Rajeev Jain, CEO, Bajaj Finance explains to CNBC-TV18 that the company will raise funds well in time, maybe in the January- March quarter next year. Jain adds that there has been no fall in demand in the company‘s consumer durables and two-wheeler segments.
Rajeev Jain, CEO, Bajaj Finance explains to CNBC-TV18 that the company will raise funds well in time, maybe in the January- March quarter next year. Jain adds that there has been no fall in demand in the company's consumer-durable and two-wheeler segments. The company's consumer-electronics segment, Jain points out, received a record number of applications for loans on August 15 which is the official start-date of the festival season.
Below is an edited transcript of the interview on CNBC-TV18.
Q: While your quarterly performance has been very good, is the strain of slowdown beginning to take effect? As you largely lend for consumption, will the fall in consumption have a major impact? With banks entering into the retail-loan segment with a vengeance, do you see competition thinning your margins?
A: In our consumer segment which provides loans for purchase of consumer durables and two-wheelers, the demand is still holding up as far as we are concerned. In consumer electronics, the festival season kicks off every year from August 15 onwards. We had a record number of applications on August 15 this year.
So I can tell you that the overall consumer discretionary is still holding. Overall, two-wheeler sales are down, but we have increased the penetration of Bajaj Auto's overall sales from 25% to 27%. So, we are recording some level of growth there as well.
Banks are entering the retail business due to demand in the mortgage, commercial-vehicle and car-loan segments. Though we are active in the mortgage segment, our absence in the car- and the commercial-vehicle loans, is not impacting us. But we are bracing for more intense competition in these three-to-four asset classes in the near future.
Q: As a consequence, do you expect your margins which are already pretty high, to correct? A Goldman Sachs report on your company released on Tuesday expects margins to climb by about 60 basis points this year. Do you think that’s a fair assessment?
A: I would like to say that the consumer businesses are holding well. I think mortgage assets and the margins in general, have been falling and will not have a very large impact on overall profitability. But yes, there could be some level of dilution in the margins.
Q: Would the climb be higher or lower than 60 bps?
A: I think for this year it could be lower. But I think as we get into next year, it could go higher as the competition increases.
Q: What about the cost of money? Have you been able to raise money at levels cheaper than the previous quarter? What’s your average cost of money?
A: Clearly, the cost of funds curve has been falling, but we have been very prudent in managing our ALMs. So, over the last 24 months, we have benefitted so significantly from it that when cost of funds did rise, it was not disproportionate.
But on the other hand, when cost of funds go down at the broader market level, our cost of funds take longer to fall. Between the first quarter and now, there has already been a drop of 6-7 basis points. So, we are seeing it coming down, but I think it will take longer for our cost of funds to fall because of our decision to prudently balance our ALM.
Q: What about asset quality? Your asset quality has touched record levels of stability. But there is an exposure of about 7% in your advances-books to the infrastructure sector which has been a problem area for many private institutions. Do you see any slippages on that front?
A: So far, there have been no problems. Overall, the infrastructure and construction equipment finance business portfolios contribute 13% to our books. There has been a higher-than-expected deterioration in some parts of our equipment financing business. Otherwise, all other asset classes at this point of time are holding reasonably well.
Q: When do you plan to raise funds again? Will it be Rs 750 crore? Will it be via rights or QIP?
A: It’s very early to announce anything. I think we are reasonably comfortable from a capital adequacy standpoint till the first quarter of next year. We just raised some tier-2 capital. But I think we will raise funds as per schedule; maybe in the January-March quarter next year.
Q: How much time will you take to return to your ROE of 25% after the raising of capital?
A: Our long-term view is to record a ROE of 18-20%. We have been trending higher than that for the last six-to-seven quarters. I think it will take some time before we get to that level.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.