Bajaj Finance Ltd.'s profit fell in the quarter ended June as the non-bank lender accelerated provisions to combat the disruptions stemming from the Covid-19 pandemic.
Net profit declined 19% year-on-year to Rs 962 crore in the April-June period, according to an exchange filing. That compares with the Rs 901-crore consensus estimate of analysts tracked by Bloomberg.
The Pune-based company's net interest income rose 12% over the year-ago period to Rs 4,152 crore, against the Rs 3,637-crore forecast.
Bajaj Finance made additional contingency provisions worth Rs 1,450 crore for Covid-19, taking the overall contingency provision to Rs 2,350 crore during the quarter.
The non-bank lender, in its business update for the April-June period released earlier this month, had said it "may consider additional accelerated provisions for Covid-19 to further strengthen its balance sheet."
That came as businesses shuttered and millions are left jobless after the novel virus outbreak forced the nation to impose the world's biggest lockdown. While that prompted the Reserve Bank of India to allow lenders to offer a moratorium on loan repayments for six months, it raised their bad loan risk.
Moratorium Accounts & Asset Quality
Bajaj Finance's consolidated moratorium book fell to Rs 21,705 crore, or 15.7% of assets under management, in the three months ended June, the filing said. That compares with the Rs 38,599 crore, or 27% of AUM, reported in the fourth quarter. Its consolidated moratorium book has an overall provision coverage of 13.7%.
According to the bank’s presentation, in the first quarter it converted Rs 8,600 crore of term loans into flexi loans. These are loans where apart from other features, the repayment of principal does not kick in for 1-2 years and customers are only required to pay the interest component. As of March 31st, the existing book under flexi stood at Rs 36,846 crore, Bajaj Finance said.
Explaining the decision, managing director Rajeev Jain said that the company offered to help “good and never overdue customers” by offering a conversion of term loans to flexi loans. “ Of the Rs 8,600 crore in converted loans, over Rs 5,000 crore went to non-moratorium customers,” Jain said. Conversion was done for a fee, adding to company’s fee income, he added.
Its gross non-performing asset ratio stood at 1.4% compared with 1.61% in the quarter ended March. The net NPA ratio stood at 0.5% against 0.65% in the preceding three-month period. The non-bank lender's total provision coverage ratio stood at 65% in the first quarter compared with 60% in the preceding three months.
Bajaj Finance has also increased its credit costs guidance.
The Company has now updated its credit cost scenario model for FY21 considering extended disruptions. It now estimates its credit costs to increase by 100-110% ( Rs 6,000-6,300 crore for FY21) over the pre-Covid credit cost of previous year. The Company has strong pre-provision profitability to absorb increased losses caused by Covid-19.Bajaj Finance Investor Presentation
Liquidity Position
Bajaj Finance had an overall liquidity surplus of Rs 17,700 crore as on June 30, 2020. The surplus stood at Rs 20,590 crore as on July 20.
Shares of Bajaj Finance fluctuated after the results were announced. The stock is currently trading 0.7% higher at Rs 3,465.95 apiece. That compares with a 1.22% gain in the benchmark Nifty 50 Index.
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