See 20-25% NII growth in FY14; NIM to improve: Bajaj Fin

Bajaj Finance, the Pune based non-banking finance company is expecting to grow its net interest income (NII) by 20-25 percent in current financial year and also sees its net interest margins (NIM) improving and cost of funds going down, Chief Executive Officer, Rajeev Jain told CNBC-TV18.

The company which saw whopping 33 percent growth in NII in the January-March quarter is taking a cautious view for the current financial year due to economic uncertainties.
"We would wait for Q1 and based on the performance of the Q1 we will revise our view for the balanced three quarters of the year," Jain said.
Going forward he also expects interest rate to ease, which will improve NIMs and overall cost of funds. Bajaj Finance reported 2 percent year-on-year spike in its fourth quarter net profit to Rs 164 crore driven by robust loan expansions.
The company's loan disbursement increased 21 percent to Rs 5,106 crore, which was way above industry average of 14 percent. The company hopes to maintain its credit quality in current financial year as well. Below is the verbatim transcript of the Jain's interview Q: We have seen strong improvement in your net interest income (NII) growth or your total income growth in FY13. What is the guidance that we could expect for FY14?
A: We are looking at 20-25 percent asset growth and net income growth for the current year. We are just 50 days into the current fiscal. Overall the momentum at this point of time for the company is strong and we hope to deliver 20-25 percent asset and net income growth for the year. Q: Your small and medium enterprises (SME) segment contribution has gone up to 48 percent from 46 percent. Going forward does that go up even higher, is there any target that you have setup in terms of where that will settle?
A: Our consumer segment contributes to around 40 percent and SMEs around 48-50 percent and commercial is around 10-12 percent. I think at least for the current fiscal you will largely see us move within a band of 3-4 percent and that is how the balance sheet would continue to move with 40-45-48 percent on SME side and 10-12 percent on the commercial side. Q: Your cost of funds declined in the quarter gone by, could you tell us are you expecting further declines in your cost of funds and what is the expectation on the net interest margin, how will it pan out?
A: Fundamentally we did see some pass-through from the banks of the January rate cuts, but post that the two rate cuts and there has been no base cut and as a result we have not seen any benefit on the rate side. Money markets have eased but they have been reasonably volatile both on the downside and on the upside. For the balance of the year, our view is we should see some level of easing; interest rate should ease. I think money markets are easing much more aggressively than we are seeing bank’s base rates being cut. Therefore, one should see NIMs improve; one should see overall cost of funds go down in the balance of the year. Q: In the quarter gone by your gross NPAs went up and you had clarified that it was because of one single SME client, any update on that, was that a one-off or should we expect some more NPAs on back of that?
A: No, we are quite comfortable. Our gross NPAs reported in March ’13 were 1.09 percent, net NPA was 19 bps. It is amongst the lowest in the industry both in the banking and non-banking space. We have exited FY13 on the back of very strong credit quality and we hope to maintain that credit quality in the current fiscal as well. Q: The guidance you are giving of 20-25 percent growth is lower than what you closed FY13 with. Are you expecting a slower year or you just being cautious when you are giving out this guidance?
A: You could say I am being cautious because it is anybody’s guess as to which way the economy is heading. Therefore, we would wait for Q1 and based on the performance of the Q1 we will revise our view for the balanced three quarters of the year. Q: What about commercial segment. It is relatively smaller but there is a bit of a pressure that you saw in Q4?
A: Fundamentally we started to take a cautious view. It used to contribute 15-16 percent of balance sheet as of March ’12. As of March ’13 it dropped to around 11-12 percent largely because of our cautious view on the segment starting October 2011, it is largely contributed by our infrastructure business and construction equipment business. The third business is the auto component financing that we do. Given what is happening to the infrastructure sector we took a cautious view and have been in remedial mode in that business, in both construction equipment and infra. As the sector starts to come back, we will start to grow both these lines of businesses again hopefully between the Q2 and Q3 of the current fiscal.