Autos seeing stress, controlling quality now: Bajaj Finserv

Sonia: We had a non-banking financial company (NBFC) analyst who spoke to us a few days ago and he said that auto finance is one of the most vulnerable sectors so far and there could be further stress in this particular sector. Your comment on the same, do you expect the stress to continue and the quarters to come?

A: Auto finance for us in Bajaj Finance accounts for about 15 percent of disbursals and clearly, it is one of the segments that is seeing a slowdown given that the underlying sales of vehicles has come significantly in the last few quarters.

Given the fact that motorcycle sales end up going more to the lower middle class and middle class, this segment is facing some amount of stress. What we have done as a business is to shrink our exposure to the lower-end segment as well so that we can control this stress on this book. It has gone up marginally, I would not say it is anything to be worried about but clearly, this is one of the almost only segments that we have other than construction, equipment finance where we have seen some amount of stress.

Sonia: You said that the stress has gone up marginally in the system but for Bajaj Finance particularly the gross non-performing assets (NPAs) rose to about 1.15 percent, where does the company see incremental stress and what is the guidance on asset quality in terms of a trend going ahead?

A: There are two things, one is we are looking at gross NPAs and secondly, keeping in mind our ability to collect well where we at the net level. At the net level it was less than 13 bps- 0.26 percent or so.

Now, at the gross level, the two lines where we saw some amount of higher stress, is both motorcycle financing as well as our construction equipment financing. What we have done in the last few quarters is to restrict the quality of customers that we are financing to in this period and we think this will help us control that slightly higher stress levels that we saw on these two lines.

Ekta: Can you go through what cost of funds are like in this quarter for Bajaj Finance and subsequently any outlook on the net interest margins (NIMs) as well?

A: Our incremental cost is closer to about 10 percent or so. NIMs is less relevant for us with our diversified book given that if one looks at the number of our businesses including consumer durable financing, our entire income comes upfront. So, it ends up distorting NIMs to some extent but if you look at our last quarter results, our return on assets were between 3.5 percent and 4 percent. We think that is a stable number.