We as a company like to run conservatively and conservative means if we cannot manage the growth which is from credit quality standpoint, we would not grow the business, Rajeev Jain, MD, Bajaj Finance, tells ET Now.
Edited excerpts:
What has happened in terms of maintaining asset quality? I do not see it as a marked shift from your overall strategy but the markets seem a bit off and thats why the stock has tumbled.
Sequential numbers can always be misleading. On a year-on-year basis, gross NPA and net NPA both are better off. That is the first point I would like to make. The gross NPA is between 1.5% and 1.7% and we are comfortable with 45 to 65 bps of net NPA. Both these numbers are very much in line with what we have guided for. The overall asset quality remains very strong. On a year-on-year basis, 10 bps plus/minus in sequential quarters, is really not within control from an operating management standpoint.
What has led to this marginal increase in absolute numbers? Where have you seen the risk of NPAs going up? Any particular new account that you can identify?
No. If you go to the investor section of our website, you will see greater details there. We publish quarterly across all our portfolios what our management assessment is on credit quality. You would essentially see that it is all green, there is not even a yellow from a management assessment.
We are quite comfortable on credit quality and growth. We are quite comfortable with overall provisioning that the company carries on expected credit loss methodology. I am sitting with no reason to worry on the asset quality in any given manner. If that was to be the case, we would not be delivering such strong growth momentum. We as a company like to run conservatively and conservative means if we cannot manage the growth which is from credit quality standpoint, we would not grow the business. As you can see from balance sheet standpoint, the business grew by 38%. I am not so sure where the concerns on credit quality in your assessment is coming from.
What has led to the strong AUM growth and what is the outlook on margins?
AUM growth was quite strong across our lines of businesses. Our B2B businesses grew 34%. B2C businesses grew 44%. Rural grew 71%. SME lending grew. So growth was reasonably granular. Mortgage lending grew 32%. There were no great bright spots nor were there any weak spots from growth standpoint on year-on-year AUM growth. The granularity and the diversity of the portfolio continue to remain quite strong. In general, we are seeing reasonably strong momentum on festive demand.
Good results but barring that asset quality blip, could you give us some colour in terms of the margins?
Fundamentally, we have a conservative stance from a liquidity standpoint. That means the conservative stance on asset-liability would not see a spike in cost of funds in the short run. Nor will we see a drop in the short run. Our cost of fund at this point of time remains at a historic low, given the benefit that we got as a result of DeMo in 2017-18.
At this point of time, the cost of funds position remains very comfortable and the outlook for the short to medium term would be no spike in cost of funds. As a result, there is no margin dilution from a short to medium-term outlook standpoint.
Would you be able to share with us the numbers in terms of margins and spreads for Q2?
In general, the margin profile has not changed. The NIMs have not changed at all on a sequential basis. On a year-on-year basis, there is enhancement in margin as a result of our fee income lines continuing to come through stronger. That is reflected in the return on assets ROA positions of the company. ROA has come in marginally better on a year-on-year basis in Q2 last year versus Q2 this year. Overall, I would say steady margin, steady from growth standpoint.
Is there any kind of exposure in IL&FS and are you seeing any risk there?
We have an exposure to IL&FS to the tune of Rs 225 odd crore. It is a loan against property exposure. It is against two functional buildings of theirs in the GIFT City. We are adequately secured on our exposures. We have a current distressed LTV to the tune of 60% as per our latest valuation. So, we have a 1.5x cover on our exposure at this point of time.
Is Rs 225 crore the right amount that I got for you in terms of the IL&FS exposure?
That is correct.
Is that the only exposure that you are having to IL&FS across the board, across all the entities and are you going to see any risk or do you see any need of providing for this exposure?
As a measure of prudence, we have taken a 10% provision in the current quarter that is baked into the loan loss provisions for Q2. But we do not see any risk to our exposure in any given manner given the exclusive security that we have on our exposure.
How do you see the demand in terms of consumer finance business shaping up? Can you sustain AUM growth at over 35 odd per cent?
The demand outlook remains reasonably strong. We are in the middle of a festive season. We are seeing reasonably strong discretionary consumption demand at this point in time. From a medium to long-term outlook standpoint, can we continue to grow upwards of 25% which is our guidance for many years? The answer is yes.
So I do not see that having changed in any given manner. Liquidity squeezes and liquidity crunch is part of bond markets anywhere in the world. We have experience as a company a liquidity squeeze I would say in 2013 the sector saw it, the industry saw it.
There was a freeze for a period of 50-55 days and things got back to normal. Since then, the company has moved from Rs 35,000-crore balance sheet to Rs 10,000-crore balance sheet. Liquidity squeezes and crunch are part of broader markets anywhere in the world. I am not so sure what is the big concern about it. I must make an important point. You must also take a micro view on the liability maturity. I would also look at asset maturity.
As a company, we play across as a diversified institution, we play across one month maturity to three months maturity to six months, nine months and twelve months and all the way up to mortgage portfolio for twenty years.
The overall behaviour maturity for a diversified institution would look very strong in general. On the Rs 100,000-crore balance sheet that we just ended the quarter with, just in one-month bucket, maturities close to Rs 13,000 crore is not because of anything else.
It is because of the liquidity buffer we carry and the asset repayments that happened from our millions of clients on monthly basis. You will have to take a micro view. At a macro view level, liquidity squeeze and freeze are part of once-in-a-five year cycle for financial systems. We last saw it in 2013, we are seeing it again in 2018.
Should RBI be taking further steps to aid liquidity? Are you expecting tighter ALM norms for the NBFC industry?
As I just mentioned, the 2013 taper tantrum which caused the liquidity squeeze was actually much worse than what we have seen so far. We are 30 days into this so-called liquidity squeeze/crunch/freeze, but we have not felt a freeze or a squeeze.
Commercial paper markets have been liquid. Long-term bond markets have been liquid. We remain open for business across all our lines of businesses. You will have to take a company by company view rather than a sectoral view at this point of time.
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