Bajaj Finance, one of India’s prominent non-banking financial institutions, has taken a proactive step to manage its risk by preemptively reducing its business with customers who have multiple small ticket loans. The company’s Managing Director, Rajeev Jain, revealed this strategic move during an analyst call, explaining that they have reduced their business by 8-14% in both urban and rural areas for customers with numerous small ticket loans.
Jain emphasized that these preemptive measures were implemented due to concerns about imprudent lending practices, especially to individuals with multiple small loans. While small loans may be short-term in nature, their cumulative impact on borrowers’ finances can become problematic. The move to scale back lending to such customers is a precautionary measure aimed at maintaining the company’s credit quality and reducing potential risks.
Bajaj Finance had initially planned to share data and updates regarding its leverage analysis in October. However, due to technical issues, they couldn’t publish this information as originally intended. Despite the technical challenges, Jain did provide some insights into the company’s internal analysis of industry-level data.
The analysis revealed a significant increase in the number of personal loans disbursed between FY20 and FY23. The number of loans in India grew from 45 million in FY20 to 70 million in FY22, and further to 107 million in FY23. Notably, the most substantial growth was seen in loans below ₹50,000 and those above ₹800,000. This data highlights a significant expansion of the personal loan market in India.
Jain also discussed the industry’s total assets under management (AUM), which increased from ₹7.5 trillion in FY20 to ₹13.5 trillion in FY23. This demonstrates the growth of the personal loan sector in India. However, Jain noted that despite this expansion, the percentage of loans being regularly repaid, i.e., current loans, remained relatively stable at around 92%.
Comparing these industry-level statistics with Bajaj Finance’s portfolio, Jain highlighted that the company has maintained strong credit quality. In FY20, 98.2% of its personal loans were current, and as of FY23, that figure stood at 98%. This suggests that Bajaj Finance has managed its credit risk well.
Jain explained that while borrowers with multiple loans below ₹50,000 may not necessarily be highly leveraged, their financial practices can be seen as imprudent. To address this, Bajaj Finance is closely monitoring this data on a monthly basis and making informed decisions to ensure the continued protection of credit risk and portfolio quality.
Despite the strategic scaling back of lending to certain segments, Bajaj Finance reported strong financial results. In Q2, the company recorded a consolidated net profit of ₹3,551 crore, representing a 28% increase from the same period the previous year. The lender’s assets under management (AUM) also experienced robust growth, increasing by 33% year-on-year to ₹2.9 trillion, while interest income showed a 38% increase to ₹11,734 crore.
Bajaj Finance’s emphasis on managing credit risk and portfolio quality seems to have yielded positive results, as reflected in its gross and net non-performing asset (NPA) ratios. As of September 30, 2023, the gross and net NPA ratios stood at 0.91% and 0.31%, respectively, showing a decline compared to the same period in the previous year.
