Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Expectation of strong support from BFL

BFL holds 100% stake in BHFL, its housing finance arm. In September 2015, BHFL received a certificate for the housing finance business from the National Housing Bank (NHB). The parent, BFL is a subsidiary of Bajaj Finserv Ltd, the financial services arm of the Bajaj group. Registered with the RBI as a systemically important, deposit-taking, non-banking finance company (NBFC-D-SI), BFL has emerged as one of the largest retail asset financing NBFCs in India. It has a diversified product suite, comprising key businesses such as vehicle loans (two- and three-wheelers manufactured by Bajaj Auto Ltd), consumer durable loans, personal loans, mortgage loans, small business loans, and loans against securities, commercial finance, and rural finance.

CRISIL Ratings believes BHFL is strategically important to BFL, being its vehicle for growing the mortgage business, which is a key focus area. Also, conducting the mortgage business through a housing finance company (HFC) enables more efficient use of capital. With BFL having infused over Rs 7000 crores from fiscal 2017 till fiscal 2022, BHFL has a sizeable networth of around Rs 10,503 crore as on March 31, 2023. BFL plans to hold a majority stake and is willing to infuse additional capital to support growth requirements over the medium term. BHFL plans to follow a conservative gearing policy and maintain capital adequacy well above the regulatory norms. The shared name also enhances BFL’s moral obligation to support BHFL.

Established track record of BFL in home loans

BFL is present in the highly competitive mortgage business since fiscal 2011 and has an experienced management team. Including BHFL, it has scaled up its mortgage book to around Rs 69,228 crore as on March 31, 2023 as compared to Rs 53,322 crore as on March 31, 2022, while maintaining strong asset quality metrics. The management has laid down prudent underwriting practices and focuses on existing customers having exposure to other banks.

All majority of incremental mortgage disbursements are done via BHFL. According to the management, BHFL will maintain its focus on home loans, which should constitute around 60% of total loans in the medium term. Loans against property including LRD, will constitute another 25%, while developer financing, rural mortgages and other loans will account for the rest.

Weakness:

Early stage of operations

As BFL’s vehicle facilitating growth in the mortgage business, BHFL has attained significant size and scale in the past three years, also reflected in its share within overall assets under management (AUM) for the Bajaj group. The company started operations in July 2017 and recorded a compound annual growth rate (CAGR) of 196% over fiscals 2018-2023 to reach AUM of Rs 69,228 crore as on March 31, 2023. Consequently, the share of BHFL in the overall Bajaj Finance group AUM has increased to 28% as on March 31, 2023. The AUM for BHFL comprises primarily of home loans (59%; around 90% loans to salaried class), followed by loans against property including lease rental discounting (16%), developer finance (9%), LAP including rural mortgages (13%) and unsecured loans (3%) as on March 31, 2023.

On the asset quality side, the gross non-performing assets (GNPA/stage 3 assets) remained comfortable at 0.22% as on March 31, 2023 compared to 0.31% as on March 31, 2022 and 0.35% as on March 31, 2021. Further, BHFL has restructured book of Rs 123 crore or ~0.2% of the loan book in line with the resolution framework for COVID-19 related stress provided by the Reserve Bank of India (RBI) as on March 31, 2023. Although asset quality performance has been healthy, significant proportion of the portfolio has witnessed strong growth over the past few years and remains under-seasoned. Therefore, the company's ability to manage collections and asset quality, especially amidst the current economic uncertainty, is a key monitorable.

While BHFL has demonstrated its ability to manage asset quality, this will be a key monitorable as the portfolio seasons. Furthermore, while the company has controlled its operating expenses as it has scaled up along with managing its borrowing cost, the credit cost remaining contained at 0.2% as for fiscal 2023 as compared to 0.4% in fiscal 2022 as against 0.6% in fiscal 2021. Therefore, impact of the ongoing economic uncertainty on the macroeconomic situation and hence, asset quality and profitability remain key monitorable.