Bajaj Finance’s cost of funds rise 70 bps in FY24 to 7.74%

BAJAJ FINANCE

The consolidated cost of funds of the India’s largest non-bank lender, Bajaj Finance increased by 70 basis points (Bps) in financial year 2023-24, to 7.74 percent, company said in an investor presentation.

In the previous financial year, cost of fund of the company stood at 7.04 percent.

Analysts in the Moneycontrol’s poll had cautioned that the rising cost of funds could impact Bajaj Finance's margin performance. An increase in the cost of funds could translate to higher borrowing costs for the lender.

In the reporting quarter, cost of funds of Bajaj Finance increased by 10 bps on-quarter to 7.86 percent.

Similarly, Bajaj Housing Finance’s cost of fund rose by 12 bps on quarter to 7.82 percent in January-March of the financial year 2023-24.

On April 18, Moneycontrol reported that non-banking financial companies (NBFCs) for the January-March quarter could reveal rising cost of funds putting pressure on net interest margins (NIMs), experts said.

“The cost of borrowing for NBFCs has already increased 25-50 bps (basis points) over the last quarter of fiscal 2024. The increased cost of funds should result in some compression in net interest margins (NIMs),” ratings agency CRISIL said in a report.

The report added that the November 2023 regulatory action by the Reserve Bank of India (RBI) to enhance risk weights by 25 percentage points on such exposures as well as on lending to higher-rated NBFCs could weigh on credit growth, especially unsecured consumer credit.

On the NBFCs front, the increase in risk weight is extended to retail loans, excluding housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance/SHG loans.

Going ahead, company expect cost of funds to peak by July-August and AUM composition pivot towards secured assets to stabilise by September 2024.

“Accordingly, we expect a 30-40 bps moderation in NIM over the next two quarters from our current levels,” company said in an investor presentation.

Earlier today, Bajaj Finance reported 21 percent growth in its consolidated profit after tax to 3,825 crore in the fourth quarter of the financial year 2023-24 from Rs 3,158 crore in the year-ago period.

Consolidated numbers include the businesses of the lender's subsidiaries, Bajaj Housing Finance and Bajaj Financial Securities.

Net profit beat analyst estimates. Analysts predict a 22 percent year-on-year jump in net profit, led by credit growth but caution that higher cost of funds could dampen the margin outlook.

According to an average estimate of five brokerages polled by Moneycontrol, Bajaj Finance's net profit was expected to rise 22 percent to Rs 3,836 crore in Q4FY24 from the year-ago period.

The net profit of the company has increased on the back of rising assets under management, net interest income and improvement in the asset quality.