Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Expectation of strong support from BFL: BFL holds 100% stake in BHFL, its housing finance arm. The parent BFL is a subsidiary of Bajaj Finserv Ltd, the financial services arm of the Bajaj group. BFL is one of the largest retail asset financiers 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 amongst the key focus areas for Bajaj group. BFL plans to hold a majority stake and is willing to continue to infuse capital, after having infused over ~Rs 9,000 crores from fiscal 2017 till date, to support growth requirements over the medium term. The shared name also enhances BFL’s moral obligation to support BHFL.

Comfortable capitalization: Capitalization metrics have been supported by the regular capital infusion by the parent and healthy internal accruals. BFL has infused equity regularly with the latest infusion of Rs 2,000 crore happening on 3rd April, 2024. BFL has also in the past infused Rs 2,500 crore in fiscal 2023, Rs 1,333 crore in fiscal 2020, Rs 2,000 crores in fiscal 2019 and Rs 1,200 crore in Feb 2018. Subsequently, networth and gearing stood at Rs 12,234 crore and 6.6 times respectively as on March 31, 2024, as against Rs 10,503 crore and 5.8 times respectively as on March 31, 2023. The company also plans to raise additional equity by way of IPO. CRISIL Ratings expects capitalization to remain healthy supported by internal accruals and regular capital infusion. Overall capital adequacy ratio also remained comfortable at 21.3% as on March 31, 2024 and 23.0% as on March 31, 2023.

Established track record of BFL & BHFL in Mortgage loans: BFL has been present in the highly competitive mortgage business since fiscal 2011 and has an experienced management team. BHFL has also been in operations since 2017 and has scaled up its mortgage book to around Rs 91,370 crore as on March 31, 2024, as compared to Rs 69,228 crore as on March 31, 2023, while maintaining healthy asset quality metrics. As on March 31, 2024, BHFL’s loan book is well diversified; Home loans constituted around 56%, Lease rental discounting was 19%, Developer Financing was 11%, Loan against property was 9%. Rural MSME portfolio was 3% and the balance was Unsecured loans. The management has laid down prudent underwriting practices and focuses on existing customers having exposure to other banks while maintaining geographical diversification in its loan book. 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.

Weakness:

Limited seasoning of the portfolio: As BFL’s vehicle facilitating growth in the mortgage business, BHFL has attained significant size and scale in the past couple of 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 72% over fiscals 2018-2024 to reach AUM of Rs 91,370 crore as on March 31, 2024. Consequently, the share of BHFL in the overall Bajaj Finance group AUM stood at 28% as on March 31, 2024.

On the asset quality side, the gross non-performing assets (GNPA/stage 3 assets) remained comfortable at 0.27% as on March 31, 2024, compared to 0.22% as on March 31, 2023. The credit cost too remain contained at 0.1% in fiscal 2024 as compared to 0.2% in fiscal 2023. Although asset quality performance has been healthy, a significant proportion of the portfolio has witnessed strong growth over the past few years and remains under-seasoned. While BHFL has demonstrated its ability to manage asset quality, this will be a key monitorable as the portfolio seasons.