The country’s largest retail non-banking finance company Thursday posted a consolidated profit after tax at ₹4,765 crore, up 22% from a year ago; consolidated net interest income was also 22% higher at ₹10.227 crore.
Newly-returned to the helm of the company, vice chairman and managing director Rajeev Jain said over-leverage of customers across product segments remains a pain point, and that the company was taking several actions across product lines to reduce the contribution of customers with multiple loans.
“That’s the single univariate pain point that we have identified, which has a significantly high bearing on loan loss and provisions,” Jain said in the post-earnings analyst call.
Loan loss and provisions for the company rose 26% year-on-year (y-o-y) to ₹2,120 crore, largely led by a rise in early-stage delinquencies in the two and three-wheeler loan portfolio, which the company has been winding down and expects to close down by March 2026, and in the business and professional loans segment. The company expects both these segments to grow slower for the remainder of FY26.
Jain said the company will wait another quarter before providing guidance on credit growth for FY26. As such, while growth in assets under management (AUM) could be around 15%, incremental disbursements will be flat to lower for the rest of the year, he said, adding that the “top of the funnel” continues to remain pretty active, ensuring that the lender has a strong credit pipeline, going ahead. However, the number of loans per borrower continues to be the key driver, he said, indicating that the stress in the unsecured book could also seep through to the secured portfolio.
Overall stage-2 and stage-3 assets, loans that have been due for over 60 days and 90 days, respectively, were at ₹878 crore for the June quarter. Stage-2 assets increased by ₹324 crore primarily on account of MSME customers.
Jain said these are largely good borrowers who are facing short-term cash flow issues and the company has begun offering loan restructuring options to assist them and is accordingly making stage-3-level provisions against this restructuring.
The company is not looking at these loans as its current portfolio but on a month-on-book (MoB) basis, and as the early vintage delinquencies start to improve, the overall portfolio will churn and credit quality of the book will start to look better, Jain said, adding that the priority is to bring back the bounce, three-, six and 12-month MoB levels to those seen in the pre-covid period, regardless of “what that means for growth”.
Jain said the company will wait another quarter before providing guidance on credit growth for FY26. As such, while growth in assets under management (AUM) could be around 15%, incremental disbursements will be flat to lower for the rest of the year, he said, adding that the “top of the funnel” continues to remain pretty active, ensuring that the lender has a strong credit pipeline going ahead. However, the number of loan per borrower continues to be the key driver, he said, indicating that stress in the unsecured book could also seep through to the secured portfolio.
During the quarter, loans worth ₹219 crore that were categorised as ‘standard’ were restructured to allow borrowers more time to repay the loans. This is much higher than the typical restructuring rate of ₹40-50 crore per quarter. The restructuring rate could be around ₹150 crore for the current quarter, following which the book should start to settle.
“The only way to do it is to offer him remediation… that’s the only thing that can be done. Tighten lending standards, help the customer with restructuring options to reduce his outflow, and hope to not repeat it again,” Jain said, adding that Bajaj Finance tracks 17 MSME industries, of which 13 are showing a slowdown and three are showing de-growth or contraction.
“And the credit supply has got choked. So, it’s virtually a perfect storm in a way, and it’s come a little too suddenly. That itself doesn’t prepare you for it. But it is what it is, thankfully, we are reasonably diverse,” he said, adding that even self-employed segments—such as loans to doctors that did not reflect any stress during the covid period—are seeing pressure, likely due to some amount of over-exuberance.
What is surprising, according to Jain, is the fact that a certain percentage of MSME borrowers always has multiple lines of borrowing, the share of which has fallen to around 17% from a peak of 21% post covid, and 14-15% in the pre-covid period.
“It is leverage that you should read as a principal driver. But it’s come a little too suddenly. It didn’t come slowly. It came a little too suddenly, we are also a little surprised by it,” he said.
During the reporting quarter, gross non-performing assets (NPA) ratio of the company rose to 1.03% from 0.86% a year ago, and the net NPA ratio rose to 0.50% from 0.38%, largely on account on elevated slippages in the MSME book (to 1.76% from 1.36%) and in two- and three-wheeler loans (to 6.38% from 5.03%), which Jain said is a bit “confusing”, given that the book is being wound down.
Credit cost for the quarter was 2.02%, five basis points higher on a sequential basis and largely flat y-o-y. The management guided for credit cost to remain around 1.85-1.95% for FY26, with the expectation that the credit cost will start declining third quarter onwards.
