Happy with margins; Q2 topline growth good: Bajaj Finserv

Ekta: After yesterday’s big announcement of the 50 basis points rate cut, what does cost of funds look like? How much have they already reduced and how much more do you expect it to reduce possibly in the next three to six months?

A: Bajaj Finance is the only company within our financial services group that raises money and then that deploys money as well as being a non-banking financial company (NBFC). A large part of the money we raise comes from banks and unfortunately we are not seeing banks pass on much of the rate cuts in the first part of this year. I am hopeful after yesterday, we will start seeing that.

The money market of course had corrected over the last four or five months, and that has been of some benefit to Bajaj Finance. So, when I look at our own interest rates, across our different loans on average, we have cut it about 30 basis points from the beginning of the year. We now look forward to banks when they are lending to us, cutting rates further so that we can pass on these benefits then in coming quarters to our own borrowers as well.

Latha: What is the percentage you borrow from banks and what is it that you raise from the markets?

A: Roughly it is about 50 percent from banks. So, it varies between 45 and 55-60 percent, but I would say roughly about half. There is a very significant exposure that we have to banks. We have already seen some of the rate cuts that a few of the large banks have passed on or announced yesterday. So, I am hopeful that this would set a chain reaction in the right manner and that should end up benefitting all of us and hence benefitting our customers as well.

Latha: How much did your market finance, the money that you raise outside banks fall by in the last six months?

A: I would say that this has gone down by about 30-40 basis points and about 30 basis points is what we have passed on, on average. It differs on different products that we do across the secured and unsecured space and across consumer and the small to medium enterprise (SME) space. But 30 basis points is the reduction that we have on average passed on from the beginning of this year.

Latha: State Bank of India has cut 70 basis points year-to-date, so to speak, if one counted the impact of the previous cuts as well. If that much were to come to you, that bank finance came to you, about 60-70 basis points lower, will you be passing on the whole thing? Is it neutral for you? Are you just going to maintain your margins?

A: Yes, we are very comfortable with our margins and while I do not forecast the margins going forward, we are comfortable with our current margins. So, the benefits that we get, we will end up passing those to our customers, because we believe that as long as we are making healthy margins, both the benefit and the cost of it should go fairly to customers. And in the last few years, we have seen customers bear higher cost. I think it is only fair that they get the benefit as well.

Ekta; Are you seeing the same amount of asset under management (AUM) growth that you saw in the previous quarter and specifically in your segments such as consumer durables as well as SME? And if you could tell us whether you could sustain that 30 percent net interest income (NII) growth that we have been seeing for many quarters now.

A: I will not again, talk about NII growth going forward. We are on the last day of the second quarter. We have had a good second quarter, with respect to topline, I can say that. As far as overall our growth is concerned, on the SME side, this had started slowing down two or three quarters ago and it continues to be muted. Again, as I said, when we talk about slowing down, I am still talking about 15-18 percent growth, but compared to the 25-30 percent that we used to do here.

On the other hand, on the consumer side, our two-wheeler financing has been slow now for almost a year. I hope that it will pick up in the second half of the year as Bajaj Auto comes out with a few new products as well as the economy starts picking up on the consumer end. But since we now finance across the number of consumer categories -- across not only consumer durables and two-wheelers which were our traditional categories but also whether it is furniture, lifestyle equipment, watches. So, we have expanded categories and that is why we have still managed 30 percent plus growth, but if I were to look at growth on the same sectors that we were in, then that growth is lower than what it was last year.

Latha: Any news at all from Allianz in terms of their interest in increasing stake?

A: I believe the interest exists. There are informal discussions that do take place from time to time, but beyond that I do not have anything to report right now.

Latha: It will be a sale of your stake or will you do an initial public offering (IPO) and get them in at a later date? What will be the sequence of events? Is there an IPO as well that you are thinking of?

A: I cannot comment on what exactly will happen, because that is not being discussed. However, when I look at the two companies, they are adequately capitalised and hence do not need incremental capital at this point of time. That capital has already been put in by the promoters in the earlier years and as a result, it is unlikely that the companies need to IPO. So, in all likelihood at least, it looks like if Allianz takes their stake up -- which we would encourage them to do -- they would end up buying it from Bajaj Finserv.

But as I said, this is just my view right now, looking at things solely from the Bajaj perspective and what I see with respect to capital solvency in the two companies. As we get into more serious discussions with Allianz, I think things will get clearer.

Latha: So, we should expect it in the current fiscal year at all?

A: That is something that you need to ask them because eventually, it is for them to decide how to move ahead. But I would say, yes, in the next 6-12 months we should know. But again, there is no timeframe that I can set out to you.