Rajeev Jain, managing director of Bajaj Finance said at 8.2 bps, cost of funds was at a historical low. “While it’s foolish to predict rates now, considering our past five years’ average cost of funds of 9 – 9.5 per cent, we may be headed towards higher rates,” he ascertained.
While segments that offer cross-selling opportunities such as personal loans and gold loans may give some headway for passing costs, the wholesale part of the consumer durables lending business may not see a price hike.
The segment accounts for about 15 per cent of the total AUMs, and usually operates on predetermined contracts with original equipment manufacturers such as Sony, LG and Samsung.
Asset quality will also be closely monitored, given its Rs 225-crore exposure to the troubled infrastructure major, IL&FS. With the loan turning bad in Q3, gross non-performing assets (NPAs) ratio rose to 1.55 per cent versus 1.49 per cent in Q2, while net NPA ratio also increased to 0.62 per cent. Provisioning costs almost doubled YoY to Rs 453 crore. While Bajaj Finance has provided for about 20 per cent of its IL&FS exposure, it needs to be seen if IL&FS remains a drag on Bajaj Finance’s asset quality for long. Also, with sub-60 per cent provision coverage for newer segments such as rural finance, how this book matures is extremely important for Bajaj Finance’s AUM growth and asset quality.
Barring this blip, analysts continue to remain bullish on the stock.