Had one-off provision hit of Rs 8cr in Q3: Bajaj Finance

Saikat Das
moneycontrol.com

Bajaj Finance, the Pune based non-banking finance company, is seen as one of the major contenders for applying the new banking license. In its third quarter earnings, the company has cautiously reduced its exposure to infrastructure lending while extending credit to the affluent class for buying white goods (viz. fridge, tv, washing machine) and vehicles.

Also read: Bajaj Finance Q3 profit jumps 33% YoY to Rs 160 cr

Bajaj reported an impressive growth of 33% y-o-y in its October-December net profit.  The company took an one-time hit of around Rs 8 crore in its provisions against bad loans during the quarter. It eroded its net profit margin to an extent, Rajeev Jain, the chief executive, Bajaj Finance told moneycontrol.com in an exclusive interaction.

Here is the edited excerpt of the interview

Q. What was the key trigger for net profit growth in Q3?

A. We have a diversified portfolio wherein consumer lending greatly contributed to our loan growth. Disbursals of loans against white goods, two/three wheeler have gone up. However, we have cautiously brought down our credit exposure to infrastructure and construction equipment segment. We call it commercial lending.

Q. What led to the higher loan provisions?

A. Loan losses and provisions increased 42% y-o-y to Rs 51 crore. It was due to a one time hit that we took on account of a corporate loan account. We loaned Rs 50 crore to a mid size consulting company, which had borrowed Rs 1,000 from a consortium of lenders but later defaulted. Lenders submitted the case to Corporate Debt Restructuring cell and a scheme for restructuring was approved.

Accordingly, we relaxed the original terms and conditions of the repayment. We extended the loan tenure from 4 years to 10 years and reduced the rate of interest from 14.5% to 11.5%. For this, we had to provide for Rs 7.5 crore. Hence, provisions rose sharply. Without this one-off item, the growth in provisions would have been around 23%.

Q. SEBI has approved your proposed rights issue. What is the plan now?

A. Our board has approved the raising funds through public issue of 67,60,117 equity shares of Rs 10 each to eligible shareholders on a rights basis in the ratio of three equity shares for every 19 equity shares of the face value of Rs 10 each at a price of Rs 1,100 per share (inclusive of premium of Rs 1,090 per share). This aggregates to Rs 743.61 crore. We plan to close the transaction in next 45 days.

Q. Any business expansion plan...?

A. We are set to start our wealth management distribution business. It involves selling of third party wealth management products like mutual funds, portfolio management and so on. We will very soon apply to the Reserve Bank of India for its approval. By March, we expect to launch the business.

Q. Is the exercise a part of your banking foray?

A. This was a need for our customers. We are not getting into it for the sake of applying a bank license.  This expansion is a general course of action that paves our future growth.

Q. New banking license is on the anvil. How do you prepare?

A. Final guidelines are yet to come. We are keen on it. At this point of time, we would not like to comment further on it.

saikat.das@network18online.com