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After a long sleep for more than a decade, the India’s largest non-bank consumer lender and its investors are coming to terms with a new normal of low growth, and asset quality erosion.
Bajaj Finance knows that not much can be done about low growth due to quarantine Indians are unable to spend beyond the essentials.
Analysts already expected growth to suffer in FY21, especially after the lender said last month that new loans grew a mere 3%, as against a high growth of two digits in the previous many quarters. In fact, the financier of the price of the shares has been reduced by 58% since mid-February, reflecting the growth of impact.
What would matter now is how to Finance Bajaj is able to get their borrowers to keep paying. Here, the risks are stacked against the lender.
Already 27% of its book is in virtue of the moratorium of April and this is growing, according to the management. It is clear that more and more of their borrowers can’t pay. He said that the management of the moratorium indicates that borrowers want to conserve cash and does not is that its credit quality has deteriorated necessarily. The fact that the lockout, now linked to the 70 days, it is worse in the urban centers is not helping Bajaj Finance. “The waiting time of lock security is likely to put pressure on Bajaj’s ability to manage the recoveries translate to other downside risks to short-term estimates,” wrote analysts at Kotak Institutional Shares in a note.
Gross bad loan ratios at 1.61% from March were reasonably low, but this will change now with the double shock of lower growth and the potential rise in the variances. The deviations as a percentage of loans have increased during the last year. In effect, the true image of the deviations will arise once the moratorium ends this month.
The emerging pressure on wages, the loss of jobs in various sectors and growing anxiety among small business entrepreneurs make the conservation of the quality of the assets of a tall task for Bajaj Finance.
The risks are high, but the lender increased provisioning too. Are provided ₹900 crore towards covid-19 risks that took the total of the provision ₹1865 crore. Analysts do not rule out the requirement for more provisions in the coming quarters. “We appreciate BAF superior liability franchise and strong in the collection of the network. However, a clarity on growth and the development of national plans of action can only come after the closings and the termination of the moratorium,” wrote the analysts at Emkay Global Financial Services Ltd.
Trading at a multiple of 3.4 times its estimated book value for the FY21, Bajaj Finance is still the most valued among the diversified non-bank lenders. FY21 is likely to be an eclipse of the year and Morgan Stanley analysts bet the lender to improve performance in the medium term. For now, all Bajaj Finance needs is to keep its npl limited.
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