Bajaj Finserv posts 17% PAT growth to Rs 7 bn, continues to lead NBFC pack

Bajaj Finserv continues to lead the charge amongst non-bank finance companies as one of the largest and fastest growing lenders, especially in the retail space. The financial conglomerate has posted a profit-after-tax (PAT) growth of 17 per cent, year on year, to Rs 7 billion at the end of the second-quarter of FY2019 as compared to Rs 6.98 billion in net profit during the corresponding quarter of the previous financial year.

Consolidated income for the financial company rose by 17 per cent from Rs 82.66 billion in Q2 FY2018 to Rs 96.98 billion at the end of Q2 FY2019.

Bajaj Finserv is the holding company of Bajaj Finance, Bajaj Allianz General Insurance (BAGIC) and Bajaj Allianz Life Insurance (BALIC).

Bajaj Finance’s net profit has grown by 54 per cent over the past year from Rs 5.98 billion in Q2 FY2018 to Rs 9.23 billion as of Q2 FY2019.

The company disbursed around 30.05 million new loans this quarter, as compared to 22.99 million in the corresponding quarter of the previous financial year.

Assets under Management (AuM) have grown by 38 per cent from Rs 726.7 billion in Q2FY2018 to Rs 1002.2 billion in Q2 FY2019.

The table above shows a breakup of the different revenue segments of Bajaj Finance.

While the rural lending business has grown 71 per cent to Rs 74.4 billion as of Q2 FY2019, the mortgage lending business continues to be the largest contributor to the company’s AuM.

“This quarter has seen granular growth in all segments and the rural lending grew the fastest because of a lower base in the previous year. We see developer loans will become 12 to 13 per cent of our overall mortgage business, or else we cannot deliver returns on equity of 15 to 16 per cent every year. It is also core to ring-fencing the retail business as we do wholesale lending to ring-fence the retail book,” says Rajeev Jain, managing director at Bajaj Finance.

Around Rs 107.12 billion of the mortgage lending AuM was underwritten by Bajaj Housing Finance, a subsidiary of Bajaj Finance.

Commercial lending has grown by 38 per cent, year on year, to Rs 117.6 billion in AuM at the end of Q2 FY2019.

Net Interest Income has improved by 42 per cent from Rs 19.25 billion in Q2 FY2018 to Rs 27.3 billion as of Q2 FY2019.

The provision coverage ratio has come down from 70 per cent in the first-quarter of this financial year to 65 per cent in Q2 FY2019. Total loan losses and provisions stood at Rs 3.1 billion for Q2 FY19 as against Rs 5.94 billion in Q2 FY2018.

“Essentially we don’t feel the need to make provisions against mortgage because there is heard mortgage collateral for this book. However, we elevate our provision coverage and take higher impact on the profit and loss statement in the case of personal loans, SME lending or consumer durables,” he said.

Jain said that the liquidity position of the company stands at Rs 130 billion (of cash and cash equivalents) as of September 30, 2018.

Gross Non-Performing Asset (GNPA) has improved from 1.68 per cent in Q2 FY2018 to 1.49 per cent at the end of Q2 FY2019. Net NPA, on the other hand, has risen slightly from 0.51 per cent at the end of Q2 Fy2018 to 0.53 per cent in Q2 FY2019.

This has mainly been on account of a reduction in the NPA levels for B2B auto loans.

BAGIC

Gross written premium for the general insurance arm decreased by 5 per cent to Rs 27.18 billion at the end of Q2 FY2019 from Rs 28.57 billion in Q2FY2018. The company says this is on account of underwriting a lesser quantum of crop insurance during the second quarter of this year because of unfavourable pricing in the Kharif Season.

BAGIC’s PAT has come down from Rs 2.6 billion in Q2FY2018 to Rs 1.82 billion as of Q2 FY2019.

The combined ratio stood at 97.2 per cent in Q2 FY19, and if one were to exclude the effect of Kerala floods the combined ratio would stand 93.6 per cent for the quarter. The company incurred Rs 630 million in claims as a result of the Kerala floods.

BALIC

On the other hand BALIC witnessed a de-growth in new business premium from Rs 12.7 billion in Q2FY2018 to Rs 12.12 billion at the end of Q2 FY2019. This was mainly on account a slowdown in the group business portfolio.

The group protection business grew strongly, the company says, but the reduction in the fund-based group business is what caused de-growth. Growth new business premium stood at Rs 8.5 billion in Q2 FY2019 as compared to Rs 9.76 billion at the end of Q2 FY2018.

Individual new business premium grew by 24 per cent from Rs 2.8 billion in Q2 FY2018 to Rs 3.5 billion at the end of Q2 FY2019.

Investment assets for BALIC grew 6 per cent from Rs 510.9 billion in Q2 FY2018 to Rs 539.22 billion as of September 30, 2018.

Net profit for the life insurer has decreased by nearly 30 per cent from Rs 1.86 billion in Q2 Fy2018 to Rs 1.32 billion at the end of Q2 FY2018.

Bajaj Finance’s stock closed at Rs 2,135 on the NSE, up by 0.93 per cent.

Bajaj Finserv’s stock price closed at Rs 5,166 on the NSE, down by 1.60 per cent.

In 2013 Bajaj Finance had applied for a banking license from the Reserve Bank of India (RBI), but despite what seemed like an optimistic outcome the company did not get the necessary approvals.

Rajeev Jain, managing director of Bajaj Finance told Business Standard ,”When we applied for the license we had little retail deposits, which now stands at 15 per cent (of the balance sheet) and by 2020 it will go to 20 per cent. In 2013 we did not have a commercial lending business but now it is 12-13 per cent of the balance sheet. We have continued to move in that direction as on-tap banking license is available.”

He stated that if shareholders decided to apply for a bank license in the coming years, the company would do so but for now, they are comfortable with their current position as a non-bank.

“Our long term view is that anywhere close to 30 per cent of our liability profile must get funded by retail and corporate liabilities, if we cannot meet that goal I would tell shareholders to transition to a bank. Below that we don’t have to be a bank,” he said.


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