Ladies and gentlemen, good day, and welcome to Bajaj Finance Q2 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. I am pleased to welcome Mr. Rajeev Jain, Vice Chairman and Managing Director, and Mr. Sandeep Jain, COO and CFO, and other senior members of the management team. I now invite Mr. Rajeev Jain for his opening remarks, post which we will open the floor for the Q&A session. Thank you, and over to you, Mr. Jain.
Thank you, Morgan Stanley team, for hosting us. Very good evening to all of you or good morning, depending on the geography you are in. Welcome to the BFL Q2 earnings call. The investor deck for Q2 has been uploaded on our website. I hope you have had a chance to go through the same. I will quickly focus on key updates for the quarter and our management assessment before Q&A. I expect to take between 15- 20-odd minutes. Let us quickly jump to panel four in terms of the quarter gone by.
Overall, I would say it is an excellent quarter with strong performance across all key metrics of AUM, new customer addition, credit cost, profit growth, ROA, and ROE. AUM, as you can see, grew by 26.5% to INR 584,624 crore, delivering net AUM addition of close to INR 38,000 crore in a quarter. PBT grew by 29% to INR 8,537 crore in Q2. This is before the macroeconomic provision that we have created of another INR 320.
INR 337 crore.
INR 337 crore, to grew by 34% to INR 8,874 crore. PAT grew by 29% to INR 6,367 crore. Before macro overlay provision, it grew by 34% to INR 6,619 crore. In Q2, company booked just a tad below 13.5 million new loans and added 4.5 million new customers. Overall customer franchise stood at just a tad below 129 million customers. ROA for the quarter came in at 4.6%, and ROE came in at 20.6%. OpEx to total income was at 33%, and net NPA came in at 42 basis points. Overall, I would say a pretty good quarter for the firm, and first half for the firm. In general, AUM growth was pretty secular. I will quickly go through. I jumped actually to panel 52.
If you see, the growth is pretty secular. Urban consumer finance grew by 43%, rural consumer finance by 63%. MFI, though on a low base, grew 54%. CV and tractor on a low base grew 89%. LAS grew 42%. Captive book, as you are aware, as I have been talking for the last two quarters, continues to wind down and would create significant tailwinds for us in terms of credit costs as we move forward. It is now down to just INR 2,400 odd crore. MSME grew by 3%. It should now start to grow actually. So we should start to see, as we get into second half, a double-digit kind of growth momentum in the business. Gold loan book portfolio continued to grow.
It is now 4.1% of the balance sheet. It was just a tad above INR 24,000 crore as of Q2. We added 320-odd gold loan branches during the quarter. Total network is now across 2,000 branches. It is at 2,022 branches. And we remain quite clear about ending the year with close to 2,800-odd standalone gold loan branches. The rest of the business, as you can see, grew in the corridor of 20%-30%. So overall, pretty secular growth across all lines of business. In a way, if I look at the gross loan growth, because captive book is dialing down, you should add another INR 1,000 odd crore.
That is virtually INR 39,000 crore of book growth that we are principally talking about. These are fascinating numbers even for me, I would say. I did not imagine we will be growing quarterly between INR 38,000 and INR 39,000 crore on a run rate basis, because that has been the case for the last two quarters now. I will go back to panel five, six, and seven to quickly give you highlights of the quarter. New loans grew 11% to 13.5 million. There is some level of noise in year-on-year number because last year's season was earlier. This year's season is later.
We are well on track to deliver between 60 million- 62 million new loans in FY 2027. We added, as I said, 4.42 million new customers during the quarter. We are clear about adding between 18 million, 19 million, 20 million customers, between 18 million- 20 million customers to the franchise in FY 2027. Overall franchise, I talked about, stood at 129 million, and cross-sell franchise stood at 82 million. Liquidity buffer remains strong at just a tad below INR 20,000 crore. Cost of funds came down sequentially by 9 basis points and came in at 7.87%. Deposit book is 14%. We have increased rates in Q2, and hopefully we will see some momentum here as we move forward.
OpEx to total income improved to 33%, and despite continued investments that we are making in gold loan branches, MFI branches, and technology transformation. We remain pretty comfortably placed to deliver a 25 basis points- 40 basis point improvement in FY 2027 on OpEx to NTI. Now, on credit quality, loan loss to average AUF improved to 1.56% from 1.88% last year. As a measure of prudence, we recognized, as I said, a macroeconomic overlay of INR 337 crore. Excluding this provision, the loan losses and provisions actually declined year-on-year by 12%, and loan loss to average AUF in the process would look to be like 1.32%. You may see here that the Stage II and Stage III assets actually increased by INR 1,601 crore.
It actually includes a INR 1,047 crore increase in Stage II in the gold loan business due to the short-tenor schemes that we had actually launched when the new RBI guidelines came out, and that has had an impact. We have, since August, stopped doing short-tenor schemes as a firm. We don't see any credit cost impact as a result of it. Already, out of the INR 1,099 crore, which is close to INR 1,100 crore came from gold loan in Stage II. INR 550 crore has already been resolved and has flown back to Stage I. So it's a transient movement for a quarter, is really what we see it to be, and don't see any impact on credit costs or even otherwise, or in terms of auction and so on and so forth.
Vintage credit performance across our 3MOB, 6MOB, and 9MOB continues to reflect significant and sustained improvement in the portfolio. We are reasonably comfortable with the credit cost outlook for FY 2027. Of course, we remain in a VUCA world, so we'll take quarter at a time. GNPA and NNPA, of course, if first half is to go by, we remain pretty comfortably placed on credit quality at this point in time for FY 2027. PCR remained pretty strong at 60%. GNPA and NNPA came in at 1.06% and 42 basis points. ROA, ROE, I talked about 4.6% and 20.6%.
Let me just cover now on capital raise because that's something that we announced recently. On October 1, as you're aware, the Board approved, subject to shareholder approval, INR 11,700 crore of QIP and preferential warrants by Bajaj Finserv to the tune of INR 5,800 crore, in accordance, of course, with subject to approvals by the shareholders. The Board's decision of raising additional capital is principally driven by mainly growth story of India and of the company, and its subsidiaries. That's the reason why we're raising capital.
We are also clear that without having to dilute in any given manner, the sustainability of the medium-term goals of ROA and ROE that we've actually outlined to shareholders. So it's pretty much for growth that we are looking to raise capital as we move forward. Quickly, let me now cover panel nine to 11. I won't cover too much, but we continue to double down on FinAI transformation. We now have scaled our AI unit to 328 odd people, given the breadth and the depth of the work that we're doing. The facial recognition camera technology is now deployed in close to 535 stores and 1,163 service branches. We're getting a lot of learnings from these deployments.
AI bots are now handling 75% of our DIY customer service volume. Disbursement, you can see the numbers, grew year-on-year 111%. As we deepen our understanding of enterprise AI and deploy it, we get experience, we get learnings. We're becoming more and more effective, both in terms of cost and in terms of experience of the customer and of the employee. Overall company has now 129 odd agents and 65 agentic applications. We are well on track to deliver 118 odd agentic applications and 600 odd agents for the year. So I won't cover panel 13 and 14.
Just the only point I'll cover on panel 13 and 14 is that I'll launch our first customer risk model from a risk management standpoint. We'll book 500,000 accounts in our B2B business, look at its 3MOB performance, and based on that, start to evaluate that for other lines of businesses. So it's in a testing phase. Overall, from a modeling standpoint, it does show a 15%-20% improvement in terms of our risk outcomes. Let's see how the models perform in reality, and based on that, then we'll start to take a view. We are working on our B2C model as well at this point in time.
Subject to the 3MOB performance, we would launch our B2C model as well if the performance by January for our B2B business holds based on our assessment at this point in time. Quickly, BHFL on subsidies, panel 14, good quarter for them as well. Their disbursals and AUM grew 25%. Sum of loans, which are affordable loans, crossed INR 500 crore in monthly disbursals. OpEx to NTI continues to improve. They continue to make progress in terms of, on a year-on-year basis, improved from 19.7%- 19.1%.
Their PAT grew by 18% despite a very intense competitive environment that they continue to face. ROE improved as a result of improving leverage to 12.7% from 12.2%, and their asset quality remained pretty healthy. BFSL had a good quarter. PAT grew 36%. It added 121,000 customers. To summarize, and then open it up for questions, overall, I would just say that the first half principally demonstrates the strength and scalability of our business model. At this scale, to grow 26% is, I would say, good growth to be in while maintaining credit costs at, as I've said, that probably it's likely that in the four years, this is likely to be one of the lowest years on credit costs.
We are well on track for that. FinAI is moving rapidly from individual deployments to enterprise-wide transformation, both for employees and for consumers as we move forward. That's really from me. Just last point on portfolio quality, which is panel 59- 62, we principally remain green on all business metrics. You may see a gold loan variation there, but I've already explained the point. As I said, 55-odd% has already got resolved, so it's a transient point. With that, I'm happy to take questions.
Thank you very much. We'll now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Please limit yourself to one question so we can accommodate as many as possible. We'll wait for a moment while the question queue assembles. First question is from Mr. Piran Engineer from CITIC International. Please go ahead.
Yeah. Hi, team. Thanks for taking my questions and congrats on the quarter. I may slip in two questions because they're short to answer. Firstly, on gold loans, why aren't you all offering short-term gold loans? Isn't that easier from an LTV perspective because you're discounting only, say, three months or six months of interest versus 12 months?
Go ahead with the second one, Piran.
Yeah. The second one is, historically, two-wheeler customers you all have been uncomfortable cross-selling other loans to. They were never part of the cross-sell franchise.
Yes.
Given the fact that your open market two-wheeler customers have significantly lower asset quality, significantly better asset quality performance, do you consider them to be part of your cross-sell franchise?
No, fair. Gold loans, Sandeep, do you want to answer?
Yes. The exact issue what we face in Q2, and that's the reason why Stage II has gone up to about INR 1,100 crore in gold loan business is on account of short tenure schemes. See, for a customer to come every three months to the branch
Yeah, fully.
for making full payment/payment of interest, coming for rollover becomes very cumbersome. Accidentally, customer gets into delinquency. Once a customer gets in delinquency, the only way the customer can resolve the case is by making the full payment of principal and interest, which is not necessarily the most appropriate thing for the customer. As a result, I think what is more appropriate, and we are working on that at Bajaj Finance, is to offer a longer scheme, let's say of 12 months that we were offering always.
But to set up customers who want to pay regular interest, give them option of making monthly and quarterly interest payment as well as an initial option. This will solve both the issues. One is customer can make frequent payment of interest and reduce obligation. At the same time, need not have to come to branches again and again for rollover of the loans.
On two-wheeler, answer is yes, Piran. On two-wheeler, answer is yes, because we are clear we want to run open architecture two-wheeler at 30%-35% of our credit cost. But the customer segment principally doesn't change. In principle, the answer is yes. Pool is likely to be low. That's how I would answer it. Sorry, you had a follow-through on question one, I think.
Yeah. The only follow-through was what percentage of the gold loan customers would take bullet loans versus, say, quarterly or monthly installment loans. Because I would presume bulk of them would be bullet.
Piran, today, you're right. The bulk of them, 99% of them are today under bullet repayment.
They can continue to take bullet, but take nine months or 12 months. They can always come and prepay earlier prior because there's no friction, exit cost.
Exit cost, so they can always within three or six months.
It is better not to push the customer into delinquency and then auction and so on and so forth. The wiser thing to do is to give him a longer tenure.
With the flexibility to repay.
And has the flexibility to repay rather than anything else. So that is at least our assessment and learning, and we will principally stick to that.
Thank you. Then I will request you to come back for a follow-up question. Participants, please limit yourself to one question per participant and rejoin for the follow-up. Next question is from the line of Chintan from Autonomous. Please go ahead.
Hi. Thank you. Can I ask one on the I have got three, four, actually, I am just trying to prioritize. Let us go with asset quality. In MSME, you have seen GNPA continue to deteriorate. What sub-book is driving that? Also broadly, GNPA going up 10 basis points in the quarter. You have talked about gold, but any other areas that we should be thinking of in terms of where stress might be building? Related to that, broadly, how should we think about consumer debt to asset kind of capacity?
In which areas do you think consumer leverage is still low enough that you could comfortably lend? Because it does feel that coming out of the last cycle, consumer leverage was high. It slowed down a bit, but like you highlighted in the last quarter, not a lot. Just wondering how you think about this philosophically.
Look, so the first point is on asset quality. On MSME specifically, we are seeing it is nothing as per growth. There is no denominator growth. So you should actually see this number as a peaking number. Okay? So it is pure mathematics and nothing else. That is how I would answer the MSME flat growth. You are likely to see GNPA and NNPA go up. When we look at the 3MOB, 6MOB, 9MOB, we are looking at numbers principally closer to 2019, which is really, I have articulated many times, better than that. As Sandeep is saying, we are seeing better than that, actually.
So we are very comfortable with the MSME 3MOB, 6MOB, 9MOB, and development MOB book because we started to make changes in the nature of origination from last July onwards. So I think that is just point number one to your first point. On your second point, we do not see at this juncture any blind spots. It is a learning. We realized in August sometime that while in April we launched based on the set of changes that came in from a regulatory standpoint, and the entire industry launched three months, we also launched in three months. It is a learning we have taken and changed track quickly. It has not been an easy one, I must make that point to you because industry still continues to do three months.
We are clear we do not want to push the customer into default stroke delinquency, and the regulations and the guidelines are very clear. If you flow into default, you have to pay fully. Otherwise, you do not come back into regularization and so on and so forth. There are other unintended consequences for a non-monoline company that I then cannot lend to that customer if he flows into delinquency for any other product as well. We don't want to be in that space. On your third question, which was related to—
Actually, just before that—
Look, consumer leverage remains. Sorry, Chintan. Consumer leverage remains a consumer-per-consumer play rather than a generic point. As you are aware, we continue to see consumer debt-to-GDP grow a little slower but continues to move forward. We are in public domain over the last three years that 3PL is a single univariate metric that continues to trouble us. We have brought that down from 14%- 7% in terms of origination.
My mandate to the team is to bring that down to 3.5% in the six months' time. That's really where we are principally headed. Despite, as I said, I am looking at ultra-low credit metrics because we have seen that a customer who has multiple pieces of points of leverage has a higher probability tendency to flow into default. So we will keep bringing down the 2PL, 3PL number business-by-business further. Further means by half, or we'll halve it by March again.
By Feb.
Yeah. As Sandeep is saying, by Feb. So that's really what our proactive stance is. It's bottoms-up customer, and leverage as a central dimension of our risk assessment process.
That's fair. On the GNPA, the 10 basis point increase, it's in a number of areas that's adding up to it. Clearly, your target is to hit 1.4%. I don't want to make a big deal out of it, but there are a number of areas showing increase. That's why I asked a general question on that GNPA.
Yeah. No, that's fair.
Chintan, I think the right metric from a comparison perspective as you do compare between Q1, Q2, Q3, and Q4 is to look at Stage II and Stage III together, which has actually improved from 1.9% to 188 basis points, including gold loans, is what we have also communicated in the presentation. The movement in the GNPA, it goes up in quarter two, mainly on account of number of days being higher in Q2 compared to Q1, which means that one additional month of GNPA flows in quarter two.
Always.
Always, and that has been the case always. If you look at past record also, that's how the numbers would show up. This is mainly on account of number of days, nothing to do with portfolio quality or getting built up in the balance sheet.
Fourth quarter is the lowest.
Yeah.
Because number of days are lesser.
90 days, yeah. Due to February.
Thank you. Thank you for that.
Thank you. A request to all the participants: please limit yourself to one question per participant. Next question is from the line of Kuntal Shah from Oaklane Capital Management. Please go ahead.
Hi, team. Thanks for the call. My specific question is: what are the reasons you see this overlay, and how does it relate to earlier overlays or a permanent change in the ECL models, basically? How do we think about frequency and size of such discrete overlays going forward versus embedding them in ECL model itself? How do we visualize it?
This is over and above ECL model, Kuntal. Point number one. That's why it's overlay. I think that's just a first point to clarify, which means it remains available to the management to use. I think that's just first point from a clarification standpoint. I'll let Sandeep respond to—
No. Is it a policy to have overlay in good times to release in bad times?
Okay. I'll just make a point before I. Okay. Is it to build resilience? Answer is yes. Okay? The fundamental reason for creating overlay, let me articulate, is not because we see stress building. But I want us to remember always that this is bulletproofing of the business. It is for resilience. We are a cyclical business. We will see credit costs go up marginally, credit costs go down marginally. Okay? It is for those marginal periods of when we go to two point. We went to a peak of from 1.75%- 2.15%. Let me give you a cycle view of us as a firm.
That's a very low cycle view. Somebody could argue that we go from 1.75% in a low period to, historically, now the number would reduce further, as I've said, to 2.15%. If you see the last two years being, that is really a cyclicality for us as a firm. We would like to further strengthen that, I would say. Narrow the band further. So that we can, in a cyclical business, reduce cyclicality. Which is what we call resilience. Is the way we are thinking about the business model. Sandeep, you want to add something else? I think I have—
Kuntal, very clearly, we continue to rest our model on empirical data, which is what anybody would build a model on. That is point number one. Point number two is, while we do look at forward economic factor and guidance to look at what kind of overlays one should have from macro perspective, which is an internal part of, I would say, ECL framework itself. At times, it fails to capture the potential effect of what is happening in the real world. So let me give a clear example. El Niño that we are seeing in the country. We are at 87% monsoon at this point in time. All the oil price, which is now constantly hovering at $100- $110 kind of price.
The cascading impact of this on the economy, on the interest rate, on the inflation is very difficult to factor in the macro model. That is where the management judgment comes into picture. Let me also be very clear. It is not a perfect science. It is an estimate of the management in terms of a portfolio could get impacted. We believe at this point in time, unsecured businesses barring salary because salary may not get impacted so much because of oil price and inflation, but the self-employed customers could really get impacted.
We have done stress testing on those set of customers and propose a higher provisioning on the customers who are in Stage I in the unsecured non-salary portfolio. We have also done stress testing of Stage II outstanding of the customer and propose additional provisioning on there. We did not do stress testing specifically on Stage III because Stage III, if you remember last year in quarter three, we have already introduced LGD flooring, which captures, I would say, a significantly higher provisioning coverage than what is required for the kind of portfolio that we manage. So I think keeping in mind all of those things, we keep doing this on a quarterly basis. Based on the evolving and emerging situation, we decide if there is a need for us to have overlays.
The statistical modeling technically could argue the 60% floor.
Yeah.
It probably needs to release today.
Right.
Let me make that point. I will compound your point further. You will say that means you have more than even this. The answer is probably yes, but we are just focused on the resilience. I want to make one last point, Kuntal. Sometime very soon, we will cross the point of where the largest non-bank merge into bank. One, we would be proud of that moment as and when it happens, but we are also seized of the importance of resilience in our balance sheet that is needed to continue to grow from there on and get to, as per last year, I say INR 11 lakh crore number by FY 2030. That is all I would just say from a last point standpoint.
No. Thanks. This really helps. Can you just quantify what is the current stock as of today of macro and management overlays?
The overall macro provision stands at about INR 226 crore. If my memory serves me right, that's the number. On the management overlay side, we have created a provision of INR 512 crore. INR 185 crore was taken in last quarter, and INR 327 crore we have taken in the current quarter. Apart from that, the LGD flooring that we have created would also carry a number between, say, INR 350 crore-INR 500 crore of additional provision that is already sitting in Stage I, II, III assets.
Mainly because the actual number of the empirical data may suggest a lower number, but because we have applied the principle of LGD floor, we continue to make provisioning at a higher rate. So that number could be in the region of INR 350 crore-INR 500 crore is what our estimate at this point in time is.
Wow. Thanks. This is good conservative stance, and thanks for this clarification.
Thank you.
I'll join the queue.
Thank you very much. Participants, please limit yourself to one question per participant. Next question is from the line of Kunal Shah from Citi. Please go ahead.
Yeah, hi. The first question is on growth guidance. Last time you said you would review post the second quarter. You said it's very fascinating to see almost 26% growth, plus the capital raise is also up for the growth story. What would be the growth guidance here onwards for near and medium term? That's the first question. And second, in terms of the overall margins, cost of funds are down 9 basis points. But given that we are in the rate hike scenario, we had still seen some margin compression and NIMs on calculated basis appear to be down. How do we see once cost of funds start to see up? What is the outlook on margins? Yeah.
I would say FY 2027, two quarters gone. We are seeing the early onset of festival first nine, 10 days. I would say probably between 26%, 27% growth, we should deliver now on a full year basis. I think that's just medium-term, we maintain a guidance of 23%-25% on a year lower here and a year higher there. That's the second point. On NIM, clearly at this point in time, we are baking in two more increases in the current year that would take us to 6% kind of rates.
You would see marginal moderation on NIM as we move from here. We should be able to manage comfortably, is what I would say, in terms of NIM. Because part of that would come from OpEx to NTI. Part of the save would come in from, of course, from credit cost, as you're seeing. Overall profitability and return ratio, we should be able to continue to navigate, is what I would say to you.
But moderation in NIM would be only marginal. That's what you are suggesting.
Yes. At this point in time, yes.
Okay.
Until—
Got it.
You've seen, I think, a 10 basis points, 12 basis points compression in Q1- Q2—
Yeah.
I think H1 NIM over March is about 5 basis point lower. The Q1 was marginally higher. Q2 was 10 basis points, 12 basis point lower than Q1.
Yeah.
We are seeing moderation in NIM. It remains manageable. We remain confident that-
From Q2 level, not much of an impact on margins.
I am not saying that. That is what you are saying. I think we continue to remain in a cost of fund increase environment. We are mindful of it. In the last quarter, we have done significant amount of interest rate hedging. That has brought down the cost of fund effectively in the last quarter at BFL and BHFL level, and that is what you would have seen in BHFL as well. But as the repo rate goes up, it will also have its cascading impact coming in quarter three and quarter four.
I would bake in, at this point in time, a marginal additional compression versus what we had given as a guidance at the beginning of the year. So far, we are 5 basis point down versus beginning of the year on first half basis. I had given a guidance of 10 basis points- 15 basis point compression the current year. I would say carry a marginal headwind to that number other than anything else.
Perfect. This is useful. Thanks for answering all the questions.
Thank you, Kunal.
Thank you. Next question is from the line of Viral from IIFL Capital. Please go ahead.
Yeah, hi. Thanks for the opportunity. I had basically, I would say two parts to this question. One is on the fee and the non-interest income. Currently we are running at 20% growth run rate, significantly ahead of what we have guided. The other part to this is basically there are some, I would say, headwinds or overhang on this number, may not be from maybe, say, this year's perspective. One is basically some bit on, say, maybe Flexi, most importantly on, say, the insurance piece, which is there.
How do you see this, say from FY 2028 onwards, if the current insurance norms remain where it is? And given that we do have some benefit that can come through from the MDR on UPI as well, right? Given finally we can monetize the entire network that we have built. How should we think about this?
Yeah. So, the H1 non-interest income has grown by 20%, right? In general, our guidance was 16%-18%, but as we outlined in Q1, and same is true for Q2 because of stronger growth in our B2B businesses. I think that's just point number one from here. Overall fee base is diversified, includes some parts of discussion documents, which are in public domain, some parts of draft regulation. We are continuing to strategize. So we remain comfortable in a longer term.
We should be able to sustain a 15%-18% fee income growth, is what I would just say to you, Viral. At this juncture, given that both papers are regulatory in nature, we have a set of strategic thought process that we are working on, which we'll deploy as the regulation comes, is what I would say. At this juncture, it's very premature, but we're working on it as management and have our plans ready.
Got it. Just one more follow-up on one of the previous questions, Rajeev, which is the gold loan. Over there, I understand you are focusing on the longer tenure product, keeping a customer interest in mind, but that will also effectively curtail our LTVs or rather the ticket size that we can offer to the customer, right? Because of the embedding of the entire interest in the loan. Do you think that this can be a challenge, say from a customer acquisition standpoint in the near term, given that competitors—
I mean, we have to run a business keeping in mind interest of the customer, interest of the company, and what is long-term sustainable. That's really how we build businesses. We are very clear that a short tenure loan doesn't work for the customer, doesn't work for the company, and is not sustainable. We fundamentally remain focused on organic expansion. That's one part, in terms of distribution expansion. Two, mining our franchise. Three, as I articulated last time, focusing on our mining franchise through digital infrastructure, which is a differentiation, is really how we've chosen to build the business.
We remain comfortable that it can navigate through the competitive intensity without compromising on the margin profile of the business. That's the last point. Given the intense competitive activity, there's significant noise on the pricing. This business is supposed to be fundamentally a profit builder. That's really the goal of the business rather than an AUM builder. That's really how we have organized ourselves in terms of the business model, and that's what we intend to remain focused on, irrespective of the noise on what it means. We make the choices. I'm very clear about businesses that we build, that we make the choices. Makes it a little harder, makes it a little longer to play through. We'll take the long route.
Viral, from a customer sensitivity perspective, that's something that we laid out very clearly as part of last year's LRS. We are very clear that we'll do what is right for the customer. We believe that structurally, a longer tenure bullet repayment model serves the customer better versus a short tenure, which may give more LTV, but eventually puts the customer into default position, which is not necessarily the objective of working with the customers for gold loan business. I think we are very clear. Irrespective of what market does, we would prefer offering a little longer tenure scheme to the customer with a bullet payment option the customer is used to. Even if it comes at a smaller—
Slower growth.
—slower growth, we are quite okay with it.
Got it. Just one last piece I think you mentioned about. Sorry. I think this is just completing Kunal's question. I think Kunal asked you on growth and you responded on growth and margins. Just one piece that is remaining is on the credit cost front, right? Given that we are significantly, I would say, including the overlays also, running closer to the lower end of your guidance, how do we kind of foresee the rest of this year?
Rest of the year, we should look at it in the same corridor, is what I would just say to you. A similar corridor.
Thank you.
Thank you. Next question is from Avinash Singh from Emkay Global. Please go ahead.
Good evening. Of course, on capital raise, you have outlined the growth as underlying thing. But if I look, your profitability, also the possible stake sale from your subsidiary Bajaj Housing, and also the timing in the past at Tier One level when you had, I would say, much of in advance or to prudent. So what exactly, what kind of a growth?
Because you have too many questions, including your current Tier One. So that is kind of course, such a large capital raise plan at this early stage. Second, on insurance thing, if at all this regulation, assuming it were to come through, will you remain an open architecture or there will be some kind of a rethinking of distributing your own group's product or that, irrespective of commission regulation, you remain an open architecture? Thanks.
Yeah. So I will take the second one first. We will wait for the final regulations to come to make a decision, is what I would just say. It is a discussion paper. It has to get converted into draft regulations and then regulations. No point in speculating at this point in time, is what I would just say to you. As I said earlier, we are creating multiple scenarios for us as a firm as to how will we navigate while protecting our fees and margin. So that is the only point I would make. We are clear about the medium-term guidance on fees and margins.
So that is point number one. Point number two, your question is principally on capital. As I said, it is principally for growth. As I said, we added close to INR 38,500 crore in the quarter itself, a 26.5% growth. I am not changing, I must say to you, the longer-term growth guidance of 23%- 25%. I think it is important to make that point clear because that is a good number to compound at the levels we are in. In a year, we may grow 27%; in a year, we may grow 23%. But long-term compounding is really what we are principally focused on, coming from underlying quality of the business and the margin profile of the business.
So just at a philosophical level to make the point. The third point which is important, which I would like to highlight, and we have been covering that in our Investor Day for a long time actually. I will break this into two parts because, as you said, we could use it to dilute, do dilution in BHFL rather than raising capital. One, last three years ago, we raised INR 10,000 crore. Since then, exactly the balance sheet ending this year would have grown 90%.
Double.
Double, actually. In three years, we've actually doubled, so I should be raising 20%. I'm raising or looking to raise 17.5%. I think that's point number one. So in absolute, the number may look large, but in terms of previous raise to balance sheet growth, and during this period, we have continued to deliver if you take core ROE of between 19% and 20% on a three-year basis. So size or the quantum is actually smaller than what we raised last time. We could very well raise part of this, you are right, from BHFL dilution. We have three years' time. That's point number one. It remains we are on track within that timeline. We have to do this.
This would give BHFL some more time as well to transition their business model closer from super prime and prime to prime and near prime, and allow them to migrate their business which would be eventually a lot more beneficial to BFL shareholders. Because at the end of the day, we intend to remain 75% holder. We today are 87% holder. So when we take a longer-term view and look at the transition that BHFL is undergoing at this point in time, we think we want to give them a little more time to repivot the business which they are very well on track to. That's why I articulated that some of our loans are now INR 500 odd crore a month.
I think exiting the year, they would be at INR 800 crore a month. Should continue to probably get to INR 1,300, INR 1,400 crore a month sometime by third quarter of next year. That's really how their plan is organized around. Hopefully, that gives you answer to all the three questions in terms of quantum, one. Two, why not raise through BHFL dilution? And three. Last point, leverage. I made the point and then I passed it. We show in our resilient business model that we have historically raised capital. We have kept bringing down the rate at which when do we raise capital, the leverage ratio has kept coming down. We used to raise at 6x. Last raise was at 5.4x?
5.4x.
5.4x. We think from a sustainability of the business model, given the size of the firm, we will probably start to raise at between 5x and higher. So we will lower the corridor from 5.5x- 6x, to 5x- 5.5x. We are right now at 5 point?
One.
One. So that is really the thought process in terms of wanting to raise capital, become more resilient, make the rate really bulletproof is really the principal objective.
On RBI revolver loan, any update? Based on that amendment described, what could be any exposure of yours kind of falling under the definition of revolver? Thanks.
It is a draft, as you are aware. Comments have been submitted by everybody. We hope that RBI would find a middle path which creates sustainability on one hand, protects the customer centricity on the other, and helps innovation from a way forward standpoint for non-banks. That is my expectation. We will see what it comes out to be. Let us assume for a moment that RBI decides that it is a complete ban. There will be transient impact on AUM and a marginal compression in NIM and profitability.
We will abide by what RBI has to state and work along. We are already launching a set of different variants of term loans on November 1st which do not allow, of course, withdrawal but has some more attractive features to ensure that we can find a middle path in the term loan structure. That's something that we are looking to launch by November 1st as well as a firm. We both insurance this. We would like to act as a firm rather than wait. Least it does is it creates greater diversification and more resilience. Most it does is it augments growth. Either way, I would say we are in a better place than just probably wait, is what I would just say. I hope you answered your question.
Thank you.
Next question is from line of Abhishek from HSBC. Please go ahead.
Yeah. Hi, good evening, and congrats for the quarter. One question on gold loan. I think one of your peers just said that in this calendar year, around INR 4.5 lakh crore of disbursals have happened to customers who are deeply delinquent. That is 90 DPD+ . What are you seeing if you've looked at this number? Second—
Sorry, can you repeat?
—in your own disbursal.
Sorry, repeat the number, Abhishek.
Around INR 4.7 lakh crore of disbursal.
Yeah.
So far in the calendar year.
[Non-English content]
Right. In gold loans. What are you seeing in your numbers? Are you seeing this in the overall industry numbers? Are you seeing a progression of your customers into, say, GS2 or even GS3, apart from the INR 1,047 crore that you mentioned is short duration, et c. So underlying trend, is it worsening or are you seeing delay payment, anything of that sort?
Okay. Abhishek, the rightful metric is not disbursal in this business. The average book itself is six, seven months.
Yeah.
I think that's the point to remember. Disbursal is a vanity number. AUM is the rightful number. If you ask me the better number from a core underlying growth is tonnage. We actually track tonnage.
Sure.
Is my tonnage growing or not? Okay. So that's I think the fundamental metric is tonnage. Real metric, because gold price go up or down, what is the franchise value is tonnage, or growth in tonnage to determine growth in business. Second is AUM. Disbursal doesn't matter. Disbursement is actually quite inconsequential. Now coming to delay metrics, we don't see any. We are in that sense, this Stage II moment is a little bit of learning for us.
And that's why we've taken what I would call a tough action that we've taken, that this is how the business should be organized. Whereas I must say, Abhishek, this is for the record, that in general, gold loan companies are not organized this way. They are very comfortable with Stage II. They wait for things to go into Stage III and then do auction. In general, our assessment is that auction is not a rightful metric. Auction is not liked by any constituent, is how I would simplify.
Right.
So it's better to manage it through risk rather than manage it through auction, is how we have taken a position to be, and that's how we will build the business out. And we remain committed to continue to grow the business, as I said, organically and using our franchise and using our digital infrastructure.
Yeah, I guess, Rajeev, the intent was to understand what kind of tonnage or what kind of customer is getting the loan. Are they already leveraged somewhere else?
Yeah.
So that you don't see any adverse.
No, we don't see. We are not seeing any movement. We are not seeing any movement. In that metric, the average ticket size remains between INR 2.2 lakh, INR 2.4 lakh, INR 2.5 lakh. We are not seeing any structural change versus a year ago to today. At this point in time and during this time, gold has dropped off from INR 5,400- INR 4,200. We continue to hold LTV of 75% at this point in time.
Inclusive of interest.
Inclusive of interest, as Sandeep has clarified.
Got it. Rajeev, the second question is if I look forward into 2028, 2029, couple of headwinds to revenues are there, right? Just maybe something on the revolver piece, insurance piece, maybe even cost of funds-wise. Do you think you can protect this at the operating profitability level? That is through maybe cost or yield. Or do you think you can lean on your credit cost, which is anyway running below where you're guiding for this year, and that will come in use to protect your ROA. So which part of the ROA tree would you have more control on and so on?
Okay. So one, as management, we are paid to deliver long-term guidance. I think that's point number one I must make to you. So far, we are supposed to find answers. I think let me simplify that point. Since COVID, there has been no dull moment. Either credit cost is going up or growth is stronger or profit is stronger or ROA is stronger or ROA is weaker. So I think there's no dull moment since COVID. We are now used to, we or all management should be used to no dull moment in building business or running businesses.
For every action, there is a reaction. For every action, we have to find a strategy. We are committed to find a strategy. We'll hold to our long-term guidance. It may mean acceleration in top line. It may mean marginal slowdown in fee income. It may mean OpEx growth is slower. It may mean never say never, loan loss go further down. See, we have to deliver the long-term 20%-25% profit growth to investors and 19%-21% return on equity. We are reasonably agile as a firm. We'll mobilize to deliver that. Long-term shareholders, you have to just wait for a little bit of time if action is very significant, is all I would just say. You may say I'm talking philosophy, I'm not talking philosophy. I've run the firm for 20 years, so trust me.
Sure.
I know what I'm saying.
Of course. No, thanks for answering and all the best for the future. Thank you.
Thank you. Next question is from Shreya Shivani from Nomura. Please go ahead.
Yeah, thank you for the opportunity. I have just one question. It is on your rural book, both consumer finance and personal loan. The portfolio credit quality on the slide 59, 60, I don't think there's a very dramatic change for September, little bit of uptick in Stage II for rural consumer finance sequentially. But any color around what is our thought process going into the second half for our customers from the deeper pockets, given that we've heard some noise around droughts in certain states, et c. How are we thinking about disbursals in these segments? Probably geography-wise. Any color on that would be useful. Thank you.
It's a fair question. We've been watching the El Niño movement. We've been tracking all the 720 districts. We are aware of the districts across the country where drought is declared. We've been pruning business, watching the monsoon movement now for the last three, four months. This includes reduction in MFI business in some of the districts. It includes a reduction in business in our B2B business, not only rural, even urban, because to us, urban is 500+ cities. Anything after 125 cities, I would say to you, is rural at one level, at a fundamental level, if I may make the point.
Actions have been wherever 3MOB starts to move, which means it starts to reflect the underlying pressure point, we act. Actions have been taken. As I said, no dull moment. You see all this, don't believe it's in a cruise mode. We've been pruning back, as I said earlier, that we've taken a proactive call that 3PL will drop from where it is today at 7%, in terms of origination to half. Business to business, in some business, zero. Where I have no margin, it will be zero. Is the decision management is made, and we are going about it.
We still think, given our relative size to size of the retail or total business in India, we can still continue to grow comfortably. So we have acted. At this juncture, it does seem Maharashtra is probably most impacted, and Maharashtra is very large for every lender. Whichever part of the business you take, given just the sheer per capita and its GDP contribution to the country, there are certain parts which are more effective than otherwise. We've acted in some, we are acting in some, we are continuing to take a whole host of actions to manage the prune business and navigate through that.
Right. 26%, 27%—
I would just say thankfully, it's still better than what we were originally estimating four months ago.
Yeah.
That I would just say it covered ground. Till June it was looking much worse, quite honestly. So coming in at 87% LPA is a much better number than it seemed as a 30-year biggest El Niño. So it's much better than it was expected to be, but some districts are much more affected than we would have liked them to be. Sorry, your point.
Yeah, I was just saying 26%, 27% non-gold guidance is inclusive of all these calibrations that you have already made and are planning to make.
Yes.
Thank you, and all the best.
Thank you.
Thank you very much. Ladies and gentlemen, we will take that as our last question, and now hand the conference over to Mr. Rajeev Jain for closing comments.
Yeah. Hello. Thank you. Good night, and talk soon at the end of Q3. Thank you. Thank you all. Thank you for patient listening. Thank you for questions. Thank you.
Thank you very much. On behalf of Bajaj Finance team, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.