Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the debt instruments and bank facilities of Bajaj Finance Limited (BFL).
CRISIL Rating has withdrawn its ratings on non-convertible debentures worth Rs 6,175 crore (see Annexure - Details of rating withdrawn for details) at the client’s request and on receipt of requisite documentation as these have been redeemed. The withdrawal is in line with the CRISIL Ratings policy on withdrawal of ratings.
The ratings continue to reflect the Bajaj group’s strong business risk profile, given its position as one of the largest retail asset financing non-banking financial companies (NBFCs) in the country and expectation of comfortable capitalisation metrics. Further, the healthy earnings profile underpins the ratings. The ratings also factor in the strategic importance of BFL to its ultimate holding company, Bajaj Holdings and Investments Ltd (BHIL), and parent, Bajaj Finserv Ltd (Bajaj Finserv). Moreover, CRISIL Ratings believes the group’s increased focus on risk management and data analytics will mitigate inherent asset quality challenges in the risky asset segments.
CRISIL Ratings has also taken note of the Reserve Bank of India’s (RBI) direction to BFL to stop sanction and disbursal of loans under its two lending products ‘eCOM’ and ‘Insta EMI Card’ w.e.f. November 15, 2023. This is particularly with respect to non-adherence of digital lending guidelines, mainly on account of non-issuance of Key Fact Statements (KFS) to the borrowers under these two lending products and the deficiencies in the KFS issued in respect of other digital loans sanctioned by the company. BFL announced subsequently that it has temporarily suspended issuance of Existing Member Identification cards (EMI cards) to new customers.
BFL began offering its EMI card in the year 2012 as a cross-sell product through their EMI network – Point of Sale channel partners (offline). The company also began offering the EMI card online called “Insta EMI card” through digital channels in October 2020. As of September 30, 2023, the active EMI card base was 4.19 crore of which the active Insta EMI card based acquired digitally was 42 lakh. In the half year ended September 30, 2023, on a monthly basis, BFL had issued approximately 220,000 Insta EMI cards.
CRISIL Ratings believes that the EMI Card is a key component of BFL’s origination strategy as it makes it easy for the card holders to obtain new loans and also helps to reduce loan origination costs. At an overall level, existing customers contributed to 59.8% and 60.9% of new loans booked by volume for the half year ended September 30, 2023 and full year fiscal 2023, respectively. The company has taken steps to quickly roll out alternative processes to the EMI card. Nevertheless, as per BFL’s press release to the exchange dated November 15, 2023, they do not expect any material financial impact on the company with regards to this matter.
CRISIL Ratings understands that the company has already implemented requisite corrective actions after conducting a comprehensive review of Guidelines on Digital Lending and KFS and has submitted the report to RBI and is awaiting their approval. The timeliness of resolving these issues and returning to business-as-usual will be a key monitorable. |
Analytical Approach CRISIL Ratings has considered the consolidated business and financial risk profile of BFL and its wholly owned subsidiaries (Bajaj Housing Finance Limited and Bajaj Financial Securities Limited) together referred to as the Bajaj group. Further, CRISIL Ratings has factored in its strategic importance of BFL to its ultimate holding company Bajaj Holdings and Investments Ltd (BHIL), and parent, Bajaj Finserv Ltd (Bajaj Finserv).
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The Bajaj group has emerged as one of the largest retail-focused NBFCs in India with its two-pronged strategy of building scale and maximising profit. Segments such as mortgage, small business loans and commercial lending are focused on building scale while consumer durable loans, personal loans, and two and three-wheeler financing are focused on ensuring profitability.
Assets under management (AUM) of the Bajaj group continued to grow and stood at Rs 310,968 crore as on December 31, 2023, as against Rs 247,379 crore as on March 31, 2023, and Rs 197,452 crore as on March 31, 2022. This growth has been broad-based across segments with the AUM consisting of mortgages (loans against property [LAP] and home loans [34%] including LRD [6%]), personal and consumer durables loans (28%), SME loans (13%), two and three-wheeler financing (6%), rural financing (9%), loan against securities (5%) and others (5%). Given the strong growth in the mortgage business, BHFL accounted for 27% of the AUM.
Even at a standalone level, the AUM growth has been resilient with AUM at Rs 232,040 crore as on December 31, 2023 as against Rs. 180,999 crore as on March 31, 2023 and Rs. 146,743 as on March 31, 2022. This comprised primarily of personal and consumer durables loans (36%), mortgages (loans against property [LAP] and home loans including LRD (10%), SME loans (18%), two- and three-wheeler financing (8%), rural financing (12%), loan against securities (7%) and others (9%).
At an overall level the composition of the portfolio, the secured book accounts for over 52% of the AUM as on December 31, 2023, as against 55% as on March 31, 2023, and sub-50% four fiscals earlier.
Capitalisation is robust, with sizeable consolidated networth of Rs 72,728 crores as on December 31, 2023. As on the same date, the standalone networth stood at Rs 68,464 crore.
In November 2023, BFL raised Rs.8,800 crores and Rs.1,188 crores through a qualified institutions placement and preferential issue respectively. Factoring in this equity, as on December 31, 2023, the gearing levels have reduced to 2.9 times and 3.7 times on standalone and consolidated basis respectively.
The group has a conservative gearing policy. Despite strong growth in the past five fiscals, adjusted gearing was below 6 times. Each time gearing inched closer to 6 times, capital raising plans have been initiated and concluded. This is supported by timely and regular equity raise as well as strong internal accrual.
The healthy capitalisation enhances the ability to absorb potential losses on its portfolio; adjusted networth to net non-performing assets (NPAs) ratio was healthy at 64 times as on December 31, 2023 (66 times as on March 31, 2023), on consolidated basis and at similar level on standalone basis.
CRISIL Ratings expects the capital profile to remain comfortable over the medium term supported by regular capital infusion, demonstrated ability to raise capital and healthy internal cash accrual, providing cushion against asset-side risks.
The earnings profile of the group is supported by a large proportion of high-yield businesses and competitive borrowing cost. At consolidated level, return on managed assets (RoMA) remained healthy at 4.6% in fiscal 2023, as against 4.1% in fiscal 2022. At standalone level, RoMA remained healthy over 5.3% in fiscal 2023, as against 4.1% in fiscal 2022. For the nine months of fiscal 2024, RoMA was strong at 4.5% (annualised) on consolidated basis and 5.0% (annualised) on standalone basis.
The earnings profile is also supported by higher fee income and comfortable net interest margin. Additionally, the company has increased efforts to diversify earnings by focusing on various fee-based income avenues, such as existing member identification cards, co-branded credit cards and third-party product distribution. The earnings profile was supported by lower provisioning expenses of Rs 3,190 crore in fiscal 2023, as against Rs 4,622 crore in fiscal 2022. This implied credit cost of around 1.3% in fiscal 2023 (as against 2.4% in fiscal 2022). For the nine months of fiscal 2024, credit cost remained contained at 1.4% (annualised).
Nevertheless, earnings remain susceptible to high credit costs, especially during continued macroeconomic stress, despite the conservative provisioning policy. With CRISIL Ratings-adjusted provision coverage ratio at 62% as on December 31, 2023, the coverage was in line with that of peers. While BFL's profitability may moderate, it is expected to remain better than that of peers over the medium term.
BFL is strategically important to the Bajaj group as the company gets significant financial, managerial and operational support from its parent, Bajaj Finserv. BFL is one of the crucial entities of the group's financial services business and its established track record of profitable growth enhances its strategic importance. CRISIL Ratings believes BFL will continue to benefit from synergies with the Bajaj group.
The financial flexibility of Bajaj Finserv has improved supported by the performance of its operating companies, including insurance ventures. In the unlikely event of BFL requiring group support in an extraordinary situation, BHIL has ample liquidity in the form of cash and bank balance and portfolio of quoted investments to address the requirements. In addition, CRISIL Ratings believes there is sufficient flexibility inherent in the market standing of the various listed and unlisted financial services entities in the group. CRISIL Ratings also believes that financial flexibility will be sufficient to support any material requirements of BFL even if the group were to step up its stake in the insurance ventures.
Weakness:
On consolidated basis, gross non-performing assets (GNPAs) stood at 0.95% as on December 31, 2023, as against 0.94% as on March 31, 2023, and 1.73% as on March 31, 2022. At standalone level, GNPAs remained comfortable at 1.18% as on December 31, 2023. Furthermore, the write-offs for nine months of fiscal 2024 were Rs 2,892 crore.
The company has large exposure to asset segments such as personal loans and consumer durable loans (including lifestyle and digital loans), which accounted for around 48% of the standalone loan portfolio as on December 31, 2023, which are vulnerable to economic cycles. Furthermore, BFL offers flexi-loans, which have moratorium on repayment of principal across segments, including consumer B2C, SME and Mortgages.
The company's ability to sustain healthier asset quality metrics going forward while continuing to scale up operations remains a key monitorable. |
Liquidity: Superior The liquidity profile of BFL on standalone basis is comfortable with positive cumulative mismatches across all short term ALM buckets (upto 1 year) in the asset liability statement as on December 31, 2023. As on January 31, 2024, BFL had total debt repayments of Rs 41,596 crore till April 30, 2024. Against this, they had liquidity (in the form of cash, equivalents and unutilised working capital lines) of Rs 26,548 crore excluding collections. Liquidity profile is also further supported by collections of approximately Rs 20,000 crore for each month.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. BFL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable CRISIL Ratings believes BFL will remain strategically important to, and continue to receive support from, the Bajaj group. The company will also sustain its healthy financial risk profile |
Rating Sensitivity factors Downward factors:
|
About the Company Set up in 1987, BFL is a subsidiary of Bajaj Finserv (52.8% ownership), the financial services arm of the Bajaj group. BFL has a diversified product suite comprising key businesses such as vehicle loans (two and three-wheelers manufactured by Bajaj Auto), consumer durable loans, personal loans, mortgage loans, small business loans, loans against securities, commercial finance and rural finance. |
Key Financial Indicators
*Annualised |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^yet to be issued
Annexure: Details of Rating Withdrawn
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|