Bajaj Finance Ltd appears poised for another robust quarter despite facing regulatory headwinds from the Reserve Bank of India (RBI). The latest business update for the three months ended December (Q3FY24) indicates impressive customer acquisition, growth in loans and deposits, and a significant rise in assets under management (AUM). However, challenges loom ahead as the RBI has directed the company to halt lending activities for two essential products—eCOM (e-commerce loans) and Insta EMI Card.

Key Highlights

Customer Acquisition and Base Expansion

1. In Q3, Bajaj Finance added approximately 3.85 million customers, marking the highest increase in at least the past 10 quarters.
2. The total customer base reached 80.4 million, showcasing the company’s assertive outreach and appeal.

Loan and Deposit Growth

1. New loans booked in Q3 surged by 26%, demonstrating a robust lending portfolio.
2. As of the quarter’s end, the deposit book witnessed a remarkable year-on-year growth of 35%.

Financial Performance and AUM

1. Bajaj Finance’s assets under management (AUM) experienced a 35% year-on-year increase, reaching approximately ₹3 trillion by the end of December.
2. Motilal Oswal Financial Services suggests that the growth indicates Bajaj Finance leveraging traditional channels effectively.

Market Response

1. Despite the regulatory directive, Bajaj Finance’s shares witnessed a positive response, rising by over 4% on Thursday.
2. The market’s optimism stems from the company’s strong performance during the festive season and successful customer acquisition through traditional channels.

Margin Concerns

1. Analysts anticipate a challenge to Bajaj Finance’s net interest margin, expecting a compression of 25-30 basis points over the next two to three quarters.
2. Funding cost increases are cited as a primary reason, with potential difficulties in entirely passing these costs to customers.

Impact of RBI Restrictions

1. The RBI directive to halt digital loans (eCOM and Insta EMI Card) is expected to impact business and fees slightly.
2. Analysts predict the impact to be felt in Q4FY24-Q1FY25, estimating a 2% impact on business growth and a 3.5% impact on profit before tax for the second half of FY24.

Investor Sentiment and Liquidity

1. Bajaj Finance’s liquidity position remains strong.
2. Shares are trading 6% lower than the 52-week high, and prolonged RBI restrictions may dampen investor sentiment.

Summary

While Bajaj Finance faces challenges from regulatory restrictions and potential margin pressures, its robust customer acquisition, growing AUM, and favourable market response indicate resilience. Investors will closely monitor the company’s ability to navigate these challenges and sustain growth in the coming quarters.

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