Seventeen years ago, Bajaj Finance was far from being a household name in India’s financial sector. The turning point came in 2007, when Rajeev Jain took the reins as Managing Director. Under his stewardship, the company has delivered remarkable growth. In the last 17 years, their product lines grew from 4 to 26, loan disbursals from 1 million to 36 million, customer franchise from 0.8 million to 83 million, AUM from Rs 2,500 crore to Rs 3.3 lakh crore, and profits grew from Rs 30 crore to over Rs 19,000 crore in FY24. The market share has also grown from 10 bps to 200 bps. Jain is elated with the phenomenal growth. “At the FY22 AGM, when our AUM crossed `2 lakh crore, I presented our ambition of doubling it to Rs 4 lakh crore by FY25 with similar return ratios. We are well on course to disburse over 40 million loans, cross 100 million franchise [customers] and Rs 4 lakh crore AUM in FY25 with a healthy return on assets and return on equity,” said Jain at the investor day held on December 10, 2024. So, what is the next target for the lending behemoth? Bajaj Finance aims to be the lowest-cost operating model in financial services by leveraging digital and technology. “Our focus on fundamentals remains solid,” Jain reiterates. The NBFC aims to double up customer franchise from 100 million by the end of FY25 to 200 million by FY29 and steadily compound AUM at 25-26% while maintaining healthy return ratios. Bajaj Finance Limited, or BFL, was an early adopter of cloud and data analytics. It now aims to become a FINAI (Finance + AI) company, leveraging AI-driven technology to optimise its processes, boost revenue, and reduce costs. By FY29, under its BFL 3.0 vision, the company is targeting a credit market share of 3.2-3.5% overall and 3.8-4.2% in retail, expansion to 5,200-5,500 locations, 150-170 million Bajaj Finserv app downloads, and 3.5-4.5 billion website visits. Its AI-enabled technology architecture will integrate AI across all its processes to deliver significant operating leverage. According to a report by financial services company Motilal Oswal, Bajaj Finance Limited is implementing 29 GenAI use cases across 25 work streams, which will deliver annual cost savings of `150 crore in FY26 alone. “In the medium term, we estimate employee headcount to grow at a slower pace compared to business growth. We also forecast operating efficiencies from better utilisation of our branches, digital properties, and overhead costs. We are looking to improve Opex (operational expenses) to NIM from 34% in FY24 to about 33.2% for FY25,” Jain tells Business Today. Diversified Mix In the first seven years since inception, Bajaj Finance used to primarily borrow wholesale and lend retail. Since 2014, the company has also started borrowing retail and lending wholesale. The diversified liability profile has given it an edge over peers. For instance, as of September 30, 2024, or the end of Q2FY25, money markets accounted for 47% of the company’s borrowings, bank borrowings stood at 29%, deposits at 20%, and External Commercial Borrowings (ECBs) at 4%. The deposits franchise grew 21% year-on-year (YoY) to Rs 66,131 crore, despite the significant price war. “Given significant improvement in foreign currency borrowing rates on a fully hedged basis, we used the opportunity to deepen the diversification of our liabilities profile. Bajaj Finance raised ECB loans of $1.5 billion (`12,600 crore) as part of its liability diversification over the last three quarters. Our fully hedged borrowing costs of ECB loans availed in Q2 were sub-8%,” adds Jain. On the product front, the company is also well-diversified, with growth gaining momentum from newly-launched businesses in FY24, such as loan against property (LAP), gold loans, new car financing, microfinance, tractor finance, and commercial vehicle finance. These new lines have started contributing 2-3% of the company’s AUM growth. Currently, mortgages account for 31% of its consolidated AUM, while SME and commercial lending represent 14% and 13%, respectively. Moreover, Bajaj Finance has made significant investments in its omnipresence strategy over the last three years across its app, web, technology, geography, and people. Strong Momentum Bajaj Finance ended FY24 with a 34% growth in AUM at Rs 3,30,615 crore. New loans booked went up 22% YoY to 36.20 million, and it saw the highest-ever customer franchise addition of 14.5 million. “We have made a good start to FY25 and aim to stay at the upper end of our assessment of 26-28% AUM growth for the year. Consolidated AUM growth for Q2FY25 was 29%,” says Jain. Have the K-shaped economic recovery and the Reserve Bank of India’s higher capital requirements for unsecured loans affected the demand for Bajaj Finance’s unsecured loan book? Jain says the increase in risk weight on unsecured lending in Q3FY24 has led to stabilisation in monthly personal loan disbursement of the industry. “If you look at the bureau data in the first half, the personal loan YoY growth shows a decline in terms of disbursals,” he adds. However, the rural B2B business continued to be strong in terms of momentum and in credit performance. But the company is not completely protected from risks. Bajaj Finance’s asset quality saw a slight decline in Q2FY25, with the GNPA and NPA standing at 1.06% and 0.46% respectively. Moreover, it recently exited the co-branded credit card market, where it had collaborated with RBL Bank and DBS. This move has impacted the fee income. But Jain remains cautiously optimistic. “We continue to tighten our underwriting norms across all our products. The underwriting actions that we have taken in the last four to five months will start to show results from Q4,” he says. Being a risk-first business translates to being overtly vigilant. And Bajaj Finance does exactly that. According to Jain, the lending company identifies risk, takes pre-emptive corrective actions and remains watchful across portfolios. “We continue to invest in debt and risk management and are making investments in compliance and operational risk,” he says. Bajaj Finance faces increasing competition. For the first time, it is competing with major players like Reliance Industries, Poonawalla, Piramal, and Godrej groups. But Bajaj Finance is prepared to tackle these challenges and keep its head above the water. It is because of this grit, gumption, and well thought out strategies that it has emerged as the Best Large NBFC in the BT-KPMG Survey of India’s Best Banks and NBFCs. @teena_kaushal
