Bajaj Finance Limited (BAJFINANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to Bajaj Finance Limited Q1 FY '25 Earnings Call hosted by Morgan Stanley. This event is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. Please note that this call and your questions will be recorded and may in certain circumstances be distributed to clients and/or made publicly available. By participating in this event you consent to such recording, distribution and publication. [Operator Instructions] I now hand the conference over to Mr. Subramanian Iyer from Morgan Stanley. Thank you, and over to you, sir.

Thank you, Elliott. Hello, everyone. This is Subramanian Iyer from Morgan Stanley. Thank you very much for joining us for the Bajaj Finance Q1 FY '25 Earnings Call. To discuss the results, I'm pleased to welcome Mr. Rajeev Jain, Managing Director; Mr. Anup Saha, Deputy Managing Director; Mr. Sandeep Jain, CFO and COO, and other senior members of the management team. On behalf of Morgan Stanley, I thank Bajaj Finance management for giving us the opportunity to host you. Without further ado, I now invite Rajeev to take us through the key financial highlights for the quarter, post which we'll open the floor for Q&A. With that, over to you, Rajeev.

Thank you, Morgan Stanley. Good evening to those who are in this part of the geography and good morning to those who are dialing in from Western Hemisphere. I'll take you through the investor presentation, which is uploaded on the Investors section of our website. Let me just quickly jump over to Panel 4 of the investor deck. Overall, I would say, mixed quarter for the firm. Good quarter in terms of volumes, assets under management, growth, operating efficiencies, portfolio metrics and ROE, but loan losses for the quarter were elevated as you must have already gone through. Overall, delivered AUM growth of INR 23,600 crores, booked 11 million loans and added 4.47 million new customers in Q1. Bajaj Finserv App now has just a tad below 57 million customers. On May 2, as you're aware, RBI lifted restrictions on sanctions and disbursal of loans under eCOM and Insta EMI Card. And the firm went live offering Insta EMI Card from 10th of May and started to do eCOM from 1st of June. And fully went live across all platform partners by 15th of June. In terms of AUM, AUM, as you can see, grew by 31%. OpEx to net total income came in at 33.3%. PAT -- PBT grew by 16%, PAT grew by 14% -- PBT by 16%, PAT grew by 14% because of the last year in BHFL, we had a onetime gain on account of deferred tax liability. Otherwise, PBT grew 16%, PAT grew 14%. ROE came in just a tad below 20% at 19.9% and net NPA came in at 38 basis points. On Panel 5 quickly, I talked about AUM. I talked about new loans growth. I talked about 4.5 million new customer addition, customer franchise is at 88.11 million. Cross-sell franchise stood at 55 million. We added 57 new locations and 9,000 distribution points. Liquidity buffer remained strong at INR 16,235 crores both in BFL and BHFL. The liquidity buffer given strong treasury market we managed to raise reasonable amount of long-term money. In Q1, cost of funds was 7.94%, it was an increase of 8 basis points on a sequential basis in the quarter. We expect that cost of funds should principally peak by August or so or July, August, September is the last leg of increase in terms of cost of funds that should happen and from there on cost of funds should start to go sideways. And hopefully, as rate cut cycle comes in, we should see numbers go down in terms of cost of funds. Deposits book grew by 26% and stood at just a tad below INR 63,000 crores, and net growth in the quarter was INR 2,600 crores. Deposits accounted for 21% -- 20% of consolidated borrowings. NIM grew 25%. NIM compression was -- despite the fact that NIM compressed by 23 basis points, 13 basis points was on account of cost of funds and 10 basis point movement was due to AUM composition. OpEx to net total income came in, in line, came in at 33.3% against 34% in Q4 last year. Employee headcount stood at 55,000 and annualized attrition was 16.8%. Credit cost, that was the -- it's not a great quarter from that standpoint. Gross loan losses and provisions was INR 1,790 crores. Gross loan loss to average AUF was 2.12%. Net was 1.99%, which is in point #17. We had managed -- we consumed management overlay of INR 105 crores in the quarter, and that's a differential between 2.12% and 1.99%. Net loan loss to average AUF for the year, we project it to be between 1.75% and 1.85%, and we expect improvement in H2 of the current year. At this juncture, however, I would say for FY '25, we have marginal upward bias on this metric. GNPA and NNPA came in line, came in at 86 basis points and 38 basis points as against 87 basis points and 31 basis points. Principally, as we look at the loan losses and provision performance in our assessment has principally contributed by muted collection efficiencies. When we look at the default rates across portfolios, they are lower than March or on a year-on-year basis. However, collection efficiency was muted across portfolios actually in the quarter that went by. And as a result, Stage 2 assets went up by INR 865 crores in Q4. We're clearly augmenting our -- we had because even in 2019, when elections happened, if you go back to our results, the fourth quarter to first quarter when 2019 elections that happened, there was so much of disruption and dislocation that happened that even in that quarter, you would see that the loan losses went up from INR 400 crores to INR 551 crores. So we expected it won't happen, but clearly, expectation was not sufficient. So -- but we've experienced this in the past in '19, and it's happened again, in fact -- so that's just a point to make. Consolidated pre-provisioning profit grew by 25%. Profit before tax grew by 16% to INR 5,265 crores and consolidated PAT grew by 14% on account of onetime reversal of deferred tax liability of INR 73 crores. Annualized ROA came in at 4.63%. ROE came in at 19.86%, so 19.9% and capital adequacy came in at 21.65%. Lastly, point #27, that Bajaj Housing Finance, which is 100% subsidiary, has filed DRHP on 8th of June with SEBI and stock exchanges for potential IPO of equity shares and we are awaiting clearance and based on market conditions, we'll take a view. For BHFL quickly now from consolidated results, point #28 for BHFL, it is a good quarter. AUM was at 31%, to INR 97,000 crores. Home loan grew by 25%. Loan against property grew 21%. LRD grew 41%, Developer finance 75%. Portfolio composition remained largely steady on a year-on-year basis between 58%, 10%, 20%, 11%, and 2%. The NIM grew by 10%. OpEx to net total income improved from 24% to 21%. GNPA, NNPA stood at 28 basis points and 11 basis points, and profit before tax grew by 20%. And as a result of the deferred tax liability point that I made for consolidated profit after tax grew by 5% to INR 483 crores. Annualized ROA came in at 2.35% and annualized ROE came in at 14.32%. Capital adequacy remained strong at 24%. As you're aware, BFL infused INR 2,000 crores of capital in April as a rights issue in BHFL. On BFSL, the margin trade financing AUM was up to 265% to INR 4,400 crores. Profit after tax grew by 500%, base is very small to INR 30-odd crores. And we think on a full year basis, the firm could make INR 140 crores to INR 160 crores of PAT as we traverse the balance of the year. Very quickly to Panel #12, some of the omnichannel metrics, net installs are now up year-on-year, 41%. Total traffic on web is up 23%. Personal loans disbursed in the quarter was INR 4,500 crores through the omnipresence strategy. In terms of customer franchise, AUM per cross-sell franchise stood at INR 64,235, INR 1,000 per AUM cross-sell franchise. PAT per cross-sell franchise came in at INR 709. It is down, of course, as you can see, from INR 776 to INR 709 because last year, ROA was 5.4%, which was a historic high, our long-term guidance is for an ROA of 4.5% to 4.7%. And that's why you saw the last year number looked this way. I'm jumping straight to Panel 47, which is consolidated AUM, mostly on a year-on-year basis in line; 2 wheeler and 3 wheeler finance, in-line; urban sales finance down because eCOM whose balance sheet has run down is sitting as part of that. Otherwise, 8.3% would have been -- 7.6% would have been 8%. But eCOM business has and the travel business has restarted again. So that balance sheet should build out over the next 4, 5 months. Urban B2C, flat; rural sales finance, flat. So portfolio mix largely remained flat except for car loans. We launched new car finance last year. So that number was 1.3%, it's up at 2.5%. And the rest of the numbers are remaining sideways. Mortgages is 30.6% versus 30.9%. In terms of provisioning coverage, gross NPA a year ago. As you can see, there is movement across lines, but absolute numbers. So you can see movement across lines to that extent. But if you take Urban Sales Finance, the number movement is INR 31 crores. So -- but you can see that it's not portfolio determined, it is muted collection efficiency determined and that's why you're seeing some level of worsening marginal otherwise across the board in the quarter that went by. As a result, GNPA is looking higher on a sequential basis. Overall aggregate GNPA is sideways. NNPA is also sideways, but on a year-on-year basis, you see number having moved from 87 bps to 86 bps and 31 bps to 38 bps. Provisioning coverage stood at 56% from last quarter, we had 57% it is just marginally down to 56%. This is -- on Panel 51 is the consolidated provisioning coverage. As I said, it's 57% and 56%. So it's mainly as a result of overlay release. That's the principal differential. On portfolio quality, so clearly, under Ind AS methodology, you land up accounting for loan losses ahead rather than later. So you may see these numbers are green here, then how come loan losses and provisions are higher, mainly contributed by the Ind AS and ECL where you land up eating loan losses much early on. Otherwise, if you see the portfolio quality, the -- if you see consumer durable 99.38% to 99.45%. If you look at Urban B2C, 98.45% to 98.33% now there is a 12, 13 basis point differential in stage 2 assets and so on and so forth. You will find that most of the portfolio metrics are looking green, but the loan losses for the quarter are looking elevated and there is marginal difference everywhere. Other than 2 wheeler and 3-wheeler, which has seen a movement, but the reason this is green is because sequentially, if you see February '20, this number used to be at 11-odd-percent, it's at 5-odd percent. And again, due to muted collection efficiency, otherwise, the default rates in the portfolio, bounce rates are still at March level. I'm on Panel 55, you can see Rural B2C because the portfolio is not growing. You know your -- even in quarter 1, it grew by 5%. So on a full year basis, we forecast this portfolio probably will grow by 10%, 11% on a year-on-year basis where we are beginning to see that how the good year and bad year can start to also make a difference. Because for the last 1 year, rather 15 months, this portfolio has actually been growing at 5%, 6%. That's really all for me to communicate in the quarter. Happy to take questions.

[Operator Instructions] Our first question comes from Chintan Joshi with Autonomous.

Can I ask one on your NIMs and one on asset quality? On NIMs, you highlight 10 basis points in compression this quarter coming from AUM composition. This follows about 20 basis points from the last quarter. How should we think about kind of NIM progression because your AUM composition trends appear to be clear. And following that, if I kind of think about it on a longer-term view, 3 to 5-year view, should we kind of continue to expect somewhat NIM compression from this mix shift over time? That's on NIMs. And I have one more. The other one is just on asset quality. You've given decent comments on collection efficiency. Should we take away that underlying, you don't see any problems at all, this is purely an election-related issue? Or is there more to read, especially things like you've highlighted 2-wheeler, 3-wheeler -- those areas are where there is a bit of elevation. Is that purely election-related?

No. Fair question. So Chintan by October quarter onwards, you should see stabilization earnings. And that's point #1 I would make. That's really how we are modeling the portfolio model. So you will see one more quarter of movement as a result of NIM compression. But from there on, the portfolio mix should largely hold. In terms of portfolio quality, look, we are a risk business, while I could argue with you that it's a transient frame, as a firm, we are a risk-first business. We remain watchful across portfolios. Based on the data, we have already started to proactively prune segments. We have started to cut exposures. So if it turns out to be transient, great. If it doesn't turn out to be transient, which we will have a clearer view of October on, you would have at least acted ahead. So that's...

On NIM, we should not expect like a medium-term compression because of the mix shift becoming more -- okay. You don't, okay.

Yes, the scale builders and as we call profit builders and scale builders, we remain committed to anchor them at the level at...

And if I just look at the last 5 years of scale builders versus profit maximizers, there is a differential in the 5-year CAGR. That would kind of indicate that, that kind of differential may continue over the next 5. That's why I'm asking that question.

No. No. It's a very fair question. It's a very fair question and the response is stabilization from here on, from September onwards.

Our next question comes from Piran Engineer from CLSA.

Congrats on the quarter. Just again on asset quality. Really firstly, if you can just quantify what is the impact on credit cost from the write-off policy change you'll had last year? So that's one. And secondly, it really gives us the confidence of improvement in the second half of the year in credit costs? And why hasn't Urban B2C been as impacted as Rural B2C?

Yes. There's been no change in our write-off policy in the last 1 year, Piran. So I think that's the first response.

I think you'll were accelerating it, right? You're were writing it off...

No, no, last 2 years, we have had no change in write-off. Correct my understanding...

That's correct. So pre-COVID we used to have a differential write-off policy wherein I would hold the asset for much longer period of time. Post COVID, I think from 2021, '22, we have revised the policy, we write-off quickly now. In the last 1 year, there has been no change in the write-off policy.

Okay, okay.

And as I said, Piran, given that we have seen some level of worsening across the board, we are proactively pruning segments, and we remain watchful. We are cutting exposures as well. So, so far, we've not seen worsening in urban B2C, but we're watching. We're watching external data, we're watching internal data carefully.

Okay. Okay. And regarding the...

In between risk and growth, if we have to choose, we'll choose risk because longer term is more important than the shorter term.

No, that's fair. That's fair. No just I mean, continuing on the question of the previous participant, like whether this is transient or not really because you're -- you're still sticking to our 1.75% to 1.85% credit cost guidance. So just wanted to get a sense of what gives us the confidence of an improvement in the second half.

So Piran, if you notice the disclosure that we have done on scales level breakup of the overall balance sheet, you will see that the movement has taken place in Stage 2. And to the point that Rajeev was making that when the delinquency go up a little bit, whether on account of bounce going up or commission efficiencies going down, it takes probably 2 quarters for it to normalize. In this case, the customers have migrated to an extent because of the lower collection efficiencies in Q1 from stage 1 to stage 2. We have reason to believe that we'll be able to control the subsequent slippage into stage 3. However, at this point in time, we'll assume that, that will happen in Q2. And after that, because incrementally, as Rajeev said, in the month of June or July, as we are seeing the bounce rates to be, they are looking better than where it used to be January to March. That gives us confidence saying that from quarter 3 onwards, we should have some improvement in the overall collection efficiency as well as on the loan loss number.

Our next question comes from Kunal Shah with Citigroup.

Sir, as you indicated, maybe because of this, we are pruning down a few of these segments, but any revision with respect to the growth guidance which we had given earlier let's say 26% to 28-odd percent. Because maybe at the same point in time on credit costs also you have indicated that there could be some marginal upward bias on that metric as well. So anything in mind in terms of pruning down on the growth and the guidance out there?

So Kunal, if you see current quarter number, we have seen a balance sheet growth of 31%, INR 26,500 crores would be growth for the quarter. We are pruning down exposures wherever we deem appropriate at this point and time based on the incoming data. However, that doesn't change the guidance for the year. We have said 26% and 28%, with an upward bias towards 28%. We continue to maintain the same guidance at this stage.

Okay. So there's no revision out there?

There's no change.

There's no change, yes. But Kunal as I said earlier, we are watching the same. We're watching the default rates. Are we seeing July default rates lower than June and lower than March? Answer is yes. But default rates were not a problem even in April, May, June. It's a election efficiency, so we're watching and we are acting as well as -- from a prudent standpoint.

Sure. And second is on the fee income side. So can we say that we are closer to the normalization out there, maybe post the lifting of the restrictions or there is maybe still more to flow in, wherein we could see we gained a contraction on the overall fee income?

So Piran as -- sorry, Kunal, as I said, we could go live on EMI Card only 10th of May. So -- and eCOM went live only in June -- middle of June, rather first -- between 1st and 15th of June. So there was drag for at least 50, 60 days even in Q1. So there is some level of residue that is sitting there, which should flow through or which should come through as we move through the next 3 quarters.

Okay. Okay. And I'm not sure if you earlier highlighted in terms of this entire other income within the noninterest side, any reason for the sharp rise out there?

Yes, that's mainly account of, one, seasonality in the overall volume, which also has relevance from a cross-sell perspective. So that's one reason. Second is restart of EMI card sourcing starting from 10th of May and Rajeev highlighted, the second reason. Third is, we also had a onetime gain on account of, first of all, write-off portfolio sale that we did, that will also come through in the current quarter.

Okay. Onetime gain on write-off. And that would be a significant one?

That's about INR 45 crores for the quarter.

We now turn to Antariksha Banerjee with ICICI Prudential AMC.

Yes. I just wanted to clarify this point on credit cost and collection efficiency. What you're take sir, is the quarter, the bounces or the volume flows into the next buckets were not as large. But basically, the LTDs went up across segments. When you meet collection efficiency, there's a volume -- it is a value. Is that right understanding?

So the number of customers who were bouncing earlier, which means I present 100 installed -- 100 cases on a monthly basis, X number were bouncing. If we see a rapid increase in bounce rate, answer is no. However, of the customers who were bouncing. If we see a little low collection efficiency in the...

Recovery was lower.

That's correct. So recovery is slower. As a result, customer has migrated from stage 1 to stage 2, where the PCR versus, say, 80 basis points stage 1 is roughly about 30%, 35%, 40% in case of stage 2 customers.

Got it. And just related to this, we've been calling out some spreads in rural B2C for some time. At the system level, there are various noises around this entire topic. Are there markers that you can identify for these spreads apart from this one quarter? Is it multiple loans for the customers who are more prone to these lower recoveries? Is there a specific type of exposure from region, cohorts of age. Anything that you've identified in terms of marker?

Yes, so based on the internal analysis that we have carried out using the bureau data. One, I think based on the action taken by RBI on risk-weight assets, there seems to be, I would say, stagnancy or a flat number that we see on our disbursement month after month. Starting, I would say, say, November, December 2023 [ site ] till June month, that's one. Second, I think as we look at the overall AUM growth of the overall balance sheet that we are seeing for the industry also seemingly easing out a little bit. And as these disbursements on a monthly basis, stable -- remain stable for some more -- 1 or 2 or 3 more quarter, we'll also see the AUM growth rate slow down a bit for the industry. That's one thing. However, when we look at the overall customer profile in terms of set of customers who were having multiple loans, say, before COVID versus today, have we seen a marginal increase? Answer is yes. Is it significant? Answer is no. The movement between customers who did not have any loan of unsecured out of our active banking was 63% in March '20, that has come down to [ 15% ], which is 42% customers whom we bank on a monthly basis, have some of the loan relationship in the market. Set of customers out of this had more than one loan, there is a 3% increase in the customers who have multiple loans at this stage.

Sure. But that is not the...

So has this number moved versus pre COVID? The answer is yes. But is there a significant movement at least in our portfolio that we see? We're banking right now, 21 million unique customers. We were banking 10 million unique customers in 2020, 63% had no unsecured loan, now 58% don't have unsecured loans. So in 5 years, only 5% number has actually moved. And -- but in that to the point Sandeep is making, are we seeing movement on 1 unsecured and 2 unsecured and 3 unsecured? The answer is yes, but nothing to conclude that there is -- that there is a problem.

In fact, last data point, I think versus FY '23 to FY '24, we have, in fact, seen the number of customers who have outstanding personal loan has actually come down on -- in percentage term. So as Rajeev said, 58% customers don't have personal loan at this stage. The number was 60% in the -- sorry, the number was 59% -- 57% in the last year, there is 1% improvement in terms of number of customers who don't have personal loan at this stage.

So giving you a third number, 63% did not have, now 58% don't have when we looked throughout this data '23, it was 57%. Yes.

Got it. Okay. That's clear. Just a small thing, Sandeep, what is this policy on utilization of contingent provisions? Is it formula-driven basis something? Or is it subjective?

So we have created provisions predominantly for COVID situation since, we have come out complete -- come out from COVID in entirety, we have cleaned up the provision that we were carrying as management overlay for the same purpose. At this point in time, I think there is only a small amount of provision that remains in Bajaj Housing Finance Limited. As far as BFL is concerned, we don't carry any overlay at this stage. Whatever is the overlay that you see now is purely because of macroeconomic configuration that needs to be baked in as part of the ECL model itself.

Sure. Got it. And just one small data point. Is there any impact of this RBI regulation on penal interest versus penal charges in our other income?

No, we were never capitalizing penal interest/penal charges. So we did not have any impact of the circular.

We now turn to Dhaval Gada with DSP.

Just one question on growth. So I mean if you could just talk a little bit about the new products, how the scale-up is taking place? And just in that same context, medium term may not be FY '25, '26, but just directionally, the book mix as it progresses to your target level. How should one think about sustainable credit cost, which I think last time you had explained that should be about 175 based on the revised RBI guideline and the write-off policy change that you talked about earlier. So just any comments around that would be useful.

So growth, clearly, we -- see, we have -- Dhaval we have...

Ladies and gentlemen, we've lost connection with our speaker. Thank you for your patience as we reconnect them.

Yes. Sorry, Dhaval. So Dhaval as we have guided, the full year growth to be in the region of 26% to 28%. That's point number one, in terms of the outlook for the current year. And I would say 2.2, 2.3x of bank credit growth is really where you should pencil in the number. So we remain well anchored on long-term growth guidance. Now coming to long -- I mean, medium-term loan losses and provision outlook. See pre-COVID, the number was 192 basis points. The number -- and since -- 172 basis of full year, 9 months was full year 172 basis points. If you knock off one-timers, since then, there have been changes to -- from a regulatory standpoint there will be maybe changes, if you adjust that number, the -- you should pencil in between 175 and 185 basis points from a medium-term standpoint.

We now turn to Abhishek Murarka with HSBC.

Sir, 2 questions. One on this Rural B2C, almost for 4 or 5 quarters, we've been cautious, we've not been growing. So what needs to turn for us to get a better or rather more comfort to grow in this segment? So what are the things you're looking out for? The second question is regarding this product per customer slide. So how do we read this? So if I see there's a bit of a plateauing out of the product per customer at 6.1%, 6.2% and your 2-year-old -- 2-year month onboard -- I mean 24-month on board customers also close to 6.2%. So are we more or less at a peak at 6.1%, 6.2% in terms of cross-sell? And does that mean that now you need to spend much more on spending -- selling the next product or increasing customer acquisition costs. So how do we read this?

Yes. So Anup here. On the Rural B2C as Rajeev clearly articulated is last 1, 1.5 years, we have been fine-tuning in terms of risk cuts. But having said that, when we look at Rural B2C because these are all cross-sell personal loan, our Rural B2B growth has been very, very robust. So that gives us a significant latitude to actually offer the product to right customers. That is one. Second is what we have been doing is, one, as you looked at the old collection efficiency as a metric because the affordability is the real call out when you go to rural and at a design level, we are looking at taking the loans at right average ticket size. So I think more broader base of customers being offered the loan with a lower EMI is where we are anchoring the rural. And that's how we used to do it pre-COVID, but what happened during COVID and post COVID, obviously, what was left was better customers, and we thought they possibly can service a little better higher EMI. And that does not seem to work as well in rural because rural is all about affordability and EMI and your ability to repay. So I think that's the larger part. Having said that, the B2B growth of rural continue to remain robust, which gives us reasonable confidence that we will start climbing that number up. I think that's about 10%, 12% this year, and forward from there. So I think that's the first point. On products per customer, when we look at those metric, and that metric is a combination of our lending products, payment products, deposits, and distribution product. The larger movement there has been because of the payment products because as we move more digital, we wanted consumers to use the payment products, and that's the large movement. When it comes to the lending product, that number is, I think, 2.6%, 2.7%, right? That's broadly how that gets anchored. But the larger part of the PPC is payment products, and that drives our digital engagement strategy.

Lastly, I just want to add Abhishek that when we look at the total franchise of 89 million. If India dispenses monthly in our assessment, INR 72,000 to INR 75,000 crore of personal loans a month, this franchise dispense gets between INR 36,000 to INR 40,000 crores a month, whereas our coverage of that is only 10%. So there is -- PPC metric, quite honestly as Anup made the point, we track it, but we track it only once in a quarter. I mean 6 products per customer on a 2-year basis. It's an outcome rather than input. It's not a metric we chase. It was a need from investors so we started to populate it. Otherwise, businesses are organized vertically in the company. There is independence for respective units to cross sell as they deem appropriate, is just the last point I would make. So franchise is -- the power to franchise is not an issue at all. And Anup made an important point that more -- less to more rather than more to less. And what we did then was not wrong because in hindsight, COVID led to customers with the margin drop off. So the only thing that was left to do, that those who survived or continued to perform well could be offered. So in hindsight, it looks okay, but at that point of time it was the right thing to do. I would just make that point as well.

No. Fair. Fair. So appreciate that. And just when does this readjustment come into the base for Rural B2C so moving to...

No. We -- it is underway. It is underway. To the point Anup is making, it's underway. We've already -- as I made earlier, Abhishek point that we are already -- so we've not just done this in rural, we've done this in urban as well. So as I made a point that we remain watchful on -- so we have cut exposure on both sides of the aisles. So you've got exposure then more to -- less to more. We've done in both urban and in rural. So it will further create greater granularity in risk in the process. And even if I keep making the point on a point, I keep making, is normalizing to pre-pandemic. I think we like it or not, it's something that is -- that ought to happen. At least that's my personal view.

We now turn to Avinash Singh with Emkay Global Financial Services.

A couple of questions. I mean the car loan segment, if we see, of course, it's growing at a very strong pace, [indiscernible] moderate. But there has been a kind of a sequentially for the last 3, 4 quarters, I mean, a strong growth yet, a very, very marginal increase in the stage 2 there as well. Now here, one would expect that typically the customer segment to be prime and also what is going on there? I mean I sort of admitting that very small number but...

Avinash, you're not clearly audible?

Sorry, can you just repeat, Avinash?

Yes. I am talking of car loan segment. In car loan segment, if you see last 4, 5 quarters, of course, it is small, it is growing very fast. But there has been sort of a percentage -- stage 2 percentage increase happening in last 3, 4, 5 quarters. So what is the sort of a trend there? Because the customer segment typically will be urban and prime. So what is going on there? One. And on BHFL, I mean, do you think that, I mean, now did this Developer Finance and LRD also gaining size will the growth differential between home loan and these be sufficient enough for you to maintain a kind of a balanced yield? Or will the growth going forward will converge and that will put pressure on your overall yields?

Yes. So Avinash, particularly on car loan financing, it is mainly on account of launch of new car financing that we did in July 2023. And it is that business, which is leading to significant growth in the overall auto loan segment that you are witnessing at this point in time. So far, until July 2023 we used to only focus on used car financing. From July '23 onwards, we have started focusing on new car financing as well. Regarding mortgage, Atul Jain is here. I'll request Atul to give a comment on...

Just on that previous point, you're talking about inching up of delinquencies, that's what you meant, or you meant growth...?

Yes, it's inching up of delinquencies for last 3, 4 quarters.

So Avinash, just one point I do want to make is that if you look at the panel 56. Now technically, we're talking about 99.34% was current in September '23. I mean the baseline numbers for us are very, very low. I think that is one point I want to anchor and it's at 98.8% current. So these -- and this includes mind you this is 65% of the portfolio is used car portfolio, okay? And 35% of the portfolio is new car portfolio. Mind you, the threshold level of delinquency are extremely low. This is one point I want to leave you with. Just at a design level, right? So -- and you will see this number stabilize somewhere. Now based on our internal models, these numbers remain quite low. So you will see them move up. We'll probably -- many years ago, we used to have a benchmark line. We'll probably just reestablish the benchmark line so that as we launch new businesses the investors are well ceased over the benchmark line. So I take that input away from the conversation. Atul, you had a question on developer finance. Sorry, sorry go ahead.

Yes, on car loan. Exactly. So I mean now your INR 8,000 crores at some point, the growth will start to moderate. So where is that baseline and where you could exactly that is for certain point that is okay. Of course I know that okay, it's very, very low. I mean 0.8 percentage is very low delinquency in overall scheme of things. But where the sort for that, your line, you see that okay, INR 8,000, crores maybe doubles another, so INR 13,000 crore to INR 15,000 crores.

No, no it's fair point. We will publish next quarter onwards the benchmark number. And on your question on developer finance...

No. I mean with a developer finance and LRD book now getting significant in size and probably going forward, the growth of home loan converging with these 2, do you see sort of a pressure on yields in the BHFL segment? Or will these segments will continue to outgrow the core home loan?

So Avinash, Atul here. So in BHFL, we have a regulatory construct of something called the principal business criteria, which is laid down by RBI. So the portfolio construct is largely going to play within the large asset kind of a build or a portfolio mix we have, plus minus 2%, 3% is the margin, which can be there in the product construct where 60% of the assets have to be housing assets. And out of that, also 50% plus has to be individual home loan. Now LRD, as an asset class is not an ROE decretive, it is an ROE optimizer. As far as LRD -- because between LRD and LAP, we play in between both assets at a point of time. If I have to say last 1 year or 1.5 years, we have found LRD to be more risk adjusted better returns because it's versus LAP, versus loan against property. Because as a housing finance company, 60% has to be the home loans part, so that goes there, plus developer finance, which is required, both from ROE enhancer and as well it is tightly -- it is very -- it's an integral part of our home loan business because we get a significant part of our home loan boost through the developer where we are funding. Now between -- our rest part of the portfolio is between LAP and LRD. Depending upon our risk-return view, we take a stance on being heavy. We right now continue to be heavy on LRD and as a -- it is not return dilutive because it's a very low OpEx, direct source business and quite risk adjusted returns are good enough here.

We now turn to [ Sandhya Agrawal with Unicorn assets ].

Sir, first question is on the lines of the previous participants as well and on the vehicle finance, car loans and 2-wheeler loans. We see some kind of trend building up in both the vehicle finance and slowly the collection efficiency and the credit costs are increasing. So any view on particularly the vehicle finance division because they nearly constitute 25% of our gross NPAs?

No, that's not correct. There are 2 different genres. They are not comparable at all. The -- they're completely different even in auto loan, [ Sandhya ] I would say that as we -- actually to the previous question of Avinash, as a share of new car in this portfolio increases, which is also back. So this portfolio will eventually -- we publish only auto loans. But internally, the model is organized as 55%, 45%. 55% used autos and 45% new autos. That's point number one. Today, it is 70-30. So actually, the net-net, the stage 2 or the current portfolio in this will only go up actually, which will improve, okay, as new auto builds up. But the problem with new auto is it's very hard to make money. So that's why it has to be pegged at 55%, 45%. I think just to give you that texture related to Avinash's question as well. Two-wheeler is a completely different genre where that business is a good business. It runs as a different -- very different risk-adjusted rates of return. So as you can see, even when it is 11% stage 2, it is still a profitable business and at 5% stage 2, it still remains there reasonably profitable business.

And secondly, on just the longer-term guidance. So as we see that like of lately, we are growing our new customer base with around 15% to 20%. And going forward, we may see some slightly modest numbers like mid-teens -- new customer addition numbers in mid-teen percentage. So do we also look to add a new product line in terms of business segment like MSMEs or any other, like government is also promoting too much on the MSME part and the other side because maybe we are looking -- we can look for newer segments for faster growth.

No. So we principally have a reasonably large market share in business loans, which is a 17 -- 16-year-old business. We have a reasonable market share in that business, that's to MSMEs. The loan against property in last January that was started in BFL is also to MSMEs. So we are -- we pretty well captured the full MSME space. That's one part. We have launched...

No, I mean the supply chain in financing and other products.

Sorry.

The supply chain...

We already do supply chain financing to emerging corporates, but don't do it in MSME because it doesn't -- it's not risk adjusted.

And just lastly on the BFSL part. So we -- the franchise is really growing faster and faster day-by-day. So what kind of things we are looking in terms of technological spends in BFSL? Because I heard that on election day, the application and website went down.

Yes. So as we -- as the profitability of the business starts to come through, we took a clear view that we first got to generate profitability before we make deep investments in building out the retail broking and the business. So the business, as I said earlier in the opening remarks that should make between INR 150 crores to INR 160 crores of PAT, it should make. We've just hired a new CIO. We are now rapidly accelerating the tech development infrastructure. It did go down to the point that you made is correct. You will see significant movement in that space over the next 6 to 9 months' time. A colleague of mine who left us, who was our Chief Operating Officer, has move their Board as well to advise them on tech stack.

That's all the time we have for our Q&A. I will now hand back to Subramanian Iyer with Morgan Stanley for closing remarks.

On behalf of Morgan Stanley, I thank Rajeev, Anup, Sandeep, Atul and team for their time and insights. Rajeev, will you want to make any closing remarks?

No, no. I'm good, sir. Thank you.

Okay. Okay, wish you all the best. And thanks...

People wanting to ask questions, I can see on the -- at least I can see on the -- so -- and maybe -- if there no questions, we are fine. I mean but...

Yes, I think we can possibly take one more question, Rajeev if you...

Let's take a couple of questions, we can take.

Our next question comes from Anurag Mantry with Oxbow Capital.

Just one question coming back to the asset quality comments. Basically in the rural B2C...

Sorry Anurag.

Yes. What I was asking is, are there any like correlations or anything to read into the trends in Rural B2C and maybe between MFI as well because that's another segment where the industry has always seen higher delinquencies. So, I mean if you can highlight if there's any overlap to think about that will be useful. And secondly, on the collections part. I am sorry -- on the collections, I just wanted to understand if it has any implications for the way we're thinking about the OpEx growth for this year, given that we'll probably be looking to spend more on collections potentially.

So the overlap where MFI is very, very little. So that's point number one. Point number two, we should continue to see OpEx to NIM gravitate downwards, despite augmenting the debt management infrastructure work what we are doing.

We now turn to Bhavik Dave with Nippon India Mutual Funds.

Just one question, sir. If you could just talk about the competitive intensity in the urban B2B and B2C segments because we -- last 1 year, we've been talking about competitive intensity being quite high in terms of personal loans, where in a lot of large banks and even PSU have got quite aggressive. How are things there in terms of both attrition in terms of sizing and the push towards this product, both on the B2B and B2C side.

Look, one, Bhavik very clearly on the B2B business, we continue to maintain the market share. The market share has remained range bound, I would say, for the last 4 quarters consecutively. We have seen some loss of market share during April to December 2022. Ever since then, we have made significant investments in terms of field capacity. And subsequent to that, we have been holding our market share at the level there used to be pre-COVID. In fact, it was just about [ off-line ] market even as we have restarted our e-commerce financing business, post lifting the embargo, we have seen reasonable, I would say, coming back of customers wanting to take e-commerce loans through EMI card in the current quarter, more particularly in the second half of June, on the restart of e-commerce business.

Sure. In terms of PL, any thoughts in terms of wheels its quite competitive?

Sorry, sorry.

I was trying to understand, sir, you mentioned that the large banks have got really aggressive in terms of personal loans in urban, wherein the ticket sizes are going up, the rates were not being commensurate, has things changed there considering the RBI directive in terms of slowing down in terms of unsecured, have things changed there or things are still highly competitive.

Anup here. At an aggregate level, we do see some moderation of unsecured loans. However, as we see the data, the largest lenders, there are the public sector banks. So I think that number is possibly 35% to 40% of the total lending is happening on unsecured is the public sector. And of course, the FinTech numbers are very, very small in terms of value, those are more [ scow ]. We do see moderation there. So overall, our market share remains where it is, in fact, we have lost little market share there, which is around 2% to 7%. Our market share will be 30 bps lower, by and large we are maintaining, but we have run this business by and large at a similar growth rate. We have not phased out our registry there.

Ladies and gentlemen, this concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your lines.