Bajaj Finance, under the strategic leadership of Managing Director Rajeev Jain, is taking proactive measures to mitigate risks associated with rising defaults in the unsecured loan sector. Amid a troubling landscape for unsecured lending, the company is tightening checks on customers with multiple unsecured loans, aiming to maintain asset quality and ensure more sustainable growth.
| Table of Contents |
|---|
| Internal Analysis and Adjustments |
| Industry Context |
| Bajaj Finance’s Financial Performance |
| Cost of Funds and Deposit Growth |
| Conclusion |
Internal Analysis and Adjustments
Bajaj Finance has conducted an in-depth internal analysis identifying a concerning trend among its customer base. It found that customers holding three or more active unsecured loans are increasingly likely to default on their obligations, resulting in significantly lower collection efficiencies. This insight has prompted the lender to alter its underwriting norms, focusing efforts on addressing these identified high-risk groups.
Industry Context
The rise in defaults among unsecured loans is not an isolated incident; it reflects broader industry trends marked by a slowdown in growth for banks. The unsecured loan market is seeing a notable uptick in defaults, particularly in credit cards and personal loans. Data from TransUnion Cibil highlights a 17 basis point increase in credit card dues overdue by more than 90 days, which now stands at 1.8% as of June.
Bajaj Finance’s Financial Performance
In its latest financial reports for the September quarter, Bajaj Finance disclosed some signs of deteriorating asset quality. The consolidated gross non-performing assets (NPA) increased to 1.06%, while net NPA climbed to 0.46%, both figures representing an upward shift from the previous year’s statistics of 0.91% and 0.31%. Furthermore, loan losses and provisions have surged by 77% year-on-year, amounting to ₹1,909 crore.
Despite these challenges, Bajaj Finance has showcased growth in various areas. The company reported positive performance metrics concerning volume growth, assets under management, and operational efficiency. However, the soaring loan losses have hampered profit growth and return on assets, prompting a review of risk management strategies across its retail and SME business lines.
Cost of Funds and Deposit Growth
Amidst these financial adjustments, Bajaj Finance has also noticed an increase in its cost of funds, which has reached 7.97% during the quarter. Notably, the company’s deposit book has seen promising growth at 21% year-on-year to ₹66,131 crore, representing 20% of its consolidated borrowings. This success comes despite fierce competition in the deposits market, where Bajaj Finance has strategically sought out alternative funding sources offering more attractive rates.
Conclusion
Bajaj Finance is actively navigating a challenging economic climate marked by rising default risks through rigorous internal checks and adjusted underwriting policies. The company’s decisive actions reflect a commitment to maintaining its financial health and customer reliability in a sector that is increasingly unpredictable. The implications of these strategies are poised to shape customer management strategies and the overall direction of operations in the future.
FAQ
Q1: What actions is Bajaj Finance taking to mitigate default risks?
A1: Bajaj Finance is tightening checks on customers with multiple unsecured loans and adjusting its underwriting norms to identify high-risk groups.
Q2: What are the recent performance metrics reported by Bajaj Finance?
A2: Bajaj Finance reported a rise in gross NPA to 1.06% and net NPA to 0.46%, along with a year-on-year increase in loan losses by 77% to ₹1,909 crore.
Q3: How has the deposit book of Bajaj Finance changed recently?
A3: The deposit book of Bajaj Finance has grown by 21% year-on-year, totaling ₹66,131 crore and accounting for 20% of their consolidated borrowings.
