Bajaj Finance chairman Sanjiv Bajaj on Wednesday said the NBFCs with superior asset quality will continue to thrive amid increasing competition in the financial services sector even as company shareholders expressed concern over the entry of Jio Financial Services into the space with its deep-pockets.
The shareholders at the 36th annual general meeting of Bajaj Finance said big players like Jio Financial Services may disrupt the financial services business as Jio did in the telecom sector.
They asked Bajaj and company MD Rajeev Jain how they are going to respond to the challenge, which may hit its growth and margins.
Responding to them without taking any competitor’s name, Jain said they are already operating in a highly fragmented and large sector, which is witnessing an increased competition from existing players and new entrants.
“India represents a very large opportunity for long-term financial services. Our focus is on realising the ambition of having 100-120 million consumers and take a disproportionate share of their wallet whether it was payments, lending or all financial services provided,” Jain said.
Bajaj stressed that the non-banking finance companies (NBFCs) with superior capital adequacy, better margin, frugal cost management and prudent risk management procedures will continue to compete in the foreseeable future.
Bajaj said they are among the largest and most diversified NBFCs in India, offering payments and lending solutions to their customers.
He said they had used the past two years to completely alter the DNA of the company and put in place a fully digitised omni-channel strategy, which integrates the company’s entire range of products and services.
Unnecessary friction was eliminated, operation costs were reduced and this helped Bajaj Finance to create a single-point interface that enabled customers to move between online and offline, Bajaj said.
Responding to the shareholders, Jain further said, “Financial services is all about talent, it is about risk management, managing business over cycles and flawless execution. That has been the company’s key competitive advantage. We want to continue this and sharpen the moat and that was not going to change.”
Jain said he is confident of the competitive advantage the company has and remained excited about its medium-term outlook and future prospects amid growing market share.
The differentiation for them is 73-million customers with KYC and the company’s presence at 3,733 locations, he said, adding that they have 40 million consumers on their mobile app.
With assets under management of Rs 2.7 trillion, which still constitutes only 1.7% of the total credit in India, the opportunity remains very large, he added.
Jain said they are committed to a return of 20-23% to shareholders. The NBFC had increased the AUM growth guidance from 28-29% to 29-30% and this would result in higher profit growth, he said.
The Pune-based NBFC has announced a foray into tractor finance and microfinance as a part of its strategy to grow its rural business.
Rural business contributed to 10% of the company’s total portfolio. The microfinance business will be launched in Q3 and tractor financing will be launched in Q4 of this fiscal, Jain said. “Rural business is a tremendous opportunity that needs to be built steadily,” he added.
Jain said the microfinance industry AUM is at Rs 4.8 trillion and continues to grow despite the cyclical headwinds every three years.
The Bajaj Finance is present in 3,800 towns and cities and they have the experience of 10 years in building the rural business, so it is a logical step to get into microfinance, Jain said.
The company will also be entering the new car finance business this year. It is currently offering only two and three-wheeler finance. The five-year old gold loan business, which was at around 1% of the portfolio, will be growing and be at 1.5 to 1.8% of the portfolio by the end of FY24, according to the company.
Bajaj Finance has reported a 32% year-on-year rise in consolidated profit after tax of Rs 3,437 crore for the April-June quarter. Its assets under management grew by 32% to Rs 2.70 trillion.
The company said it had reported its highest-ever new loan booked of 9.94 million during the June quarter, which was a 34% year-on-year growth. The quarter also saw the highest-ever quarterly increase in customer franchises of 3.84 million taking the total customer franchise to 72.98 million.
Net interest income for the quarter increased by 26% to Rs 8,398 crore. Operating expenses to net interest income for Q1FY24 was 34.0% as against 35.9% in Q1 FY23. Loan losses and provisions for the quarter were Rs 995 crore as against Rs 755 crore in Q1FY2.