Bajaj Finance predicts margin stabilisation from September after Q1 compression

So far this year, the stock of this non-bank lender declined over 5 percent, underperforming benchmark Nifty 50's 12 percent rise during the same period

India's largest non-bank lender, Bajaj Finance, anticipates net interest margins (NIMs) to stabilise from September onwards, following a contraction of approximately 23 basis points (bps) year-on-year in the April-June quarter (Q1FY25).

"We expect NIMs to resume its sideways movement after one more quarter. Margin contraction seen in the June-ended quarter was attributed primarily to higher funding costs as well as AUM composition," the management said in their post-earnings conference call.

In Q1FY25, the cost of funds increased by 8 basis points, on a sequential basis, to 7.94 percent. Looking ahead, the management indicated that funding costs are expected to decrease, and the RBI's interest rate easing would further moderate margin compression.

ALSO READ: Bajaj Finance Q1 results: Net profit grows 14% on-year to Rs 3,912 crore, misses estimates

Bajaj Finance's consolidated net profit rose 14 percent YoY to Rs 3,912 crore in Q1FY25, while net interest income advanced by 25 percent YoY to Rs 6,717 crore. The lender's new loans booked also rose 10 percent YoY to 1.1 crore in the quarter ended June.

Meanwhile, loan losses and provisions in Q1 were elevated primarily on account of muted collection efficiencies while Stage 2 assets in Q1 went up by Rs 865 crore over Q4.  Given elevated stage 2 assets, loan losses may remain at current levels in Q2 and should start to normalise by Q3, the management added.

The lender's gross non-performing assets (GNPA) and NNPA stood at 0.86 percent and 0.38 percent Q1FY25 as against 0.87 percent and 0.31 percent in the year-ago period, seen as lowest amongst the industry.