Bajaj Finserv Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Chintan Joshi - Autonomous Research - Analyst : So two questions, one on asset quality and one on NII. On asset quality, could you give us some more color on what gives you the confidence that slippages and credit costs may have peaked out here? It would be interesting to get some idea across different products and different trends that you are seeing, both in your data and perhaps industry data that you observed. And then on net interest income, if you could please help us think about where NIMs might go over the next year with the rate cut likely, what would the timing benefit be in terms of NIM speaking, would be helpful.

Question: Chintan Joshi - Autonomous Research - Analyst : Wouldn't that lead to ROA pressure once the cycle peaks?

Question: Chintan Joshi - Autonomous Research - Analyst : That's fair. Just a clarification, Rajeev, you said 185 basis points to 195 basis points previously. I presume you meant 175 basis points to 185 basis points.

Question: Piran Engineer - CLSA - Analyst : Congrats on the good set of numbers. Just a few questions. Firstly, on the overall asset quality environment. What really -- so I know you mentioned that we've made underwriting tweaking and improving our collection infrastructure. But what would make the cycle prolonged as in the elevated credit cost cycle. For example, you mentioned 8% to 9% of your clients have three plus loans versus 13% earlier, but you could have other irresponsible lenders lend to these people, right? So just trying to get a sense of what's changing right now versus, say, three months back?

Question: Piran Engineer - CLSA - Analyst : Got it. And just secondly, on our fee income. Now I noticed that it's a little bit weak, considering the fact that the ban on those digital lending products was lifted and that itself for some INR60 crore a quarter. So if I kind of adjust for that, it does not look like we've seen any fee income growth. In fact, we've seen degrowth QoQ. So anything you have to read into it.

Question: Piran Engineer - CLSA - Analyst : Degrowth here because of, I mean, summer season versus non-summer season. But last time, we didn't have those digital lending products, right, which are banned?

Question: Piran Engineer - CLSA - Analyst : And now we would have added. So I would have expected to be at least flat. So -- is this because of the RBI thing where collections we are not doing for them and therefore, fee and OpEx both are proportionately lower?

Question: Piran Engineer - CLSA - Analyst : Yes, I was making a point on sequential...

Question: Piran Engineer - CLSA - Analyst : No, I was QoQ. Because the quarter, two months, you all didn't do that product, right?

Question: Piran Engineer - CLSA - Analyst : Okay. Fair enough. And just on the NIM outlook, did I hear it correctly that NIM will be stable, assuming no rate cuts further. Or is it that cost of funds will be stable but yield could still decline because of portfolio mix?

Question: Kunal Shah - CITI - Analyst : So firstly, maybe in terms of the overall growth, given the environment wherein we are, we have kept on increasing the credit cost guidance as well. But still, we sound a bit upbeat on the growth despite Bajaj Auto business, maybe I think that's coming off, plus you said like you are tightening a few of the standards. But I think that commentary on the growth still seems to be like 27%, 28%. No doubt there is something which is contributing from the new business, but existing is also continuing. So wouldn't it -- maybe in terms of the approach, maybe in terms of the growth versus credit cost, is there any change in the approach that we are looking or there is no need to change at this point in time.

Question: Kunal Shah - CITI - Analyst : Sure. And secondly, in terms of urban B2C. So if you look at Stage 2, that still continues to be quite elevated, almost similar to where it was in the last quarter as well. And that -- and then we had seen this kind of increase out there as well of, say, almost like 38 basis points-odd in the GNPA and maybe as you indicated for SME lending, maybe moving from 1.4% to 1.6% made it like getting to the amber -- do you see the risk of urban B2C also getting into amber given the collection efficiency and this kind of trend in Stage 2?

Question: Kunal Shah - CITI - Analyst : Got it. And last question, was that the option to create the management overlay buffer against this onetime gain? And would you have done that? Or maybe that was not there from the auditors, and that's the reason we inch up the guidance and still maybe not have created any buffer out there against this one-off?

Question: Viral Shah - IIFL Securities - Analyst : Sandeep, I wanted to ask you, you were talking about the new businesses and then contributing to growth. But if I look at the distribution slide for tractor, I see that nearly on a sequential basis, the distribution has halved. So is there anything to read into it? Or what has happened over there?

Question: Viral Shah - IIFL Securities - Analyst : And secondly, if I look at the two wheeler and three wheeler business, right, you mentioned about the Bajaj Auto credit and that business. I wanted to understand like, is there any say the ROA or the profitability differential between, say, doing the non-captive business versus the captive business? Just trying to understand if at all there can be any profitability pressure.

Question: Viral Shah - IIFL Securities - Analyst : No, I understand, and thank you for the detailed listing Rajeev, perspective. And while you -- because you mentioned also the asset quality piece over there. If I look at your panels that you gave in terms of the portfolio quality, so in that, we have seen that in this quarter, sequentially, it has moved up, right? The Stage two and Stage onehas come down and even versus, say, if I compare it, I understand, even from a YoY basis, it's come down. Whereas over this period, I would expect that the non-captive business would have built up just in terms of the size and the contribution of it.

Question: Viral Shah - IIFL Securities - Analyst : Got it. But my question was actually more on the asset quality front. Like what was -- what drove the sequential --

Question: Viral Shah - IIFL Securities - Analyst : Got it. And Rajeev, if I may, one more question. If I look at the rural B2C panel, right? Over there, if I look at sequentially, there seems to be some bit of improvement. And of course, you mentioned and you discussed that at length. My question was that given the way the cash flows are in the rural India and especially the asset quality pain that the MFI players are witnessing, like I was actually a bit surprised to look at this. If you can just throw some more light on this.

Question: Viral Shah - IIFL Securities - Analyst : Got it. Makes sense.

Question: Viral Shah - IIFL Securities - Analyst : Noted. Makes a lot of sense.

Question: Viral Shah - IIFL Securities - Analyst : Yes, understood. That I agree.

Question: Umang Shah - Kotak Mutual Fund - Analyst : I have two questions. One is, Rajeev, if you could -- I mean, at the beginning of the call, you already mentioned that probably by the end of '25, you'll share long-range plan. But just some color as to how should we look at the stand-alone Bajaj Finance entity maybe broadly in terms of growth and profitability and ROE given that Atul has already spelt it out about Bajaj Housing Finance on the Bajaj Housing earnings call, I mean that will give us some clarity on how should we look at the stand-alone entity maybe from a two to three year perspective?

Question: Umang Shah - Kotak Mutual Fund - Analyst : Understood. Fair point. And just the second question is on clearly, we are getting a little mix sort of views or commentaries when it comes to consumption trends --

Question: Umang Shah - Kotak Mutual Fund - Analyst : Yes. I just wanted to take you to --

Question: Umang Shah - Kotak Mutual Fund - Analyst : Yes, that's correct. On the festive demand? Yes.

Question: Sameer Bhise - JM Financial Institutional Securities Limited - Analyst : Thank everyone for joining this call today evening, and thank you to the team from Bajaj Finance for giving us the opportunity to host the call. Thank you, Rajeev, Sandeep, Anup and Atul. Thank you.