on panel in the presentation on Panel 41 sorry, 200 crores and INR $2.75 crores, $2.80 crores in the current quarter. And in general, we don't write off a smaller part of the write off is write off. We generally sell down the portfolio based on the NPV of the portfolio as to rather than recovering from it, we'd rather sell down to asset reconstruction company. And so as you can see on Panel 40, there's a 13 crores of recovery from realization on sale of NPA and the entire data is here.
Okay. Can you give me some clarity regarding this write offs? Which segment contributes a major chunk of it?
No, these are millions of customers. These are, in general, written off consumer portfolios. In general, out of INR $2.93 crores, INR 35 crores would have been INR 32 crores was mortgages.
Off was INR 15 crores.
Out of INR $2.93 crores was mortgages, rest were all consumer portfolios. Consumer SME. Consumer SME portfolios.
Okay. One last final question. If you go to the new to Bajaj Finance customers in the new loans book, both of them are, as you said already, declined the growth on a Y o Y basis. This is only due to the respect regarding you being more cautious? Or is there any like competition that scenario playing out here?
Because on the ground level, of the banks have also started promoting their activities aggressively.
They've been promoting for a while, so it's not new. As you can see, the data here in Panel 25 is last six quarters. During the six quarters on an additive atlas, most
of
the competitive atlas, most of the competitive atlas, most of the competitive atlas, of the competitive atlas, most of the competitive most of the competitive activities in top 25, 30 towns in India in point of sale businesses where majority of the competition that you're referring to is. I got it. It's driven So by our competitive activity, it's driven by our
cautious view on the business. Okay. One last final question. If you go to the customer franchisee slide where you have the triangle, in fact, there is an overall cross sell franchise and the non delinquent customers. Can you give me an explanation regarding what this is?
And if I would subtract both of them, would I get the delinquent customers if that affair math would it work out?
That fundamentally means we are if the client could have bounced and we are not willing to do business with him, and so he is nondelinquent. So client may have bounced, may have paid me fully, but I'm not willing to give him any more lending products. I'm happy to give him insurance products, wallet products, happy to give him deposit products, but not lending products.
Okay. So the difference between two of them can be taken as delinquent customers like he has defaulted any one of the time and you won't be lending to him?
Not delinquent. Default in some point
in time, yes. Okay. But now recurring. Okay. Yes.
Okay. Thank you.
Thank you. The next question is from the line of Kuntal Shah from Oglen Capital. Please go ahead.
Hi, Rajiv. Hi, Kuntal. Again, you surprised us and reconfirmed that BeeGainClient is getting bigger. My two questions, firstly, so how does it all function? Products, so how does it all function?
Rate, activity rate, rate,
activity rate, rate, rate, activity rate, activity rate, rate, activity rate, activity rate, rate, activity rate, activity activity rate, activity rate, rate, activity rate, activity rate, activity is distinctly better than a physical plastic. So today, in a way, out of $20,000,000 $11,800,000 are sitting, balance $9,000,000 we are making efforts to onboard on our wallet platform. So that's point number the response to your point number two in a way. Point number one, these are two separate instances. If you go on to the App Store, you will see MobiKwik Wallet and you will see Bajaj Shinsor MobiKwik Wallet.
These are two separate instances, fully ring fenced from each other and have nothing to do with each other. We work with MobiKwik, manage, operate, invest in, add capabilities to Bajaj Finserv, MobiKwik Wallet. We, on a month on month basis, are moving from the 20,000,000 EMI card franchise anywhere between 600,000 to 700,000 customers every month to from EMI card to digitize EMI card stroke wallet. That's really what the how the structure or the partnership structure with MobicWig is organized.
So Rajiv, at some point of time, we can consider that Bajaj will be launching co branded wallets and cards with large people with large customers, no, like, say, a store card for a retailer or a coffee shop or retailer or some people who don't want to invest in that area, but could piggyback on the technology and the lending platform of Bajaj?
It's conjecture. We will as and when we are ready, we will update all of you.
And secondly, Rajiv, what is the fully hedged cost of ECB today you are raising it? Mr. Shah?
Yes. Just a minute, sir. Ladies and gentlemen, the line for the management is disconnected. Please stay connected while we reconnect Ladies and gentlemen, the line for the management is reconnected. Thank you.
Mr. Shah, you may go ahead.
Yes. Rajiv, what is the fully hedged cost of ECB borrowing? And how does it compare with the local borrowing apart from the diversification and the maturity? Can The you cover one
bank monies in general come at one year NCLR, which are between $8.15 to $8.25. This money has come in between $7.90 to $7.95. And all in, this is all in, which is Interest payable on maturity. And local currency borrowing, which is NCD in the marketplace, are coming in at between INR755 crores to INR765 So it gives us diversification. It sits right in between bond market borrowing and banking borrowings and helps us target new pools of liabilities.
Kuntal, this is Sandeep Jain here. So the domestic bank borrowings are about 8.3 or so, 8.25, eight three zero corridor, but the interest is paid on a monthly basis. So when you do annualized number, it works out to 8.5, 8.55 Versus that, the ECB money has come in at $7.95 and the interest is payable on an annual basis.
Excellent. Sir Rajiv, just one suggestion, please do consider an ADR next time when you raise the fund.
We'll tell the Board.
Because, yes, it comes with a more disclosure, but I think the cost of borrowing and cost of equity both will drop. That's a suggestion and diversify the investment Okay. Base as Thanks. All the best.
Thank you. The next question is from the line of Anuj Gupta from Perfect Value Fund. Please go ahead.
Good evening, I've got two questions, Rajeev. First is in consumer de label finance, financing basis for subvention? This is the first. Another question is what growth do we see in long run from digital players like Apple Pay, Google Pay or ATM coming in digital finance?
See, the core benefit fundamentally remains who is reducing friction, number one number two, who has risk management understanding and number three, in the process, who has customers. All these three are, in general, a response to both your questions. If you look at Q2 data of ours, we did 6,500,000 loans. Let's say, say, you assume 6,000,000 loans came from point of sale, fundamentally, somebody to be able to underwrite 70% of those 6,000,000 loans came from existing customers. Existing customers being defined as ready to do business with a line.
So it's a set of many things, Anuj, that fundamentally create a moat or a heft at the point of sale business. So 70% let me convert the point into to Deter to demonstrate the heft point. 70% of overall financing market in consumer electronics, we help move. This is manufacturer's attention data. So it is not data from 15% of mobile phones sold in India or 30% of electronics sold in India we move, 15% of mobile smartphones sold in India we move.
So 8% to 10% of organized furniture market we move. So if we are moving those kind of volumes and velocity in 2,000 cities across millions of customers in a given month, at one level means we have developed ability to reduce friction, manage velocity and the earlier four points that I made. Does that answer your question?
Yes. I understand the point of sales. If you could throw some light on the digital payment part.
Digital lending is wallet, in general, to your earlier question as well or whether it's Google Pay or Apple Pay, wallet is a railroad infrastructure, gives you velocity of data that becomes a variable or a set of variables for you to build risk models for which you need to have risk understanding. So just because the Google Pay and Apple Pay, Apple Pay is not here, they have input data or variables emerging as a result of you using the railroad without having understanding of the risk need not convert into a proposition on which based on which you would do lending. So there are two different things. Payments platforms are need not fully result into a risk business or a lending business. Not that they cannot be, but they are two distinct businesses.
As long as they are run distinctly for the same consumer, there is an opportunity. But to believe that you have the railroad on which you will just as a result of which you will be able to do lending is misplaced.
Thank you.
Thank you. The next question is from the line of Nishanth Chawate from Kotak Securities. Please go ahead.
Yes, hi. My question actually pertains to the credit cost guidance. You upped or are you guiding for around 170, 175 basis points of credit cost for the year as compared to around, I think, 140 last year?
150.
150 last year. So this is incrementally in the B2B digital and lifestyle business and two wheelers?
It's across, across. There's marginal movement in general across, but more so in three businesses, in two wheeler, in digital, yes, and rest is all margin.
And the B2C segments broadly looks okay for now?
Yes. Data is here for you. If you see sequentially, let's take personal loan cross sell, March, let's take 122 basis points, 30 plus is 155 basis points, 30 plus, doesn't change the trajectory. It was two years ago. But more so, Nishanth, let me make a point.
As I said earlier, it's looking more like a demon year, which is twenty sixteen-twenty seventeen, where credit costs were 161 basis points. And if you add ECL to it, because in bucket two one and two, by two, in general, if you take aggregate basis across of course, it differs by portfolios. On aggregate basis, we land the provisioning 21%, 22% already, which was not so the case prior to ECL being deployed. So if you actually add that number, you'll get to 180,000,000 Actually, little more you'll get to. So that's really how we are seeing the year play out.
Sure. And do you see further tightening of credit screens?
It's month at a time, Nishanth, at this point in time. July was okay, August was better, September was not so good, October is looking better. The default metrics are volatile at this point in time. I don't know whether a bottom has been formed as yet.
Sure. The 70% of the customers who have sorry, 70% of your loan comes in from existing customers. In terms of percentage of disbursements in value terms, could this ratio be like?
We don't even compute it.
Actually, we don't even compute the seventy-thirty, except for you guys. We're focused on our business. We get to know about
it only at the end
of the quarter. Sandeep can help you with the number. Yes. I don't we don't have it handy. We don't
No, no,
no issues. Just one final commentary if you could give on the festive sales month till date. Thank you.
Festive season, till Navratri, if you take discretionary consumption, because let's take out the retail products, which are not so let's say, with B2B products in general, till Navratri was not good. Navratri the share onwards, it's improved dramatically. I would say significantly, dramatic would be a wrong word because you're all looking for hope. But the way it is, next ten days are very critical till Bhairoj, which is next Wednesday. Can you hear me, Nishin?
Yes, very much. Okay.
However, I would say the following to you. This quarter will go in the last ball of the last day because the way we have seen in Mr.
Chawade, please stay connected. Ladies and gentlemen, the line for the management is disconnected. Please stay connected while we reconnect them. And gentlemen, the line for the management is reconnected. Thank you.
Sorry.
Nishanth, are you there? Yes, yes, very much. So the way we have seen wherever Diwali is a little early is that we will fundamentally see a slump after Diwali, but then December picks up much earlier than in general, if Diwali is early November, December picks up by twentieth twenty or December 21. In general, when Diwali is early, then it will pick around December. So I think it will be a last ball, last day play.
Given the actions that the government is taking and the cascading impact as it starts to play, we are sitting very pretty prepared to seize on that.
So we should not get too
much carried away by the
big numbers reported by the online players?
Online players, we have to read the fine print and see what is their year on year growth. It's been very strong for us. We are reasonably large contributor of both, but in one for one larger. We've contributed reasonably on a year on year basis strongly to their sale. But look at their core year on year metric.
Core year on year growth are much weaker. Okay.
Thanks for the update and all the best.
Thank you.
Thank you. The next question is from the line of Adarsh P from Nomura. Please go ahead.
Hello. Hi, sir. Very good set of numbers. On the fee, just wanted to understand if you can break up the fee either of this quarter or the first half. What's the fee, which is non linked to any balance sheet related activity?
Is not linked. Penal fees that we collect from clients is not linked. Insurance that we distribute is not linked. EMI card fee is actually not linked because I may sell you an EMI card, but if you default, it's not linked. So these are four lines that are not linked.
Other than that, there are a set of other services where, let's say, the point of sale, want to increase your loan limit, you can pay small fees and increase and so on and so forth. So there are various lines over the last few years that we've created, which are not linked to loan.
I just wanted to have a proportion of your this fees as a percentage of the total fee because that pool is becoming pretty large, so
So each of these components, whether you look at credit card revenue, insurance and value services revenue pool or EMI card or for the matter, penal income, they are reasonably large in the overall number. So it's not that one particular number is contributing to the overall growth for the quarter. So these numbers individually also play a very, very large role in that number.
I'm just trying to assess over a two year period what's the addition to the ROA number without actually having a risk weight consumption. So just trying to get sense of what percentage would it be, which really doesn't eat into capital
consumption.
So fundamentally, I mean, the point that we are politely trying to okay, let me make a different point. There are 19 different lines that contribute to feline, okay? It comes differently for different businesses. From a disclosure standpoint, we that's all really we can tell you. So we're not giving line item by disclosure because we let me make a different point.
We see it as a IPR infrastructure that these are the lines that can get created in a retail business. So but overall, as an investor, I would just tell you that we remain quite focused on ensuring that the sustainability of the business model should not be linked to balance sheet. So fees should grow nonlinear to balance sheet. And we've demonstrated that over a few years, and we remain committed to continue to deliver that.
Perfect. That is helpful. Thanks.
Thank you. The next question is from the line of Wamang Shah from HSBC Securities. Please go ahead.
Yes. Hi. Thanks for the opportunity and congratulations to your team for a good quarter. I just had one question. During this festive sales festive season sale, we have seen a lot of cash back being offered by Bajaj Finance as well.
What proportion of that is being borne by Bajaj? And how much of it is being borne by the OEM?
OEM is not bearing anything, if at all in so these are separate these are different structures by geography, geography, by retailer, by better customers. We are investing very deep in existing customers. And so it's promotions being created to fend off competitive activity to attract footfall into the store is really what the driver is. Manufacturer does not bear anything. If at all, at times, it can be borne by part of it can be borne by the retailer.
Okay. So technically from so it has to be netted off from your product IRR. And from the OEM standpoint, it's just a subvention that he shares with you?
Yes. There is a sales and promotion expense line for every festival season that we invest in to generate velocity. Would it be more stronger this year than it was in prior years because of the tax cut benefit that is emerged? The answer is yes, but that is all.
Okay, understand. And just my second question was related to the tax cut. What proportion of the benefit you think you would be able to retain, let's say, from a two to three year perspective? Or how much you think will have to be given off either in the form of margins or higher OpEx to kind of sustain the growth and profitability?
I am waiting to hear from I mean, me make a point. We are the first company to go out within as the tax cut got announced and announced for out of 19,000 of our people, 16,000 people, we increased their salary by five percent. We remain committed to add value to shareholders, customers, employees. These are the three main constituents and accelerated investments. I
would
say we're working on all four areas. But it's difficult to quantify what goes where.
So basically, what I'm trying to understand is that your medium term ROE target, which you put in your presentation, doesn't really change for now at least?
No, it does change because of we are in the middle of a capital raise. We've actually removed that. We do believe that from 18%, 20% medium term guidance, we look more like 20, 22% medium term guidance. The
next question is from the line of Jignesh Shail from MK Global.
Yes. Hi, and congrats on a very good set of numbers. Thank you. Just two things. One, if I see your zero DPD delinquencies, I guess, everywhere, sequentially, we are seeing rise had been there.
Right? So across products.
I mean, obviously, two of them had been much higher.
But but
but this this means the pressure is getting built up. Right? So I understand part of it is also because you are cutting down the additional customer base. That is understood. But don't you think so I mean,
what's your assessment? Do you think
this trend seems to be getting even further worsen off going forward? Or you think there is because the difference is sizable. If you see almost 100 bps, if I'm seeing it in the two wheelers, 30 bps, 50 bps across. So what's your sense over this that your zero DPDs, so though it is not reflected in NPAs, but it is somewhere getting reflected in your zero DPDs. So there is a pressure which is getting built.
So no, it's a fair question. If you look at portfolio by portfolio in a slow environment, our business a our business being financial services is a tough business because when the demand slows down, not only you get hit by slowing NIM, you also get hit by credit costs. So it's a double hit fundamentally, right? That's the nature of our business. If you look at it in a difficult environment, if you stay with, let's say, Panel forty five, if you say consumer durables, the rightful way to look in a difficult environment would be where are you on 30 plus because zero plus is material, but the current cash will eventually flow from 30 plus.
We started to see things slowing from November onwards.
We have the management line connected. Thank you. And over to you.
Sorry, Jinesh?
Yes, yes. Yes, sir.
So we started to see things slowing from November onwards. What used to happen was zero and one clients used to be collected by same collections infrastructure. In June, we separated zero and one. If you see, let's take 30 plus in Consumer Durable, you see 87 basis points, 30 plus moved to 84 basis points. If you see Lifestyle, while we have stamped it as yellow, you see a 14 basis point movement versus March to June of 21 basis points.
If you see Digital, it's actually improved. By February, March, we expect things will things should improve. If you go to the next panel, you will see 13 basis points movement versus a 20 basis points movement between March and June. So we are salary personnel is steady. So things are not deteriorating.
As you see, Business and Personal Loan, 96% has steady. But is the environment slow? Yes. In parts slower, yes. In geography, slower, yes.
I think we remain reasonably we are watching carefully. We are cautious. We are investing deeper in collection structure, we are prudently tightening underwriting standards wherever we see a yellow emerging. As I said earlier on the call, I see the year to look like FY 2017, which was a demon year where overall credit costs adjusted for ECL went to 175, 178 basis points, will look like 180 basis points. It doesn't change the operating trajectory of the business or the earnings profile of the business.
But okay. So now okay. So since now your lifestyle, your auto and your digital is yellow. So the only one B2B technically speaking is white goods, which seems to be green right now. So overall, your customer addition has anyhow slowed down in last quarter.
We expect so is it a fair assumption that the slowdown will continue at least for a quarter or two? And if that happens, do you think the momentum to grow aggressively will stay? Or do you think there is a risk emerging on the growth AUM growth as such as well? I mean, This since we
panel does not represent AUM. Actually, retain Lifestyle because this panel of yellow is only INR1000 crores of assets. The largest block in this panel is actually consumer durables. But we never wanted to remove it because if you remove it, you guys start doing WhatsApp. So it's INR800 crores to be precise to so we didn't want to remove the panel in any given manner.
The largest panel is consumer durable, but that's on one side. On the other side is that it is there is one of the things that I didn't talk about is that when Nishanth was asking on demand, how the festival season has been, I have no view on how Q3 will look. I was guiding I was not even guiding. I believe that's really how it will be. We won't know till December 31 because that's also a big season sale day as to how the year will eventually how Q3 will pan out.
But I do believe very strongly given very strong monsoon, well distributed monsoon, reservoir capacity, are running at ten year 25% ahead of last ten year average, that semi urban rural demand revival will emerge by fourth quarter. Urban demand is difficult to predict. We are as I said, we are well prepared for growth. We are in 2,000 cities in India and towns in India. Revival will emerge from there.
Penetration rates are lesser there. Profitability is better there. Access is harder there. So the moat of the business is stronger. That's really how I would it's difficult for me to guide or predict how things will look in the near term.
I can guide you for long term that in the long term, we will continue to grow in a robust manner.
Sir, the line for the current participant is disconnected. We move to the next question, which is from the line of Subhrancho Mejra from BoB Capital Markets. So
this is a question for Deepak. I just wanted to understand your collection infrastructure, how many people are deployed and what would they be as a proportion of your total manpower? And is it split category wise? If yes, what are these split in terms of manpower in terms of category? That's my first question.
Deepak has unfortunately stepped out. Out of 20,000 people in the company, 4,500 people work for 4,800 odd people work in collections. They essentially work with managing agencies. They don't collect directly. They manage agencies.
We have very deep, well oiled collections engine. We think it's a entry barrier to the retail business. And in general, we've created one of the lowest cost collections infrastructure in the country.
So how many agencies? I just want to understand your infrastructure there in terms of collections.
We would work with close to 16,000 agencies in 2,000 towns in India.
Right. And all these this is for all the products or just for your consumer products here, consumer and
Of course, all products. Of course, all products. The first, The company is verticalized on business, risk, underwriting and collections. So if there are 15 key lines of businesses, we'll have 15 different collections heads and collection structures. And they may have distinct collection agencies or common collection agencies, but distinct teams within collection agencies.
Right. And out of these 16,000 agencies, how many would be in the top 10 cities?
40% of our business comes from top 10 cities, reasonable to assume 40 not be 40%, it's more consolidated. It will be probably 20% of the agencies will be in top. Atul can respond. Atul used to be our collection debt earlier. He is now the CEO of BHFL.
So what happens generally is when we say 16,000 agencies, because we work in 2,000 towns and cities, as you go below the absolute volume per location is low. So you will have more people when the agency there may represent 1% or 2%, but when you come to top city like Bombay, one agency can represent even 200 So FOS or number of agencies would not be a right criteria. Basically, you have to look at it only in terms of a basis of volume, the people are available to collect in each of the market.
So just to get back at the number, 40% of your business comes out of top 10 cities. That's the correct number? Yes. Sure. And my second question is with regards to your leaning towards the existing customer, as in 70% of originations are for the existing customer.
But then this existing customer lies within the same slowing down economy that you and IR. So how is he any different from the new to credit customer or any other customers?
The basic principle of banking remains that existing customer is lower risk. It is not no risk, right? So it's lower risk. Yes, I have to do business. We remain committed to growth on one hand, and we remain committed to sustainable growth on the other.
I understand that part. What I'm to allude to is that which you have also alluded to that the entire economy is slowing down or is in a slowdown. The festive season hasn't been great. So this existing customer is also part of the same economy that you and
I are? So if he's part of the same economy and if he's not behaving properly in some place based on bureau data, I would also not offer him.
Okay. Then he he is he likely to behave improperly or has he in the past six months?
That goes to okay, we are not seeing. The EMI card customer has not moved okay, both have moved. New customer has moved much worse off than existing customers.
Can you put a number to that, please?
What kind of what would you mean by number?
Any zero dpt for new customer or 30 dpt for a new customer, any kind of
When in public domain in the past, their existing customer gives 0.25x loss versus new customer gives 1x loss.
So has this changed? Has this proportion changed? Hasn't changed. Okay. Sure.
And just one last question, if I can squeeze in. In your commercial lending, which you do to your auto ancillaries, now auto ancillaries are also slowing down.
Sir, please stay connected to the line for the management has dropped. Ladies and gentlemen, the line for the management is reconnected.
Hi. So my last question is for your commercial lending, where we are lending to the auto ancillaries. Now I understand we do it for the Bajaj auto ancillaries. But then auto ancillaries, in general, are also slowing down. They have had plant shutdowns.
So how do we see that particular book growing? Any kind of incremental risk management strategies in that particular book itself? Yes.
So we don't do only to Bajaj. It is only 40%. It's a consolidated supply chain. Those who work for Bajaj, in general, there would be very few people who do only work for Bajaj. In 02/1928, the industry the auto ancillary industry went through a structural change where they realized that too much reliance on a single OE represents existential challenge for them.
So in general, in the last twelve, thirteen years, the entire auto ancillary industry has created its own model, small or large or medium, that they only do particular amount of business with a single OE, industry structure. We don't do only Bajaj, we do we lend to auto component manufacturers After the ILNFS incident, after the ILNFS incident, after the ILNFS incident, after the ILNFS incident, after the ILNFS incident, after the ILNFS incident, after the ILNFS incident, after the ILNFS after the ILNFS incident, after the ILNFS incident, after ILNFS incident, after the ILNFS incident, after the ILNFS incident, after the ILNFS after the ILNFS incident, after the ILNFS incident, after the island Of S. Incident, after island S. Incident, after the island of S. Incident, after the island of incident, after the island of S incident, after the island incident, after the of incident, island of incident, after the island of after island of S incident, after the island incident, after the ILNFS of incident, after the ILNFS incident, after the after ILNFS ILNFS incident, after ILNFS incident, after the Island Of S incident, after the Island Of S incident, after the Island Of S incident last September.
But otherwise, all parts of our other parts of our FICC businesses continue to grow in a healthy manner.
Sure. Thank you so much for your time.
Thank Best of you. Next question is from the line of Par Sangvi from MK Global. Please go ahead.
Hi, sir. So just a quick question regarding to the balance sheet. So I see like a big jump in the other receivables compared to the same item as on 2018 and 2019. What is this attributable to?
I don't know. I'll let Sandeep respond. So other receivables, so we had a mutual fund sell down at the second of the quarter end. And the money came in on the first day, which is after the working hours of thirtieth September. And that's what shown as other receivables instead of being shown as investments.
Okay, okay. Got it.
Thank you. Thank you. The next question is from the line of Piran Engineer from Motilal Raswal Securities Limited. Please go ahead.
Yes, hi. Congrats on the quarter. I just have a couple of questions. Firstly, in the HFC subsidiary, I've noticed over the last few quarters that our cost of funds is 50 bps, 60 bps lower than the parent. So firstly, am I right?
And secondly, how is it that we get such a low cost of funds around 7.4%, 7.5%?
UNIDENTIFIED No,
to answer the cost of funds in BHFL hi, Atul here is same as BFL. So our cost of funds for the last quarter is also in the same range of 8.4% to 8.45%, which remains. The reason for you see a higher NIM or a higher spread is because the HFC as of now is much more capitalized than the base the capital level required. So the spread looks lower. But consequence is not different.
No, but I mean, I'm just doing the simple math of dividing interest expense by the borrowing book. So like INR371 crores divided by average borrowings of INR22000 INR23000 crores. And I've seen that for the last few quarters that the cost of funds is significantly lower and even compared to other HFCs like HDFC and all, it's much lower. So I just wanted to know if there's some allocation of interest expense to the parent? Or is that a correct way of looking at it?
No. So nothing of that sort. Two things. One, this is a growing balance sheet. So the monthly acquisition of borrowings is not same as the quarter divided by three.
So that's one point. Second, if you notice in the current quarter, we have borrowed a lot of money at the SAG end, which we have parked in the investment as well. So when we are calculating the interest cost to average borrowing, you are counting the borrowings raised at the FAG end of the quarter into the average number. So once
you correct that, you will
come to a number close to 8.4%, 8.45 And there is no transfer or allocation because both BFL and BHFL borrow independently, separately on their books. There is no cross transfer or allocation between BFL or BHFL.
Okay. Got it. Got it. And my second question is basically in digital products financing, what percentage of our customers are new to BAF and what are existing? Because my assumption was that digital products customers are a subset of the consumer durables customers, in which case the delinquency should have actually been lower than consumer durables.
So is my thinking correct or
It is correct, except even the existing customer who takes a refrigerator versus takes a mobile behaves differently. It means more likely to default on the mobile? Yes. Yes. Conceptually, it's correct.
Same customer for a panel same customer behaves differently for a panel versus a refrigerator versus a microwave versus a mobile. There we run them as six different businesses, not as one. The risk metrics change. You may be offered a refrigerator, but may not be offered a mobile. Vice versa won't happen.
But so that's one part. Second, digital products would be 75%, 78% existing customer because going back to the earlier conversation, we have tightened underwriting standards. So newer customers, right now, we are not encouraging that much in digital products. So on an overall basis, digital products, if we are 70%, digital products will be 7578%. Okay.
It's 75%, 78%.
Understood. And what would be the LGD in these products?
Yes. So if you look at, let's say, crossing bucket three, which is, let's say, NPA bucket, the provisionings are generally in the corridor of 80%. So that represents the LGD in digital and consumer electronic business. Of course, if the customer crosses five, six installment overdue, then the LGD becomes 90% plus.
Okay. Understood, understood. And just lastly, on Nischen's question on credit cost. Rajiv said that by the time you reach Stage two, you make 21%, 22% provisions. I didn't really follow that.
If you could just repeat what you meant?
Yes. So once the customer moves from all installment paid on time to customer with one or two installment overdue, we end up making anywhere between 16% to 24%, 25% provisioning on the account. Now it varies product by product. If you take an example of consumer electronic or digital product, maybe the number moves almost to a 40% level. If you take an example, let's say, of mortgage business, the provisioning may be in the corridor of 15% to 18%.
And this has changed under the ECL model, is it?
Yes, exactly. It is ECL model based on statistical empirical evidence. As I said earlier, for AC, it can be different and for a PC, it can be different and different for, let's say, digital product. But on aggregate, anywhere between 2018% to 20%,
2% in A and
So what your point was that earlier, since it was a standard asset, you made only 40 bps of provisioning, but now you're making 16% to 24% of provisioning on that thirty to ninety day bucket?
Yes, that's correct. Between Bucket bucket one and three, any which was, it was all the GA, and we would provide whatever was our conservative provisioning standard. Now even as accounts move from one and one to two, on the incremental flows, as Sandeep said, between 1822% gets provided for.
The next question is from the
line of Dhaval Gada from DSP Mutual Fund. Rajiv, congrats on good set of numbers. Just one question on the rural business. I just wanted your thoughts around the 30 plus sort of rising, and I was checking the heat maps where we used
to give data Mr. On Gara, sorry to interrupt, sir. Please stay connected while we reconnect the management. We have the line for the management connected. Mr.
Ghara, you may go ahead.
Yes. Sorry, Rajiv, just so checking on the rural business and the 30 plus seems to be on rising there. And if I go back in history where you used to share the overall rural lending 30 plus data, This number in the B2C and probably even in the B2B segment seems to be at the upper end. So I just want to understand what what level are you comfortable doing business here? And at what point do you say that this comes into the sort of yellow category?
That's the first question
metrics of the business actually, just a structural level to the earlier point that I made, margins are better, credit costs are lower, access is harder, which means the moat is stronger. If you just compare, let's say, rural lending B2B business with a blend of on two panels prior on with consumer durable and digital, you see distinctly better, safer, stronger rural business. It is just that we are doing comparison. So even in 98.87 or 84 basis points, 30 plus, leading to, let's say, 40 basis points loss rate business relatively looks worse off, but that is not so the case. So we remain our internal models show that we can go far far lower.
That is not really how we run business. We have pruned between January and June in the Rural Lending B2B business and B2C business around 20, 25% of the business in the last six months. So because we do see it as important profit mode. We do see it as an important profit mode and want to hold the current standards of underwriting and business risk metrics.
Understood. And the second question that I had was on the I mean, you sort of partly answered that earlier as well, but just some color more. On the new to Bajaj customer base, what are the triggers that one needs to sort of watch out from outside to get a sense that engine, which you're sort of filtering it far more prudently today, sort of gets back to the normal sort of momentum that we used to see maybe Credit a couple of
costs should come down. We should go back to 150,000,000 155,000,000 We'll be fine.
So it's very
simple, right? I mean at the end of the day, all the English will be of no consequence if the credit costs go up. So as credit costs start to go down by I'm hoping reasonably by the fourth quarter end, we will hopefully be back to much more stronger growth from a durable growth. Ladies
and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Karan Singh for closing comments. Yes. On behalf
of JM Financial, would like to thank Mr. Rajiv Jain and the senior management team of Bajaj Finance and all the participants for joining. That concludes this
conference.
Thank you, Shil.