Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to Rs.20000 crore Non Convertible Debentures of Bajaj Finance Limited (BFL) and reaffirmed  its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the existing debt instruments and bank facilities.

 

CRISIL Rating has also withdrawn its ratings on non-convertible debentures worth Rs 3,150 crore (see ‘Annexure - Details of Rating Withdrawn’ for details) at the client’s request and on receipt of requisite documentation as these have been redeemed.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 lifting of restrictions on sanctioning and disbursal of loans under company’s two lending products ‘eCOM’ and ‘Insta EMI Card’ by the Reserve Bank of India (RBI) with immediate effect from May 2, 2024. RBI had earlier directed the company to stop the sanction and disbursal of these two products w.e.f. November 15, 2023, because of the non-adherence to digital lending guidelines. Nevertheless, uplifting of restriction and resumption of issuances of EMI cards should further aid the business risk profile.

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:

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 March 31, 2024, on a consolidated basis, mortgages (including loans against property) and home loans accounted for 34% of AUM (of this, LRD being 5%), personal and consumer durables loans (26%), SME loans (13%), two and three-wheeler financing (8%), rural financing (8%), loan against securities (5%) and others (6%). Moreover, the secured book (excluding consumer durables)accounts for over 57% of the AUM as against 55% as on March 31, 2023, and sub-50% four fiscals earlier.

 

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 sufficientliquidity 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 43% of the consolidated loan portfolio as on March 31, 2024, 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 March 31, 2024. As on March 31, 2024, BFL had total debt repayments of Rs 45,198 crore till June 30, 2024. Against this, they had liquidity (in the form of cash, equivalents and unutilised working capital lines) of Rs 39,225 crore excluding collections. Liquidity profile is also further supported by collections of

approximately Rs 20,000 crore for each month.

 

Key ESG highlights:

• BFL has an executive ESG committee led by the Deputy-CEO for implementing and monitoring ESG-related aspects.
• Through its lending practices, the company is largely retail-focused and has been enabling financing to new-to-credit customers and rural areas and strives to provide sustainable livelihood related financing products, including MSME financing.
• It has been doing corporate social responsibility (CSR) activities on continuous basis, which include healthcare programmes, primary education initiatives, programmes to provide BFSI skills to fresh graduates, shelters for underprivileged and orphan children. 
• Majority of the board members are independent directors, with segregation in chairman and executive position. BFL has a dedicated investor grievance redressal mechanism.

 

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.

table

Rating Sensitivity factors

Downward factors:

• With the current AUM mix, any significant deterioration in asset quality translating into pressure on earnings profile thereby leading return on assets to drop below 2.0% on a sustained basis. This excludes any significant change in AUM mix due to an increase in the secured portfolio that will inherently impact return on assets negatively.
• Significant increase in consolidated leverage metrics.

About the Company

Set up in 1987, BFL is a subsidiary of Bajaj Finserv (51.34% 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.

Any other information: Not Applicable