Ladies and gentlemen, good day, and welcome to Bajaj Finance Q2 FY 2024 earnings conference call, hosted by Morgan Stanley. This event is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. Please note that this call and your questions will be recorded and may, in certain circumstances, be distributed to clients and/or made publicly available. By participating in this event, you consent to such recording, distribution, and publication. All participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. I will now hand the conference over to Mr. Subramanian Iyer from Morgan Stanley to begin. Thank you, and over to you, sir.
Thank you, Nadia. Hello, everyone. This is Subramanian Iyer from Morgan Stanley. Thank you very much for joining us for the Bajaj Finance Q2 FY 2024 earnings call. To discuss the results, I'm pleased to welcome Mr. Rajeev Jain, Managing Director, Mr. Sandeep Jain, Chief Financial Officer, and other senior members of the management team. Thank you, Rajeev and Sandeep, for giving us the opportunity to host you. So without further ado, I now invite Rajeev to take us through the key financial highlights for the quarter, post which we will open the floor for Q&A. With that, over to you, Rajeev.
Thank you, Morgan Stanley. Thank you, Subbu, Subbu, for hosting us. I have with me some of my colleagues here, Anup, our Executive Director, Rakesh, our Executive Director, a few other senior colleagues in the room here. I'll take you through the investor deck, which has been uploaded on the investor section of our website. I'll refer to that. So without taking too much time, let's just jump right in to panel number four, which is our executive summary. So I would say good quarter across all financial and portfolio metrics. AUM grew by INR 21,167 crore. We booked over 8.5 million loans in the quarter that went by, added 3.58 million new customers.
The Bajaj Finance wallet now has just a tad below 45 million customers. Overall AUM crossed INR 290,000 crore to end at INR 290,664 crore, growth of 33%. OpEx to NIM continues to hold at 34%, which is really where it was last quarter as well. PAT grew by 28% to INR 3,551 crore. ROE crossed the hurdle rate of 24% to come in at 24.1%, and Net NPA remained pretty steady at 31 basis points. If you move to the next panel very quickly, I won't make all the points, but I, I've talked about AUM growth, I've talked about AUM, new loans booked, I've talked about.
B2B disbursements came in, well, grew by 31%, came in at INR 18,610 crore on a year-on-year basis. New car financing business has gone live. We are now present in 85 locations. We are quite excited about the business that's the way it's kicked off, and festival season is anyway right here. Microfinance pilot got launched on first of September. It's in a pilot based in 12 villages in India, in UP and Karnataka, and 100 locations are on track to go live by March 2024. And all goes well, next year we'll have 300 villages in India by March 2025. Our customer franchise, I talked about it, 303.6 million addition.
Over the first half, we've now added 7.42 million customers, new customers to the franchise. Franchise is at 70, just a tad below 77 million customers. I think we are pretty confident that we'll add this year, between 13 and 14 million, new customers. Added 106 locations, to the overall, location footprint, and now at 3,907 odd, 3,934 odd locations. Liquidity, buffer stood at INR 11,400 crore, so remain pretty strong. Q2 cost of funds came in at 7.67%. Sequentially, it grew by 6 basis points.
Deposits booked, so liability focus remain as strong as the asset side grew by 39% and 250, just a tad below INR 55,000 crore. Operating efficiency, so overall, NIM grew. NII grew by 26%. NIM compression in the quarter was 14 basis points on a sequential basis. OpEx to NIM continued to hold steady, as I said earlier, at 34%. Employee headcount crossed 50,000 people. We added 4,500 people, and annualized attrition at this point in time is at 13.5%, versus same time last year, when we did not publish this metric, it was 18.6%. So clearly, we are headed in the right direction, as a company, on employee attrition as well.
Credit costs came in at INR 1,077 crore. We released 100... 100 crore, Sandeep? 100 crore.
Hundred crores.
100 crore of management of macro overlay was released in the current quarter. Okay, it's right there. GNPA and NPA pretty strong at 91 basis points and 31 basis points. You can see a movement of 4 basis points sequentially and 3 basis points. It's just daily DPD frame rather than anything else. That if you have any question, that Sandeep can answer later or Fakhari can answer, but there's no movement there except for days. So it looks the best in the fourth quarter, just to give a texture. It looks flattish in the second quarter. It looks,
Flattish in the first quarter.
Flattish in the first quarter.
Then Q2 has the noise of 92 days in a quarter, resulting in higher flow of GNPA.
... Quarter three is flattish. So Q1 and Q3 are flattish, Q2 is a little elevated, and that's how it will be every year, and Q4 is better. So, so that's how the daily DPD moves. So you will see that it's very marginal, but just to make the point. Stage 3 assets, as you can see, continue to be in the right direction. Risk matrix, except B2B businesses, remain all green, except B2C, which is yellow. That I've talked about, PBT I've talked about. Annualized ROA came in at 5.16%, as against 5.41% mainly NIM compression, which is slowly bringing it back to pre-COVID levels.
Overall, on a full year basis, we feel that there's another 25-30 basis points of NIM compression that will happen between operating leverage and so on and so forth. We should be able to sustain a 5% ROA on an exit basis as we deliver the full year. Capital adequacy remains strong at 23.2%. Tier 1 capital of that was tad below 22% at 21.88%. Just two updates.
I mean, you're aware of this, the Board of Directors has approved raising capital to the extent of INR 10,000 crore, INR 8,800 crore through QIP, and INR 1,200 crore through preferential allotment to Bajaj Finserv , to the promoter of the company, which is Bajaj Finserv. So that's, that's just one update. And second being, Pennant Technologies , in which the company has entered into a binding term sheet for an acquisition of a 26% stake in the company, for an aggregate amount of INR 267.5 crore, valuing the company at INR 875 crore. That's quickly... I'll just jump quickly to Omnipresence update on page 11. All metrics are moving in the right direction.
Downloads 16.5-17 million in a quarter. Net installs are 45 million. In-app programs, 134. Remain among the top five on Google Play Store. 35% of service requests are now coming through the app. UPI handles, bill payment transactions, they're all moving in the right direction. We continue to remain highly focused on app and web metrics, and the momentum remains pretty strong. I think that's on panel 13, quickly. No, panel 13. Just on key financial metrics. Next slide. Yeah. Panel fourteen, sorry. 13 or 14 for them? 14. On panel 14, pretty much very steady. As you can see, H1 FY 2024, INR 62,000, INR 195 AUM per customer.
PAT per customer is, is just a tad below INR 1,500. Cross-sell franchise move in the right direction. All metrics are moving in right direction. We remain pretty comfortable with the ability to mine the franchise and continue to generate similar outcomes as being so, as you can see on this panel, for the last seven, eight years. Jumping right quickly to try and end of it, so that I can open it up for questions on portfolio mix. As you can see, all of them, two panels, 50-52 or 51? 252. As you can see, everything remains within the corridor. Consumer durable lifestyle, 99.51% current. Two-wheeler, three-wheeler, 94.5%, 94.71% current. Digital products, 99.41%.
Urban B2C, 98 point- so all of them remain better than February 2020. Other than while even rural B2C, move to the next panel. Even rural B2C is just a tad below where it used to be in February 2020, but we, from a management assurance standpoint, we, as you can see, the Stage Two is used to be 110 basis points is 140 basis points, and that's why it's a, it's a yellow. Otherwise, in general, we are, we are pretty comfortable on all credit metrics. Just one last point I wanted to cover on PPC. We've added a new panel, which is panel number 41. It's a new panel that we've added.
This used to be earlier, where five, six years ago, as our product portfolios continued to move, as various products have gotten added, whether on lending side or on the payment side, it was a question from various investors that, "How is your PPC being moving?" So what we just... I'll take two minutes to make the point. There are four key blocks in which our product per customer is broken up in. Lending, all lending products of the company, distribution of products and services, all value-added products and services of BFL and partners. Deposits is fixed deposit and systematic deposit plan, which is FD. And payments is any one of them being bought by a customer, as taken as one payment product, is really how they're being slotted.
As you can see, as of 2021, we used to have five products per customer, and there used to be two colors. As of FY 2023, there are now three colors. It has moved from five products per customer, on the left-hand side that you see, to 5.81 products per customer. As of first half of the year, at this point in time, it's looking like 5.97 products per customer. 35-40 basis point, 0.4 is now payments product. On the right-hand side is as customers get onboarded, principally, how do they move in 12 MOB, 18 MOB, and 24 MOB, is as they complete. So if we are originating more and more customers, the left-hand side will look a little suppressed.
But so both have to be looked at, that in 24 months on board, because in the last 18 months, principally, we've onboarded 19 million new customers. Last year was 12 million customers, and this year, first half, 7.5 million customers. That's 19 odd million customers. So as their mind and as they warm up to, they become more engaged using digital assets and otherwise, their take-up rates improve. So that's look at both of them independently is the only point. With that, I have come to the end of my points that I wanted to raise. Happy to answer any questions between me and the management team members. Subbu, over to you.
Nadia, I think we can start opening the question queue.
Of course. Thank you very much. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to withdraw your question. When preparing to ask your question, please ensure your phone is unmuted locally. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Thank you. Our first question goes to Antariksha Banerjee of ICICI Prudential. Please go ahead.
Yeah. Hi, I'm audible, right?
Yeah, you're audible. Very much.
So, thanks, Rajeev. Two questions. One is, you know, starting from the point that the rural B2C is still flagging red, and I think last quarter we had spoken about some analysis that we were conducting on the leverage of customers and how that's moved. Any update you would want to share on that and any portfolio actions that you have updated since then?
Yeah. So we wanted to really publish. We are ready, but principally, bureau technically did not allow us to publish that, rightfully so. But we can share some update. I mean, you know.
Sure.
We want to publish it. So look, the way it's looking like is if you take 2020, 2022, and 2023, in terms of count of loans that India was disbursing across all personal loans, have grown from 4.5 odd crores to, by 2022, it had grown to 7 odd crores to, by 2023, it had grown to last year, it was 10.5 odd crores, 10.7 crores, to be precise. The largest growth, principally it seems, was in less than 50,000, where... and in 8 lakh+ . Okay? Just at a frame level. So-
Right.
That, that's level two input for you. On an AUM basis, however, the less than 50,000 contribution to the total and the total AUM looks to be like 13.5. Grew from INR 750,000 crore in FY 2020 to around INR 1,350,000 crore. Okay? Treat this data as 98%-99%. So take it at a trend line level rather than with a 1-3 percentage, if I may say so, adjusted for-
Sure.
Adjusted. Otherwise, directionally, these numbers are... So 7.63 lakh crore has moved to 2.5 lakh crore to 13.5 lakh crore. What it principally says is that, the, the, at an industry level, the 93.73% of the total balances of 7.65 lakh crore used to be current in FY 2020. That number in FY 2022 was 91.75% current, and that number in-
Mm-hmm.
FY 2023 is 92.21% current. Industry level, okay? This is industry. When we-
Sure.
Look at that versus us. We look like in FY 2020, we were at 98.2% current. As of 2022, we were 97.12% current, and as of 2023, we are at 98% current, you know. So when we look at this data, what it also told us is that less than INR 50,000 is really where a lot of corrosive outcomes are. And what level two has told us is that, principally, those who have more of them doesn't mean they are more leveraged, but those who have more of them are more leveraged. They are more imprudent, sorry, not leveraged. I clarify and I reemphasize the point. They're not necessarily more leveraged, they're more imprudent.
So what we have done is we've cut between 8%-14% of the business in urban and rural, 14% in rural and 8% in urban, as a preventive measure, to those who have more smaller ticket loans, while they may be short-term in nature, represents imprudence. So that's really... We would have liked to publish this data because it would help, you know, it will help you guys. But for technical reasons, we could not publish this data.
Sure. But, Rajeev, is it-
Only I want to make a last point, since we are fully-
Sorry, sorry.
Since we are fully seized of it, we are looking at this data very closely on a month-on-month basis and taking decisions to ensure we continue to protect the credit risk and portfolio risk in the company.
Just two call out from my side. I think,
Sure.
Rajeev called out in the beginning of the call itself, take the rate with a pinch of salt at this point in time.
Yes.
This is based on our internal analysis of how we understand the data to be. That's point number one. Point number two is the portfolio health that Rajeev referred to. We have taken into consideration customers with no delinquency all the way up to 179 days overdue.
18 days, yeah.
Customers beyond overdues of 180 days overdue were ignored because the right of policies to various action that respective banks and NBFC would take, we are not privy to that. So for comparison perspective, point of view, we have only considered customers from no delinquency up to 179 days overdue.
It's an-
Sure.
Important call out, so take this data from it. But we have for all portfolios. Let me make that point. It's not just for unsecured, we're now doing because the overall supply side, as I keep making the point, across asset classes has increased significantly. So it's not just for unsecured, it. This principle applies to all our product lines, and we are acting—we've acted across product lines, as a company, to,
Sure.
To make sure that this improvement, and it shows up. So you may have a home loan with 3 BNPL, shows up that if you have 3 BNPL, you, your loss, your default rates look to be 2-2.5x, even for home loan. Just as an example to make the point.
Mm-hmm. Got it. So just-
Go ahead.
One follow-up, Rajeev. Based on this exercise, do you conclude that the larger ticket, INR 8 lakh+ or even maybe the INR 5 lakh+, if it is more overlapping with our customer base, despite having grown so fast, is relatively less of a problem, at least at that point?
So if you look at 8 lakh +, in FY 2020, the number looked like 291 basis points. 8 lakh+ in FY 2022 is looking like 90+ , I'm talking, is looking like 128 basis points, and 8 lakh+ as of FY 2023 is looking at 115 basis points. This is industry. Okay?
Got it.
We were 28 basis points, in FY 2020 we were 31 basis points, and we are at 18 basis points. So yeah, we do conclude that adjusted for less than 50,000, numbers in general of greater than 50,000, 51,000 and above are looking lower than FY 2020.
Got it.
Yeah.
Sure. Thank you. I just have one other different topic, and I'll not take much time. This is regarding the capital raise. I just wanted to understand what are your plans of utilizing this capital in the mortgage business versus the non-mortgage side of the business, especially given the fact that the housing business is supposed to live separately as per regulations?
I mean, you know, so principally, that listing is eight-nine quarters away. As of now, it's eight quarters away. I have said in public domain that we have promptly placed requested for extension. It's principally, capital adequacy, as you heard me, was 21.88%. Strong growth-
Sure.
in both sides, both BFL and BHFL. H1 2024 momentum, if I look at it, is, has been the strongest that we've seen in last four years. We virtually added INR 43,000 crore on a consolidated basis. Even BFL has, is launching a whole lot of new lines of business, right? non-Bajaj Auto, has gone live. We are now doing 20,000 non-Bajaj Auto two-wheelers a month. LAP in BFL has gone live. New car financing has gone live. MFI's pilot, I just talked about. Tractors going live on January 1. Emerging Local Corporates in BFL going live on, in December. so clearly there is action on both sides, of, of the, of the balance sheet. and we are prudent allocators of capital. so at a fundamental level, we'll...
I can, all I can tell you is we'll prudently allocate capital, and those who generate the sustainable return on equity would get capital for all our lines of business. I don't mean entities. I mean, those... and we are very capital prudent and very... Lastly, I think, you know, since you talked capital raise, we've always raised capital and consistently demonstrated our ability to effectively deploy it effectively and deliver medium-term ROE goals. So even while we have one year to raise capital, even as we raise capital, we are clear that the short-term stroke medium-term goals of ROE hurdle rate that is established will not be compromised in any given manner.
Sure. That is well appreciated, Rajeev. Thanks for your time.
Thank you.
Thank you. The next question goes to Viral Shah of IIFL Securities. Viral, please go ahead. Your line is open.
Hello. Yeah, congrats, Rajeev and Sandeep, on good numbers. So while you answered the first piece of my question on leverage, just wanted to clarify that is it possible to do that, if not now, but maybe next quarter once the capital raise is done, if that is a constraint for putting out the data in terms of leverage at the customer end?
... We'll try and work closely with the bureau because it will be, we are not the constraint. We'll work with the bureau and try and assist.
Okay.
Maybe if they deem appropriate that you guys again reach out and work with them, that's also probably. We would assure you that we'll try our best.
Thank you. And just incrementally on the other piece of question is within the housing finance subsidiary. So right now, the mix of home loans LAPs, it's actually sub 60%. And because of the opportunities out there in the market, I think we are seeing opportunities in the developer and LRD segments. But what is the timeframe over which you have to reach 60%? Is Atul here?
I'm Atul here, so I'll answer this question. Regulatorily, we are required to have a 60% asset mix by 31st March 2024. That's a RBI guideline. And against that, as of 30th December, we are at 59%. See, the definition of a residential housing varies as per the regulation, so that includes 50% of an individual home loan, which has to exclude top-up. When you see the published figure, when you see at a home loan at 56%, actually the home loan, individual home loan, which is excluding top-ups and the other VAS product component, is roughly around 51%. Then, up to 10%, you can have a CRE- RH, which is called an amount lent for construction of residential dwelling unit.
When you add both, as of today, as of 30th December, we are at 59.01, which is very close to 60%, which is required to be 31st March 2024, and we intend to meet that before the regulated regulation given time.
Okay. So fair enough. So there is not going to be any incremental material delta from there in terms of mix change even from now?
Yes, because right now it is 59.01. So 59.01 has to move to 60%, and that we have a good six months. Our attempt would be that before, up to 31st December, which is Q3 itself, we should be reaching that number of 60%, what is required on 31st March 2024.
Got it. And just one on last piece of question, Rajeev, was in terms of when I look at those panels for different products, so what I see is that for some of them, the Stage Two has come down and probably the stage three has gone up. So whether you look at B2C. So this is the phenomenon that you were referring to earlier, right? Nothing-
Yes.
incrementally to read into it?
Yes.
This is exactly, thing that we are referring to..
That's panel 49.
The customers were stuck because of daily, day overdue logic into Stage Two in the last quarter. And because of 92-day quarter, that is 31 days of July, 31 days of August, and 30 days of September, these customers have moved from 89 days to over 90 days in the current quarter.
Okay. This will happen, it should correct in the third quarter, basically?
Yes. Yes. Third quarter, as Rajeev explained, it will be a normalized quarter. Some noise will come in Q4 again, where because of number of days in the quarter being lower, one may see one month of skip in terms of GNPA classification.
We just want to clarify to everybody that because we bank on second, it's important.
This phenomenon is pretty specific to us because in most of the businesses, the banking due date for the customer is second of the month. That creates this anomaly of customer getting stuck to 89 days, at times, in a given quarter.
The 99% of the banking across the entire 24 million, 23.5 million customers with banking, we would be today at, on the second of the month.
Okay. So just, just to get it right, so in the quarters where you, where the number of days are higher, you will see the more slippage into Stage Three, right?
Yeah. This is specific to Q2. You know, fortunately, we have only four quarters in a year, so it can't be more than one quarter. This is specific to Q2. Q2 normally ends up losing out, and Q4 happens to be gainer, because of days overdue logic.
Got it, got it. Makes sense. Yeah. Thank you. That's it from my end.
Thank you. And the next question goes to Piran Engineer of CLSA. Piran, please go ahead. Your line is open.
Yeah. Hi, thanks for taking my question, and congrats on the quarter. Just wanted to understand, you know, your NPLs in B2C, both urban and rural, are pretty much similar, but, you know, we have green in one and yellow in one. And same thing for SME, which is an unsecured product, you know, at NPLs of 1.25%. So I just wanted to understand why we treat them as different in terms of our outlook.
Yeah.
And secondly, will we expect, you know, like, we've seen growth in rural B2C slowing down this quarter, will we expect it to slow down in SME and urban B2C next quarter onwards?
It's purely data dependent. At this point in time, the only place where we are, where we have a stance of... In fact, let me make a point, and I made that last quarter, that principally, rural B2C slowed further. It grew year-on-year, first quarter, 17%. Actually, you saw the numbers, 20, when I had clarified it had gold loan. In second quarter, it's actually grown only 12%. So it's pure, data dependent as we feel. Now, that's one part. Second, as I've said, Piran, that technically I can tell you it's green, but we are exactly stating what I'm-- it's a man... The greens and the yellows and the reds are management assurance. What do we assess?... the, position to be. That's an important point, is what I would just want to make to you.
If you go to urban B2C, okay, you see our Stage Two at 143 basis points and 95 basis points, okay? Whereas here, it's 109 basis points and 141 basis points. So at a, at a and leave even the number, it could have been even 109, or 120. It is possible may, we may have still given management assurance at yellow. I think that I just want to clarify that point.
Sorry, how did you get 95? I thought it was 1.19. I'm looking at slide 48, so am I-
I'm sorry.
Reading.
GNPA.
I'm looking at Stage Two. Go to 51.
Okay.
52, which is really where we provide management assurance off. This is, so if you see urban B2C, panel 52, you have to see. Okay?
Okay.
You see 143 basis points, and you see 95 basis points. This is urban B2C. If you see the next panel, which is rural B2C, you'll see 109 basis points and 141 basis points. And you're starting to see it come off, okay? So it's possible by February or so, the business would start to grow again, is really how.
Okay.
Sandy, do you want to make?
Yeah, I think, Piran, couple of things-
No, I think.
Yeah, the only confusion is slide 48 and 52, because, 48, when I just look at the numbers numerically... Okay, fine. This is GNPA, and you're referring to Stage Two. Fair enough. Sorry, carry on.
I think, Piran, one more thing.
Stage Two moves to GNPA, always. So the early matrix is what is the current, what is a Stage Two and then Stage Three. In our business, we like to catch things in early buckets rather than in late buckets, at a philosophical level.
Yeah. And I think, Piran, what you are seeing is position on a given day, which is for respective quarters. We are also looking at eventual flow into losses. So what you are not able to see is the bounce rate, you are not able to see collection efficiency, and the eventual loss that's flowing in the PNL. Based on that, we also determine whether a particular business should be tagged as green or should it be tagged as yellow. At this point in time, we believe rural B2C should be tagged as yellow, and we should take corrective action, which you have already taken.
Growing a lot more slowly, because that's what we can do.
And-
Okay.
Maybe probably 1, 1 quarter from now, if we, if we find things are looking better, the internal portfolio bounce rates, efficiencies, and flow to losses are looking better, we may, we may restart growing the business back again.
Got it. Got it. And then secondly, on your LRD book, and that's been a strong growth driver, can you just give us some more color on the book in terms of, you know, how much of it is, say, malls versus offices, or who the type of landlords are, et cetera? I know in the past you've said that it is even safer than land.
Do you want me to name?
But, yeah, no, no, names. Okay, that's fine, but some comfort around it, because it's grown to, like, $2 billion now.
So I'll give you the complete picture. Now, so what we do as a LRD product, we, by definition, we generally don't do retail malls. We do generally a Grade A commercial. It's a, it's a, 12-year-old business for us. We have been doing earlier there, and we have always seen an impeccable behavior. Now, on a basic guard rails, generally, mall and the retail malls are not done. It is except barring one exposure, which is at a REIT level, where we have a retail exposure. It is. The business has always been 100% current for us, irrespective the size. It is generally the lease, the rentals are to Fortune 500 companies, mostly to MNCs in the IT sector. It's a Grade A commercial.
So 100% of the portfolio largely would be Grade A commercial, with retail being only one, where the corporate, large corporate, is there, which is a REIT exposure, where- which is a REIT, non, non-Grade A commercial office space. Lessees are all largely Fortune 500 companies, and all cash flows are escrowed. By normal definition, as a escrow to... The receipts in escrow to the discounting the EMI requirement, we have a clear buffers of close to 30%-40% kind of a buffer from it happens, and that escrow compliance is strictly adhered to. Just to give you a total comfort that-
Last point. If there were ever butterflies in the stomach on this business, that was March 2020 till March 2022. Because we thought work from home is the new future. What would happen to this portfolio? This portfolio, even between March 2020 and March 2022, we did not see a single instance of default. You know, if there was ever a event that those 24 months were the test case, much harder than every, any other portfolio. For this, because they were all empty, and renters had to keep coming.
So, one last data point on this, to just to give more... Our total vacancy in our LRD portfolio is 1.6%, against a total commercial market vacancy of close to 15%-16%. So the vacancy levels, even this, and we normally have a large cushion in the cash flow to, there, the total vacancy at the portfolio level is 1.6%. Because we get to know through-
Yeah, the escrow receipts.
The escrow receipts. Absolutely.
Got it. Got it. Okay, this is, this is very useful. Thank you so much, and all the best.
Thank you.
Thank you. And the next question goes to Abhishek Murarka of HSBC. Abhishek, please go ahead. Your line is open.
...Thank you. Hi, Rajeev and team. Congratulations for the quarter. So, just one question on this, NIM guidance. So you said another 30 bps of compression to go, mostly due to an increase in cost of funds, and pretty much unlikely that, you'll see any kind of yield compression here?
Abhishek, yes. I think, if you look at the overall interest rate curve, it's, it's significantly volatile in recent times. This is based on our assessment of situation as of today. We believe cost of fund is heading, northward. Of course, as I said, as I said, volatility has remained, in place for quite some time now. I think the bigger thing is replacement of old, monies that get borrowed for two-year and three-year at very, very low price. They are coming from maturity and renewal. As the renewal takes place for us and for the industry, the cost, cost of fund are set to rise, and I think a significant portion of them are coming from maturity between the next quarter, and probably early part of Q4.
So I think it'll peak out by Q4, but clearly, second, third and fourth quarter, we will see, replacement is the largest driver.
In fact, if you notice, in the current quarter, movement in cost of fund was quite marginal, but I think,
Exactly.
It will catch momentum in Q3, probably.
Got it. Very unlikely that you would have space to increase yields from your, in any of the segments?
Yes. Yes, we never diluted, we never... The answer is yes. Other than our variable businesses being 32%-33% mortgages, that's one part. Two, the commercial balance sheet, which is 7%, that's 40%. Another 5%-6% is less. So 46% of the balance sheet has variability, rest of the balance sheet. Of course, competitive activity may not allow us to, but just from a variable-
Yeah.
-to-fixed balance sheet component standpoint, 54% is fixed and 46% is variable. But staying with the last point, I would say, and that's really where, you know, we've been continuing to invest in building our, doing in, in our digital transformation, in omnipresent strategy. And as I said, over the last two quarters, we have peaked out. So clearly, operating leverage will start to play through. It's playing through already for the last two quarters. It'll start to play through, more so as we, as we move from here. And there will be a moment when we'll further accelerate, expansion and, as we... So, for the next two quarters, we do clearly see operating leverage to play a bigger role in mitigating the NII compression.
Rajeev, in your OpEx, so that was my second question on OpEx. What, what is the extent of the discretionary, discretionary element? So out of, let's say, quarterly INR 3,000 crore kind of, you know, amount, how much is discretionary, which you can run down, you know, apart from banking on operating leverage to drive, drive down the cost ratios?
Look, we... I keep saying to people, we are an entrepreneurial company. If I don't want to spend the money, I don't want to spend the money. I mean, 45% is fixed, right? That's compensation, right? That's salaries.
Mm.
Rest, I can argue with you 55, I mean, just theoretically, can I, can we squeeze out, we and we did that, right? In pandemic. I, I want to make the... So it's a philosophical point rather than how much can we squeeze point. We remain a growth company, so it's not like we got to, you know, go back to the pandemic days, where we really worked hard on squeezing cost out, but we are a lot more optimal or optimizing cost, more than we are in at this point in time. So, is all I would just say, Abhishek.
Okay, sure. And just one quick question on this Pennant Technologies, if you can shed some light on how exactly it helps, what are the plans there?
Rakesh and Raghav. Rakesh? Rakesh, yeah. Go ahead.
Come close to the mic.
Relationship with Pennant actually goes a long way back.
Speak louder.
Yeah. I was just mentioning that you would have read also that it's a strategic investment. Our relationship with Pennant Technologies go a long way back. In 2016 it began, and it has strengthened year- on- year. And we are at a stage wherein we are migrating our full core backend loan management application, okay, into Pennant Technologies. So we being a core platform, and our partnership being quite good, and the founders running the company quite well, there were a lot of dimensions, okay, which made it imperative for us, okay, to invest into Pennant Technologies. As you understand, the scale at which Bajaj Finance operates, we required a very robust platform, okay? Our multiple group companies also use the platform.
Bajaj Housing Finance uses it, the full, okay, end-to-end lending suite of Pennant Technologies, and a couple of more companies are also planning to go. So at a group level also, it really made sense for us to do investment. And finally, it's we don't make technology investments on a financial basis, okay? It's more of a strategic business, what we intend to do. With the owners and the founders, okay, having the free hand on running the company, and we providing them the strategic directions and the tools which were created at Bajaj Finance and the playbooks at Bajaj Finance will help the company moving forward.
... essentially, it's strategic for us, and it's strategic for them.
Rajeev and Sandeep, you want to add?
Is the second order point that Rakesh was making. So it's strategic for both. It's not just strategic for us, clearly strategic to us as it becomes a core lending platform for us. We've taken our time. Core lending platform need to be really solid, need to be really resilient for us to take the decision to move. So we've taken... We moved product by product over a long period of time. I think that's just one, to reemphasize the point. And two, we clearly intend to help them build a roadmap for them as a company to become from a what I would call a small-sized company to a medium-sized company, and hopefully someday a large-sized company, so that we also create value for them and for us. So that's a twin objective.
Got it. Thanks so much. Thanks for all the answers. Thank you, and all the best.
Thank you. The next question goes to Kuntal Shah of Oaklane Capital Management. Kuntal, please go ahead. Your line is open.
Please, thanks for this opportunity, and, my questions are two. So, Rajeev, we have started investing upward of INR 200 crore in several companies, RBL, MobiKwik, today, Pennant Technologies. So I'm sure some of them would be a strategic partnership, some would be growth enablers, some would be learning cost, low-cost experiments. But given the 24% hurdle, what's your view and outlook? And more importantly, what is the quantum of investment we as investors can expect going ahead? And secondly, on mobile, can you share some statistics on, the quantum of origination, failed journeys or drop-off rates, DAU, MAU, churn, et cetera? Anything you can share with us on the mobile,
MAU is around 21 million. That number I know. Okay, we don't publish it. We can publish reams of data. It'll confuse you guys. So, out of 45 million net installs, the MAUs are anywhere between 20, 21 million on a... And that number is growing, okay? 90-day install ratios are rates are 78%, 77%, 78%. 76%, 77%, 78%.
Around 2 million.
Daily active user, as Rakesh is saying, is around 2-2.5 million. So, and as the payments start to play through, we will see more and more, more adoption happen. On drop-offs, et cetera, Kuntal, what... You know, these are journeys. When I say journeys, the digital transformation, we are very clear that we run two companies now. We run a offline world, and we run a digital twin. And I do now realize that why is it so hard to pull off in a company, a digital twin and a normal twin?
So clearly it's a journey, and since you raised the point, I'll make the point, that the way you see today the asset is going to go through a dramatic change in the next nine, 12 months' time. I mean, we are off to a, what I would call a, phase three transformation of the entire asset. And it's not that you will see it in nine months, you will see changes happen every quarter, because when we built this asset in December 2021, it was based on imagination. Now, the asset is being built on data, okay? So that's the fundamental shift. We had imagination about building the asset. Now we have a clear view on what leads to a raging deck, and I can go on and on, okay? So it's now being built on data.
The entire phase three infrastructure that's being created is based on hard, customer experience data, okay? So those are some 2, 3 points to you on. Now, on investments. One, we are very prudent about what we do. This is our, the first investment that we made was MobiKwik. We learned a lot from them. We didn't know mobile technology. That investment, principally, if all had gone well, would have made, significant money for you as investors, and for us as an investor. Someday, we clearly do believe still that there may be value in... That there, that investors will value the business. So that's one part. Second, was RBL, and we remain invested. They are a strategic partner of ours.
As we have 3.5 million cards that we have helped, fifth, that we have helped create, in our partnership. It's a strategic partnership. And we've onboarded 5.5 million credit cards over a seven-year journey, with them. ± I think I may, may be seeing 2-3 lakh. 4.8 million, as Manish is clarifying, 4.8 million ever cards onboarded, and we have 3.5 million card relationship with them. And as they transform the bank, hopefully, the investors would... We as investors and you as further investors in us, would realize value. The third investment we made last year was Snapwork. That is a small investment. The fourth investment we made is Pennant Technologies.
We have slotted our investments principally in three areas, of application development in one side, second is product, and third is emerging data. One investment a year is really what we think we can, we can consume, absorb, or work with. So that's really how. So only thing I want to assure you, we'll remain very prudent in the way we make investments, because we realize it's hard to make money, it's easy to spend it, and they are strategic in nature, and they go through a very rigorous process before, so our investment case rationale remains reasonably high and is one at a time. Does that answer your question?
Yeah, thanks. And just one last question. Can you care to comment on RPA and impact on OpEx, the way you visualize going ahead in next couple of years?
RPAs. RPAs, now people are not-
Yes.
People will. Okay, Anurag is saying, "I'll answer," so let him answer.
Kuntal, we'll stop using RPAs soon.
Yeah, absolutely.
So, RPAs are replacement to the APIs that we use. RPAs is a very short-term bridge that we use. In case the API development takes time, we deploy RPAs. Once the API development gets completed, the RPAs get sunsetted. So our preference to remain on APIs, which are far more scalable and far more configurable, rather than RPA, which continues to keep changing as the UI, UX undergo change. So our preference is to go towards the APIs than the RPAs.
And on the second of the month, which I made earlier point on, because we bank 23 million installments, in general, between second and third, we see 200 million-odd API hits, on those two days, because people want to come and check whether they got debited, whether the statement of account of theirs got,
Yeah.
is reflecting that or not. So, you know, it's a highly scalable, highly resilient. We've never been down, even on a single day in the last two years since we have went live.
If the reference of RPA was with respect to operating efficiency, we use it a bit somewhere in a-
The operations.
operations process. But, okay, not at that kind of a scale. We like to invest into pure technology, okay, rather than RPA.
So we automate the full picture.
Yeah, automate the full process is the goal, and it's only an in-between bridge, as Anurag is mentioning. So over a long term, we don't... Today itself, RPA doesn't contribute to operating efficiency in the scale at which you might be visualizing.
Okay. Thanks. Thanks. That really helps. All the best.
Thank you. Thank you.
Thank you. And the next question goes to Kunal Shah of Citigroup. Kunal, please go ahead. Your line is open.
Yeah. Hi. So firstly, with respect to the overall growth momentum, the way you mentioned, like, first half has been really better. We are seeing almost like 17% year-to-date growth. And given the expansion, the investments which we have done, are we more confident that, maybe compared to like 29%-31% guidance, which we had given in the last quarter, we should be much more than that, even not only in this particular year, but over the medium term, given that there is a fundraise also, which is there?
We'll take a year at a time. So clearly, can I say, given the strong momentum in the first half of the year, we're pretty confident of the year? The answer is yes. The long-term guidance that we provided, do we remain confident of delivering that? The answer is yes. Anything over and above that, Kunal, we're here to work hard, to deliver, create value for shareholders and to dominate financial services. That's all of our ambitions, right? So, I mean, you know, if you're doing well on the credit side, if operating leverage is playing through, we can continue to deliver the hurdle rates of ROA and ROE, and we have sufficient gap, but the answer is yes. We...
You know, just on a separate note, and I didn't make that point earlier when the question on leverage analysis was asked, we've seen tremendous amount of competitive activity. As part of the leverage analysis, that point also clearly came through, that we used to have a 7.5% share of this personal loan market in India, and that remains at 7.2% even now. I mean, this is despite so much intense competitive activity between FY 2020 and FY 2023. We've seen less than a 25 basis points reduction. And that is because we've tightened the screws, because we run, our ratios run at 20% of the industry in terms of the operating performance. So we do...
We remain reasonably excited about all our lines of businesses and have market share goals for each one of them. And we are in a right place to ensure that we can leverage that.
Sure. And we never had the instances of inorganic opportunity earlier, but now-
I'm losing you, Kunal.
Given that we are spreading, even in terms of the... No, we, we haven't had the instances of... Hello? Yeah, can you hear me?
Little better, but earlier, I could not hear you at all.
Yeah. No, so I was saying we never had the instance of inorganic opportunity, but now the product bouquet has also diversified, and we are getting into the newer segments. So still, would we keep the stance of maybe growing everything organically or, or we'll still evaluate anything inorganically to achieve the scale or maybe to build the businesses?
In general, on the lending side of the business, purely organic. We have the time, we have the long-term orientation. We think, we at least feel, that building lending businesses organically is a better way to go. So in the lending side of the business, purely organic. The answer is... that, that doesn't mean never say never. Maybe someday, but at least not in the, not in the near-term horizon.
Sure. Sure. Okay. Yeah.
...Thank you. The next question goes to Shubhranshu Mishra of PhillipCapital . Shubhranshu , please, your line is open.
Hi, Rajeev, hi, Sandeep. So, two quick questions. The first one is, as and when the housing finance company gets listed, how do we look at the structure of the listing? How much would Bajaj Finserv own, and how much would Bajaj Finance own? That's the first. Second is that we have alluded to a market share gain of almost 4%-5% in our LRD from 1.7% here. So if we can go segment by segment and talk out in which particular segments we are going to gain market share in the LRD, which is the five-year rolling plan. Thanks. Those are my two questions.
Data dependent, point is one. We would like to grow all lines of businesses, including B2B. If our market share, let's say, in B2B is 50%+ , you would like to grow that as well. Let me make that point. I earlier just made a point that if market share, if our market share as a company in, in personal loans is 7.2%, 7.3%, we would like to grow that as well. So subject to data dependent being defined as, if the credit is holding, you would grow the business. If credit is not holding, you would not grow the business because we are in a credit business. All lines, Shubhranshu , remain in high growth.
As you can see, even from the press release, the growth and the mix, largely you take even three years or four years, has remained steady, adjusted for ±1% or 2%. If you go to, let's say, in the presentation on portfolio mix, that would be, that would be... You know, I mean, you look at the growth rate for the second quarter, right? Two-wheeler, three-wheeler, 63, because 10% of that growth is non-captive now. So if it was captive to captive, it would have been a 50% growth. 12, 12 odd % growth is non-captive, so that's a new line of business. If you go to panel 45, you see year-on-year growth, 39, 29, 37. Rural B2C, we talked about, it's we who pulled back 38, 38, 46, 28.
So there's tremendous opportunity in each one of these lines. The composition is another thing to look at, because this is ± the composition that gives us the hurdle rate of ROA and ROE. So, if this shifts significantly, which it is not expected to shift from a business model standpoint, this is really where the corridor is ±1 or 2%, you know. So, so growth rates are strong across. Number one, composition has remained largely here for, for, I would say four years already, you know, ±1%. 1%, maximum 2%, and this is really what the composition ought to be, ± 1- 10%, and, we just sail on.
I think, Shubhranshu , as we've always said, the diversified financial services model allows us to slow down a particular business, probably accelerate a particular business, based on, as Rajeev says, data dependency. As you look at, two-wheeler, three-wheeler is showing very strong read on portfolio quality, 94.5% portfolio quality we've never seen in that business.
Never.
That is now growing at 63%. In the same vein, similar high margin business like rural B2C, but the data is not allowing us to grow. We are growing at 70% on a YoY basis. I think-
Twelve, twelve.
Yeah, 12%. So I think we do look at the business with data in mind in terms of incremental read. Based on that, we push forward, we pull back, depending on the stance of the business.
The first question, the structure of Bajaj Finance listing as now it is.
Your question is on-
Yeah. Your question is on listing of the HFL. I think, Rajeev has called it out a couple of times. It's eight quarters away from now. We have requested, and as it is, it has been put out in paper as well, in some way. We would like to request for an extension, if possible. However, if it doesn't come, then of course we'll work towards it. What the structure will be, how the listing will take place, et cetera, are something that are not known. It's too far at this point in time. I think strategy will evolve over a period of time on that as well.
If I can just squeeze in one last question. What is the revenue of Pennant Technologies as well as Snapwork, which is driven by Bajaj Finance today, and how does it look like three years from now?
So last year, when we acquired Snapwork, you know, turnover INR 57 crore, this year it will be INR 60 crore-INR 63 crore.
Sixty crores.
They're a well-run, small business, but well-run, build mobile applications for most financial services players in India. You know, so, and we're helping him, shape the business, grow the company. Finance this year-
What, what's our contribution in both? That is, that is my only question.
30%. When we bought it last year-
30% on each?
Yeah, 30. No, no. Of Snapwork, 35%.
Yeah. And Pennant is also in 30%, 40%, 40%.
Yeah. BHFL and BHFL. Yeah. Both BHFL and as BHFL, BFL put together, another 30%-35%. But they're now winning, Pennant as a company is winning contracts with the largest of the guys now in India. So, they're now clearly,
Yeah
... lending platform to go to.
That's right. So for Snapwork, like, we are expanding international markets, so this percentage is expected to go down. Our contribution to the overall revenue for Snapwork is expected to go down, and we see next 12-24 month period, the percentage will be in the between the range of 20%-25% for Snapwork. And as we- we've just invested in Pennant and-
... they have plans to expand internationally and invest further on their roadmap as they take the product internationally and more deployment in the domestic market.
Just to call out a word of caution. Pennant, we have signed a binding term sheet. The investment will take, yeah. So I think investments are subject to final negotiation and so on, so forth, that will take place of terms and conditions, shareholder agreement and so on, so forth. We expect to complete everything by 30 September, 31 December. 31st, 31st December.
Understood. This is very helpful. Thank you so much.
Thank you. The next question goes to Ashish Sharma of ENAM Asset Management. Ashish, please go ahead. Your line is open.
Thanks for the opportunity. I'm not sure if it, if it is repetitive. Rajeev, so just, just your comments on, on... I mean, we've heard that regulator has been mentioning of late, being little concerned on the growth on unsecured loans. I think in the press conference, they had clarified their concern on the, growth part only. But what's, what's your sense of, the noise around the unsecured loans?
Well, it's moderated. The growth, as we are now tracking, as I said earlier, we're tracking bureau data every month, on, it's moderate. I think there is reasonable moderation on, on, on, in terms of AUMs and disbursement, not so much on count as yet. I think that's the only added point I would make. So in terms of values, there is moderation. In terms of year-on-year growth rate on AUM, disbursement, both there's moderation, but on count, there is yet to be full moderation. But as the new FLDG guidelines kick in, which have kicked in, what RBI announced two months ago, I think, should, should moderate that as well. I think it is a great step and, and that should significantly moderate that number as well. Yeah.
And then, in case, like what we are hearing in terms of preventive action, the raising of risk weight limits, does that even, I mean, there would be some impact on the profitability, but overall it doesn't sort of change anything, I mean, from a overall profitability-
No, as Sandeep said earlier, that we have levers. There are what we call scale builders in our business and profit builders in our business, and they're not one or two, there are multiple in each line. We just orchestrate. That's really what we continue to do on an ongoing basis. You know, there are clearly, and we've demonstrated that, I would say to be moderate successfully, over time, that we don't push what should not be pushed, and we pull what needs to be pulled. So, you know, that's really what we intend to continue doing.
Perfect. Just lastly, on BHFL. So, we will be raising INR 10,000 crore. So, do we need to even infuse over the next 12-24 months in BHFL? I mean, to anything above what we have already invested?
Yes. Answer is yes. We like to run businesses on low leverage ratios, build a good quality business but with low leverage. So even a mortgage business, which today, if you take the second quarter, is at 22 basis points. GNPA is 22 basis points?
24.
24 basis points and 9 basis points. We don't go by capital adequacy. The rightful metric is leverage. So our internal hurdle rate is 7x leverage. Even for a mortgage business, 6.5-7, as Atul is saying.
6.5, we are saying.
We are at 6.5. So 7x leverage is what we have internally defined to be the rightful leverage ratio, even for a mortgage kind of business. So we would, would we... Are we committed to continue to invest in the business to build it out? Answer is yes.
Perfect. Thank you, Rajeev, and all the best for the next quarter.
Thank you.
Thank you.
Thank you. That's all the questions that we have time for today. I would now like to turn the conference back to Mr. Iyer for any closing comments.
Thank you, Rajeev, Sandeep, Atul, Anup, Rakesh, and Bajaj Finance team, for your time and insights. Wish you all the very best. Thanks everyone else for attending.
Thank you so much. Thank you for patiently hearing. Thank you. Good night.
Thank you.
Bye-bye.
Thank you. On behalf of Morgan Stanley, that concludes this conference. Thank you for joining us, and you may disconnect your lines.