← Throughline · holding view Deep analysis ↗ Q1 FY26
BAJFINANCE Bajaj Finance Ltd · NBFC Q1 FY26 · concall
Pattern: succession learnings nim cost

Karnataka 'political risk' retired after Q1FY26.

3 weak · 4 clean — pushback across 3 of 7 Q&A turns

Focused evidence 3 of 7

Viral Shah · IIFL Capitalweak

Glad to have you back. (a) What have been the learnings from the transition process planned 2-3 years back, and what is the approach 2-3 years down the line for a smoother transition? (b) On cost of funds guidance, given 15-20 bps reduction anticipated for the year, do we now expect 5-10 bps NIM expansion on a full year basis vs flat earlier? (c) On non-interest income and credit cost guidance for full year, are they retained? (d) On SME stress, which subsegment within is showing this -- unsecured business loans, LAP or term loans -- and is there percolation from unsecured to secured (gold/home)?

Rajeev Jain: Every incident must have learnings and a course correction plan. The NRC and the Board have extensively discussed this matter. I have to go back to the Board and NRC in the next 6 months with a detailed succession planning process. Sandeep Jain (on NIM): We have given a guidance on flat NIM for the current year. Given the trajectory of rate cuts from RBI we did comment that there could be a 5 to 10 bps positive bias. Given 50 bps rate cut in the last round and 20 bps overall improvement in cost of fund this quarter, we are reasonably confident that probably 10 basis points of NIM expansion could happen by end of the year. Sandeep Jain (on fees and credit cost): On fee income, we have guided for 13% to 15% for the current year; that continues to hold true. As far as credit cost is concerned, 2.02% for the current quarter was 5 bps higher sequentially, largely flat YoY. We continue to hold 185-195 basis points of guardrail for the current year on a full year basis. You will see a sideways movement probably in Q2, and probably a decline from quarter 3 onwards. Auto finance vertical becoming smaller will give 5-7 basis point improvement on overall loan loss average. Rajeev added that fee income grew 17% with a stronger B2B quarter, but full-year guidance is 14-15 / 13-15. Rajeev Jain (on MSME): Not between unsecured and secured -- the secured gets a tail effect. We track 17 key industries in MSME, out of which 13 are exhibiting signs of slowdown and 3 are actually showing contraction. Slowing economy and a drop in credit supply at one level it's good. The market is not that large, especially for business loans -- pre-COVID it was INR 2,500-3,000 crores per month, grew to INR 11,000 crores; right now it's at INR 9,500 crores -- INR 1,000 crores. So it's contracting. Sandeep Jain: MSME business will see one of the slowest growth in the current year. Auto finance is in rundown mode. These are the 2 lines of business where we are taking actions.

Kuntal Shah · Oaklane Capitalweak

(a) On Bajaj-Airtel tie-up and LRS targeting 200 million customers -- but YoY customer addition has slowed and cross-sell is dropping (3.8% to 3.2% to 3.1%). Comment? (b) AI is a transformative year for FY26; insurance, AMC, healthcare etc sit in parent while broking, distribution, lending sit here -- shouldn't there be a common stack/super app for synergies? Will you tie up with more fintechs in payments?

Rajeev Jain: 4.7 million new customer acquisition after last 2 years of record 15 and 16 million -- I'm a little surprised at times. We can see a clear road map this year, we'll probably end at 120 million. The run rate will be between 14 million and 16 million plus/minus. We are working on strategic partnerships and dry powder is being built. New CD loan approval on the app -- a complex architecture took 18 months to build; could give us 2-3 million new customers a year. The group is organized in a federal structure -- we allow companies to be independent. Investment pool led us to deploy 150 people dedicated on January 1 to AI; not too many companies would have that profit pool. We assist group companies on AI and will lead the way. On super app: BALIC has gone live on our app. Our app to that extent is the super app -- 90 million customers ending this year, distribution infrastructure. We've got open architecture on home loans -- 5 home loan companies, not just group company. Government services going live by end of July. ONDC now doing 30,000 orders a month. We will become Super App one day if we stay at it. On tying up with more fintechs in payments: No -- we remain focused on financial.

Abhijit Tibrewal · Motilal Oswalweak

(a) On AUM growth guidance of 23-24% vs 24-25% guided last quarter -- is that factoring in lower BHFL guidance? Are there other levers in product segments to flex to deliver on the prior assessment? (b) On working capital business loans -- given DSAs in past said 'iski topi uske sar' and you acknowledge the storm is sudden, if everyone rations credit, do we get into a credit cycle in this segment like we saw in unsecured (cards, MFI)? (c) On leverage building up in INR 7-15 crore turnover segment, what does it tell us about MSME health in India?

Rajeev Jain: Don't read anything into the 23-24% -- you guys see decimals, we move at percentage. Wait until Q2 end. As Sandeep says, it's not guidance, it's assessment -- the assessment published at Q4 holds. On levers: gold loan is adding net INR 2,000 crores of AUM on a quarter. Auto still adding. LAP, CV, tractor, affordable home loans -- bringing in INR 75-80 crores of volume per month. In the last 3 years we launched all that we wanted to launch -- now focus is on optimizing and delivering profitability. No more investments going to new lines of business. Enough firepower to generate AUM growth -- but balance with profit growth. On credit cycle risk: The customer is INR 7-15 crore turnover -- not a credit-card or consumption-loan customer. He had ability to borrow INR 60-70 lakhs and pay it. Flow rates won't be like an STPL conversation. Better customer quality -- that's why we offer restructuring (we don't in consumption loans). We need to help that customer because he's a good customer. Very different from past STPL/credit card/PL. On MSME health: It's come a little too suddenly -- wait for one more quarter for clarity. Watching off-us data on these customers -- not necessarily a good picture, but it's a bias sample. Bias sample is not stating a good story; we should look on full portfolio. Management (additional): Macro is shrinking, 13 of 17 industry segments shrinking. Credit deployment reports of RBI across these industries are shrinking. Businesses facing higher working capital cycle requirement; banks slowing down lending in unsecured. Created a perfect storm. Need to ride through, watch vintages, take action on people demonstrating leverage levels or affordability constraints in cash flows / debt servicing.

▸ Other Q&A (4)
Piran Engineer · CLSA

(a) On unsecured business loans, how do you think about leverage at the promoter level (a business loan from you but a personal loan from some bank)? Any statistics? (b) On B2C, what percentage of portfolio has 3 or more lenders -- earlier was it 7-8% pre-COVID, then up to 11-12, where is it now? (c) On car loans, what is the distribution reach and how big can it get medium-to-long term?

Rajeev Jain: The only way to do it is to offer the remediation. We never did restructuring, but that's the only thing for an honest customer who got leveraged. MSME is as financial literate as it gets. We have done INR 214-odd crores of restructuring. We may do another INR 150-odd crores over the next 1 or quarter and from there on it should settle down. We used to do INR 40-50 crores in a quarter earlier. The only thing that can be done -- tightened lending standards, help the customer with restructuring option to reduce outflow, hope to not repeat it again. On B2C 3+ lender share: it was 5.5, and is down to 4 (it had gone up to 11-12 and now back down to 4). For BL business, even pre-COVID, used to have 14-15% of customers with multiple loans (it's a working capital not consumption loan). 14% went up to 21% and we have brought it down to 17% -- it remains a univariate metric to watch. On car loans: We are in 50 cities. New car and used car put together must make 13-14% ROE, otherwise we don't grow it. New car took us 5 years to get to INR 300 crores; used car took 1.5 years -- it is down to 200 right now given pressure in used car. We have artificially held the business at INR 350 crores of new origination a month. It can be very big over the medium-to-long term.

Kunal Shah · Citigroup

(a) On leadership transition: Board has indicated 6 months for a detailed succession planning, but you also indicated to avoid ambiguity it will be closer to FY'28. So over 2.5 years preparing the transition, but unlike last time, this time it will be more internal and not made public -- correct reading? Anything on corporate structure changes? (b) On MSME provisioning: coverage ratios across Stage 2 and Stage 3 are coming off; with seasoning of the MSME book, do provisioning requirements go up given the stress? Is the restructuring largely SME?

Rajeev Jain: Yes, learnings from the prior episode -- this time it will be more internal, no changes envisaged in corporate structure (none planned). Sandeep Jain: The overall provisioning coverage has plenty of moving parts, including the composition of the overall balance sheet because different products have different coverage ratios. Second, we have done INR 219 crores worth of standard accounts restructuring. These accounts generally carry a lower provisioning compared to normal stage 3 accounts. That has pulled down the overall PCR from 53.73% to 52%. Otherwise, there's no structural change in the provisioning coverage ratio. The restructuring is mainly MSME; commercial lending change is more recovery driven.

Abhishek Murarka · HSBC

(a) On SME book: how much is unsecured vs professional loans, where is the maximum stress and what credit actions are taken? Will it remain slow or are there subsegments that can accelerate? (b) On unsecured GS2-to-GS3 provisioning: typically jumps 40-50% to 70-80% but in MSME it's 42% to 49% -- so will the buildup come given most forward flows are unsecured? (c) On growth: BHFL has indicated slower growth, MSME slowing, two/three wheeler remaining slow. Is FY26 by nature going to be a slow year? Will you underachieve vs the medium-term trajectory and recover in FY27?

Rajeev Jain: At this point it will remain slow. 17 industries we track, 13 showing slowdown, 3 showing contraction; credit supply has dropped. Virtually a perfect storm. MSME portfolio is INR 50,000 crores; doctors is INR 15,000 crores -- a $2 billion business we ran for 15 years, always 99% current; even there we are seeing pressure. The BL problem is more pronounced. We're going hammer and tongs on early MOB (3/6/9/12 MOB) across all businesses and don't care about growth -- has to go below pre-COVID. Entirely unsecured (the INR 50,000 crores SME); mortgage sits in mortgage and so on. Sandeep Jain (on provisioning): customers restructured from Stage 1 and classified as Stage 3 have actually pulled down Stage 3 provisioning. These customers have higher probability of revival, which is why they were chosen for restructuring. Rajeev Jain (on growth): I would think about one more quarter before giving a very clear view. Right now I would hold between 23-24%. We'll have a clearer view as we complete Q2. Numbers plus minus happens all the time -- not a big change.

Chintan · Autonomous

(a) On NII: 4.8% NII growth vs 5.9% AUM growth implies a 10 bps NIM decline. Is the mutual fund parking causing this? How long do you hold that position? Why does NIM go back up when liquidity moves to G-Sec? (b) On MSME: monthly disbursements moved 2.5 to 11 to 7 -- and other banks aren't talking about it as a pain point; is it the customer group NBFCs target vs banks? What causes this to improve? (c) Rate-cut transmission: how much has passed through liabilities already, and color on the asset side?

Sandeep Jain: Liquidity buffers were deployed more in mutual funds last quarter; mutual fund income sits in net gain on fair value change. Adjusted for that, NIM was largely flattish QoQ. That move was specific for the quarter -- as rates were coming down, mutual fund returns were far better than G-Sec. We locked the gains and moved investments back to G-Sec/T-bills. Going forward, the income shows up in interest income line. Rajeev Jain (on MSME monthly): Yes, those are monthly business loan disbursements as published in Bureau. Business loans we've done for 18 years -- two steps forward, one step backward. Was it over-exuberance? This segment takes what is offered; financial literacy is what it is. Leverage is the principal driver. It came a little too suddenly. Focus is on early MOB; as the portfolio churns, this will improve. AUM may grow 15% odd. In terms of disbursement growth, we are going to be flat-to-lower for the rest of the year. Sandeep Jain (rate transmission): NCD has seen almost 90 bps improvement in rates -- borrowing now between 7% and 7.1% (vs 8% corridor earlier). 85% of bank moneys are on external benchmark rate -- full transmission of 100 bps. Balance 15% on MCLR -- partial transmission. CPs have seen 80-90 bps improvement. Deposits: we were originating INR 1,400-1,500 crores monthly; we were paying 70-80 bps higher than bank+NCD blend. We have repriced retail deposits to the same price as NCD/bank money; volumes are now one-third. Deposit contribution dropped from 20% to 19% on consolidated and will go to ~16% by year end. Rajeev Jain: NIM improvement is now driven by better liability transmission as we go forward.

▸ Prepared remarks (5 blocks)
Thank you. Thank you, Ajit. Thank you, JM, for hosting this call. Good evening, all. I have with me my colleagues here, I have the 3 Deputy CEOs. I have the 2 Chief Operating Officer here, and the CRO and I have a few of my Presidents and colleagues. I referred to the certain sections of the investor deck, which has been uploaded on the website. Let's go to Page 4. That's on quarter gone by. Overall, it's a good start to the year, a good quarter on volume, assets under management, opex, profitability, ROA and ROE. Credit costs still remained elevated in Q1 as well. Overall AUM growth came in at INR <strong>24,789 crore</strong>s to INR 4,41,450 crores. We booked a record 13.5 million loans and added 4.7 million new customers in Q1. Customer franchise stood at 106.5 million. As we've just outlined in the AGM as well, we had record 650-700 people in the AGM today.
We believe that FY '26 will be a defining year for FinAI transformation strategy that we outlined in December or January quarter to the shareholders. FinAI capabilities have started to go live across the company, both below the iceberg and soon on the digital assets as well you'll start to see it. Geographic footprint stood at 4,192 locations. Gold loan branches stood at 1,254 locations and MFI dedicated branches are now 337 branches. We added 85 stand-alone gold loan branches in Q1. Active distribution footprint is at just a tad below 240,000 distribution points.
at firm level, what we see is that consumer leverage continues to remain an area of concern. Company across lines of businesses continues to take several actions across all products to reduce contribution of customers with multiple loans. That's the single univariate pain point that has significant high bearings on loan loss and provisions. Business by business, since January, we have been pruning in most businesses, except in MSME, which is still work in progress. Loan losses still grew by 26%, came in at 2.02% in terms of loan loss to average AUF. Credit costs were principally elevated in 2 and 3-wheeler business, which is a winding down business. The captive book has given us a lot of trouble; it will wind down to virtually 3,500-4,000 by March '26. MSME business has shown some strains in February. So it's come in a little too suddenly. We've taken a whole host of actions to prune business. It's likely that both these businesses will grow a lot more slowly in the current year, starting second quarter. Overall Stage 2 and Stage 3 assets came in at INR 878 crores. Stage 2 assets increased by INR 324 crores, primarily on account of these MSME customers to whom to mitigate their short-term cash flow issues, we have begun to offer them restructuring options.
Close to INR <strong>219 crore</strong>s of customers were assisted with the restructuring option who were standard account, and relevant provision was taken on these clients. We're looking at 3 MOB, 6 MOB, 9 MOB and 12 MOB of the business since January, February this year. The behaviorialized maturity of the consolidated book is 22 months and the stand-alone book is 19-odd months. The principal track is to go back to pre-COVID levels. That's a high bar that we have set for ourselves. my colleague Anup tendered his resignation as MD and Director of BFL for personal reasons. Board upon the recommendation of NRC have noted and accepted the resignation. To ensure continuity, I had said last time that this is my last call, but to ensure continuity and stability of the firm, I've had to come back as in an operating role. It is till March'28. Closer to that, we'll take a view on what is the succession planning.
balanced quarter. There's intense competitive activity leading to pressure on volumes and pressure on attrition. PAT grew 21% and delivered ROA of 2.3%, in line with Q1 FY'25 and asset quality remained healthy. For BFSL: small company, but continues to make good progress, good quarter in AUM, PAT and new customer addition, delivered AUM of INR 6,100 crores. PAT grew 37% and added 77,000 customers franchise in Q1. On Karnataka: Karnataka is 11% of the total balance sheet. We've stopped doing some of the businesses. We have cut business by 40%-50% in Karnataka because for the first time, we are experiencing what I would call political risk, which we don't know how to navigate. MFI: at this point in time, we have stopped, and we cut business by 35%-40%. In 2-wheeler urban, rural B2C, even urban B2C, even rural B2B, we are watching.
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