Bajaj Finance readies a war chest to address retail consumers' borrowing binge

You name it, and they have got it as investors - The biggest banks, the fastest growing life and general insurer majors, the biggest mutual funds, corporate entities and more. At a time when the entire NBFC (non-banking financial company) sector is undergoing a crisis because of asset liability mismatches, Bajaj Finance, the lending and investment arm of Bajaj Finserv, has managed to raise over Rs 6,000 crore via debentures in little over six months.

With defaults and delays in payments by NBFCs becoming common post the debacle of IL&FS and DHFL, the financial services arm of big firms such as HDFC, ICICI, Axis, Max and Kotak, among others, have put their surplus funds in Bajaj Finance. Corporate entities such as Ultra Tech Cement, Hindustan Zinc, Graphite India and Serum Institute have also invested. Even National Stock Exchange (NSE) has put in part of its surplus in the company. Sources say the pension and provident funds of the State Bank of India (SBI) along with Bharat Petroleum and National Insurance Company have provided funds to the NBFC.

Bajaj Finance is a success story in the consumer durable financing. The banking sector ignored this segment because of low-ticket value, higher operational cost including difficulty in recovering loans in case of bad debts. But, the Bajaj Finance came out with an app-based model (with EMI facility) by tying up with manufacturers in segments such as mobile phones, TV, fridge and even furniture. The Pune-headquartered lender with Rs 1.15 lakh crore assets under management also offers personal loans, two-wheeler loans and loans to MSMEs.

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In terms of profitability, the company earned total income of Rs 18,502 crore and net profits of Rs 3,995 crore in 2018-19. The company's market capitalisation of Rs 1.93 lakh crore in the stock market is bigger than that of Axis Bank (Rs 1.73 lakh crore) and twice of IndusInd Bank (Rs 96,000 crore). The market cap of country's largest bank SBI at Rs 2.44 lakh crore is only a striking distance away.

Currently, the NBFC sector is looking for stable sources of finance. With short-term commercial paper (CP) market almost shut, the reliance on non-convertible debentures (NCDs) is gradually increasing. Some NBFCs are also selling assets to banks to mobilise resources for meeting their redemption requirements. Out of Bajaj Finance's Rs 86,000 crore-plus total borrowings, the debentures hold a lion's share (38 per cent) followed by bank loans (34 per cent) , deposits ( 15 per cent ) and others.

In a slowing economy, the company's strategy is to target good customers. In fact, it has close to 40 million customers where the focus is to cross sell more products. In fact, the company is using big data and analytics to target customers for cross selling.

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The economy is also slowing with consumption - both discretionary and non discretionary - taking a hit. The company claims that it has built in safeguards of a variable cost model to adjust with a lower level of growth. Take for instance, the bulk of its technology runs on cloud. Similarly, staff at sales points is not permanent. In addition, back office operations are completely outsourced to BPO companies.

The only issue big investors may face is on asset quality in case of job losses and fall in income levels. Currently, non-performing assets (NPAs) are negligible.