Comfortable guiding 25% AUM growth: Bajaj Finance

In an interview with CNBC-TV18, Bajaj Finance MD Rajeev Jain, discussed the company's third quarter earnings. The company today reported 58 percent jump in net profit at Rs 408 crore for the quarter ended December on higher operating income. The company's net profit stood at Rs 258 crore during the corresponding quarter of the previous fiscal. Below is the verbatim transcript of Rajeev Jain's interview with Nigel D'Souza and Ekta Batra on CNBC-TV18. Ekta: First wanted to talk about your asset quality, which has improved with your gross non-performing assets (NPA) at 1.3 percent versus 1.69 percent quarter-on-quarter (QoQ) but your press release says that you have sold loans worth around Rs 80 crore odd in your mortgage business. Can you just take us through the asset quality parameters this time?  A: Fundamentally we sold Rs 82 crore of mortgage assets. Gross NPA, as a result of that, improved by 10 basis points and net NPA, improved by another 7 basis points. However, otherwise across businesses, from a credit quality standpoint, the quarter was very steady. I would say it was a very good quarter on all metrics for us as a company including risk metrics.  Nigel: The assets under management (AUM) growth has been quite steady over the last few quarters and it is no different this time around. Could you tell us the segments which are driving this growth?  A: Across consumer, SME and commercial, all three categories of our businesses, segments of our businesses grew. Consumer grew by 43 percent, SME grew by 32 percent and commercial grew by 51 percent.  Rural also grew albeit a very low base so that growth was close to 400 percent. However, as I said the base is very low. Growth was secular and was pretty strong across all four segments of our businesses.  Ekta: What is your sense in terms of asset quality, we do understand that you are currently reporting at around 150 days. Once you transition to 120 day what will it look like and any more non-performing loans (NPLs) sales that we could see maybe in quarter (Q4)? 

A: I won’t be able to comment on would we sell more or not. It is transaction dependent, so, that is one point. Two, we foresee asset quality to remain reasonably stable and range bound between 1.3-1.45 percent on short to medium-term as a company.  Nigel: Could you help us out with a few numbers – what are the spreads, what are the net interest margins (NIMs), what are the cost of funds as well?  A: Overall, I think the NIMs were very steady. Overall cost of funds have gone down. On a year-on-year (YoY) basis there is a 40 basis points drop in cost of funds. Part of it is transmitted to customers across consumer, SME and commercial businesses but part of it has come back into the profit pool as well.  Clients acquired was one of the big highlights for the quarter. Company acquired close to 1.85 million new customers in the quarter gone by, so, that was a big highlight for the quarter. As a result, the operating leverage was strong so our net interest income (NII) grew faster than our operating expenses because credit was strong. So, overall I would say a very good quarter for us as a company.  Ekta: Your AUM growth has been stronger than other quarters and I assume that is also because of a seasonality factor because of the festive season. So, give us a sense in terms of going forward what kind of AUM growth are you possibly going to average and which are the segments that could lead it going forward? Which one are you the most confident on? A: We are very comfortable with all the four segments of businesses that we are in. We continue to guide that overall external environment is - we are not sure of, let me articulate that way. So, we continue to guide for a 25 percent AUM growth despite the fact that for a nine months basis we have grown 40 percent so far. However, I would say that a 25 percent AUM growth, we are quite comfortable with. It would also ensure that the risk metric for us as a company does not provide a surprise. So, guidance would clearly be 25 percent balance sheet growth or AUM growth.  Ekta: Where do you generally see the stress from? I know it is very well maintained but if you had to point out a particular sector that you would be cautious on which one would it be? A: We continue to be cautious on loan against property portfolio. In general competitive activity in that business is very intense. Pricing pressures are very strong because of intense competitive activity, so, that is business that we have been cautious on for the last 6-7 quarters and we will continue to be cautious about.  Real estate market is not necessarily in the best of health. So, we are reasonably cautious in that space and that is the only area that we are watching carefully.  Ekta: Any fund raising on the cards that we can expect? A: We are very well capitalised, we just raised capital. We are close to 19.6 percent capital adequacy -- 15.50 percent Tier-I. So, we are very comfortable for the next two to three years.  (Copy edited by Nazim Khan, interview transcribed by Priyanka Deshpande & Vrushali Sawant)