Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Large, well-diversified NBFC

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.

As on March 31, 2024, the assets under management (AUM) of BFL continued to grow and stood at Rs. 330,615 crore at consolidated level (Rs 310,968 crore as on December 31, 2023) and Rs 244,826 crore at standalone level (Rs 232,040 crore as on December 31, 2023).

As on December 31, 2023, on a consolidated basis, mortgages (including loans against property) and home loans accounted for 34% of AUM (of this, LRD being 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%). Moreover, the secured book accounts for over 52% of the AUM as against 55% as on March 31, 2023, and sub-50% four fiscals earlier.

At a standalone level, this comprised primarily of personal and consumer durables loans (36%), mortgages (including loans against property) 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%).

Strong capitalisation levels

Capitalisation is robust, with sizeable consolidated networth of Rs 76,695 crores as on March 31, 2024. As on the same date, the standalone networth stood at Rs 72,011 crore.

In November 2023, BFL raised Rs.8,800 crores and Rs.1,188 crores through a qualified institutions placement and preferential issue respectively. Of the preferential issue, 25% has been received. As on March 31, 2024, the gearing levels stood at 3.1 times and 3.8 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 63 times as on March 31, 2024 (65 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.

Healthy earnings profile

The earnings profile of the group is supported by a large proportion of high-yield businesses and competitive borrowing cost. 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 is also supported by controlled credit costs and operating expenses. The credit costs remained controlled at 1.4% in fiscal 2024 and 1.3% in fiscal 2023. Also, operating expenses improved to 3.7% in fiscal 2024 as against 4.1% in fiscal 2023. However, cost of borrowings of the company has increased to 7.3% in fiscal 2024 as against 6.6% in fiscal 2023.

At consolidated level, return on managed assets (RoMA) remained healthy, though moderated to 4.4% in fiscal 2024, as against 4.6% in fiscal 2023. At standalone level, RoMA remained healthy over 4.9% in fiscal 2024, as against 5.3% in fiscal 2023.

Nevertheless, earnings remain susceptible to high credit costs, especially during macroeconomic stress, despite the conservative provisioning policy. However, with CRISIL Ratings-adjusted provision coverage ratio at 57% as on March 31, 2024, it remains in line with that of peers. While the company has healthy earnings profile, the ability of the company to manage its credit costs remains to be seen and will remain a key monitorable.

Strategic importance to the ultimate holding company BHIL, and parent Bajaj Finserv

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:

Sizeable exposure on risky asset classes

On a consolidated basis, gross non-performing assets (GNPAs) stood at 0.85% as on March 31, 2024, as against 0.94% as on March 31, 2023, and 1.73% as on March 31, 2022. At standalone level, GNPAs remained comfortable at 1.05% as on March 31, 2024. Furthermore, the write-offs in fiscal 2024 were Rs 4182 crore at consolidated level and Rs 4136 crore at standalone level.

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.