Bajaj Finance not to originate loans from Bajaj Auto

The captive financing unit of Bajaj Auto, namely Bajaj Auto Credit Limited (BACL), which became operational in March this year, will fully originate and book loans of the auto business

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Bajaj Finance will not originate two-wheeler and three-wheeler loans from Bajaj Auto any longer. “It’s a bit of mixed feelings,” Rajeev Jain, managing director of Bajaj Finance said in a call with analysts while explaining the rationale for the move.

The captive financing unit of Bajaj Auto, namely Bajaj Auto Credit Limited (BACL), which became operational in March this year, will fully originate and book loans of the auto business. “The Company’s financing to BAL (Bajaj Auto Limited) customers has reduced considerably post start of business operations by BACL,” Bajaj Finance noted in its investor presentation for September 2024 quarter.

“In June 2022, BFL started non-Bajaj Auto (BAL) two-wheelers (2W) financing business. In September 2022, BAL decided to set up its own captive financing unit namely, Bajaj Auto Credit Limited (BACL). BACL started its operations in Q4 FY24,” the presentation added.

To put things in context, Rajiv Bajaj-led Bajaj Auto applied for a non-bank license in 2022 and the approval from the central bank came through in September last year. The captive lender of Bajaj Auto commenced operations in March 2024.

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Jain also indicated in the investor call that the existing portfolio of Bajaj Auto loans will be run down over two years, that is by end of FY26. From 5,500 plus active distribution points of Bajaj Auto dealers and sub-dealers as on December 31, 2023, the number reduced by almost 50 percent to 2,450 active distribution points to September 30, 2024.

Meanwhile, non-captive two-wheeler dealers and sub-dealers rose from 1,150 points as on September 30, 2022 to 6,800 plus point by end of Q2 FY25. Loan outstanding of two and three -wheeler finance rose 15 percent year-on-year to Rs 18,960 crore in Q2 FY25, though the exact split of non-Bajaj Auto originated loans was not available in the investor presentation.

Gross non-performing assets (NPA) of this portfolio rose to 3.98 percent in Q2 FY25 as against 3.09 percent a year-ago, while net NPA of this book at 2.12 percent was the highest in Q2 FY25. Jain guided on the investor call that with an increase in origination of non-Bajaj Auto loans going forward, the asset quality of the auto loan book should improve as the lender will be selective with its lending.

In March 1987, when Bajaj Finance was incorporated, the company was primarily focused on providing two- and three-wheeler loans. It was in mid-2000s that the lender strengthened its presence in consumer durable loans and diversified its loan book thereafter shedding the captive financier tag for Bajaj Auto.