The September quarter performance of consumer lender Bajaj Finance showed that recovery from the COVID-19 pandemic could be slow and protracted.
The net profit of the non-bank finance company fell 36% from the previous year period, as it had to reserve ₹Rs 1,634 crore towards asset quality risks.
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That’s more than double the provisions made a year ago, but in line with the June quarter. It shows that the impact of the pandemic on its borrowers’ balance sheets has been severe. Needless to say, the provisioning caused the loss of the financier’s bottom line.
The lender’s gross bad loans were 1.03% of his book, which is less than what was recorded a year ago.
Bajaj Finance focuses on keeping risks on the asset quality front to a minimum and where needed by providing it.
It has even foreseen accounts in which the recognition of assets was paralyzed. The ongoing petition on compound interest in the Supreme Court has resulted in a suspension of the recognition of bad loans. The supreme court has said that lenders cannot label a loan as delinquent even if the borrower defaults until the petition is resolved. Bajaj Finance said that absent the high court moratorium, gross bad loans would have been higher, 1.34%.
Management’s comment was copiously cautious. In an analyst call, management said it does not believe in going slow on supplies or chasing growth during a pandemic. “We are risk managers and we want to take risks where we can get the money back,” said Rajiv Jain, managing director of Bajaj Finance.
This shows that the lender will not increase its assets under management (AUM) in a hurry. AUM growth has been severely affected by the pandemic, visible in the 5% contraction in the September quarter.
Analysts do not expect growth of more than 6% for the entire fiscal year 21. That said, the lender expects the festival season to fuel growth. In the September quarter, the lender managed to obtain 3.6 million new loans, which is not even half of what it had added a year ago.
Bajaj Finance’s fight for growth highlights weakness in consumer demand. It shows that Indians are not yet ready to borrow for discretionary purchases.
At best, people may be tapping into their savings to do so. As such, discretionary spending has been greatly reduced with travel and recreation limited to the bare minimum.
Bajaj Finance shares have underperformed the market so far this year. The share price is down 33% from its February highs, while the benchmark Nifty index is down just 2.2%. This shows that pessimism about growth has already been a concern for investors.
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