Expect 25% loan growth in short-term: Bajaj Finance

Latha: What do you expect to do with Rs 1,800 crore?

A: Our internal assessment is that we will continue to grow at 25 percent balance sheet growth and 20 percent net income growth in the short to medium-term and to fund the gap -- it will largely be organic, to fund that gap we deemed its prudent to raise capital. We think the Rs 1,800 crore raise would essentially be sufficient for three-four year period to grow the balance sheet from previous fiscal end of Rs 32,500 crore between Rs 75,000 and Rs 80000 crore in the next three-four years time.

Latha: The money has been raised in Bajaj Finserv, right?

A: No, it's in Bajaj Finance.

Latha: This cannot be used for insurance?

A: No, it cannot be. It is for Bajaj Finance.

Latha: In Bajaj Finance is there any specific sector that is showing a lot of growth?

A: Historically we been a consumer and a small business company or small and medium enterprise (SME) company, 90-91 percent of our balance sheet comes from the consumer business and small business. Our intent would be to grow our rural business and commercial business and create greater diversification in the overall balance sheet; both these portfolios, our categories currently contribute to 8-9 percent. We want to invest in both these areas and create a better diversification in the balance sheet in the next three-four years

Latha: Which is the category that contributes maximum or takes up a large part of your assets under management (AUM)?

A: 50 percent of the AUM comes from SME businesses and 40 percent comes from consumer businesses.

Latha: Any improvement in SME bit?

A: The answer is no. I would definitely say consumer is doing better at this point in time. I also do not think in the SME business we have seen the bottom as yet on overall non-performing asset (NPA) situation, so we will have to wait it out for the next three-four quarters.

Sonia: Where will your own gross NPLs be this year. As of last quarter you had gross NPLs at 1.5 percent given that you are not seeing too much of an improvement in the SME sector, could it worsen and also now there are tighter NPL classification norms as well?

A: We as a company already follow the 90 day NPL classification as per the new notification while they are due only in March \\'17. We as a company transition to 90 day NPL last year itself, so these numbers fully account for 90 day NPL provisioning. I do not foresee any change in the current state of NPL; we would like to remain between 1.3 and 1.5 percent gross NPLs and 30-45-50 bps of net NPA as a company. We are reasonably prudent in the way we have lent and that\\'s what we have seen through cycles in the last three years and we do not expect that to change.

Latha: What may you do by way of margins this year with wholesale cost falling faster than the extent to which retailers are getting an advantage? So is there a margin improvement?

A: I would answer the second question first that in the last 60 days in the bond market side, with where 10-year government securities (Gsec) has gone in the last 45-50 days, we have seen 50 percent of our balance sheet comes from bond market, we have seen short end and long end money harden significantly. So the benefits that had come in between November and April, where we had seen 40-60 bps improvement in incremental borrowing has got washed away, but we are seeing banks reducing base rates, so we are seeing benefits of that flowing to us but net-net at this point of time we are not seeing margin expansion as a result of cost of borrowing going down.

On the margin side we have consumer businesses and SME businesses, commercial businesses and rural businesses; the product mix essentially determines margins. In general our view is that we will see margins go down because as we focus on lower risk assets like commercial, more SME, you will see margin adjustment but you may not see significant profit adjustment.

Latha: Did you apply for small bank licence?

A: We have not applied for either of the bank licence.

Latha: You said 25 percent balance sheet growth for the current year?

A: Yes, for short to medium-term.

Latha: What is the loan growth?

A: That's what I meant, the low growth would 25 percent in short to medium-term.

Sonia: Can you throw some more colour on what the situation is as far as loan growth is concerned. You have a lot of consumer loans that you give out, you lend to small businesses. have you seen any improvement in business for the corporate sector and any reduction in bad assets?

A: We ended March, for which we published results in May 20, so it's less than a month, but we ended the last quarter very well. The balance sheet grew 35 percent, there was improvement sequentially on gross NPA and net NPA, profit growth was strong at 25-26 percent. In general we are very small part of the banking system, we are less than 50 bps of the banking system, so we think there continue to be significant opportunities for us a company to grow. We are seeing demand as a result of our initiatives and as a result I would say is the demand steady - that's how I would articulate demand to be at this point in time. Is it slipping anymore. No. Is it rising rapidly. The answer would also be no. It is a steady demand in our assessment at this point of time.