Bajaj Finance, the consumer finance arm of the Pune-based Bajaj Group, has mobilised close to Rs 3,500 crore from banks, mutual funds and other institutional investors by way of non-convertible debentures.
The non-banking finance company with market capitalisation of Rs 2.84 lakh crore has raised the substantial sum in March alone amid the second Covid wave. The private sector Axis Bank has put in Rs 750 crore followed by mutual funds like HDFC and IDFC. The funds would be utilised for refinancing of earlier high cost loans and also for growth and provisions, if any, for the stress loans.
The operating environment has suddenly changed for banks and NBFCs as second Covid wave has gripped Maharashtra, Delhi, Tamil Nadu and other states. There is no regulatory protection like moratorium or restructuring available for customers now. The Supreme Court has also lifted the NPA standstill in March, which means higher NPAs and also higher provisioning pressure for financial services companies.
The banks flush with liquidity are keen to invest in NCDs of well-managed and good-rated NBFCs. In fact, the banks also have a direct loan exposure to NBFCs. In the aftermath of IL&FS and Dewan housing debacle, the RBI had also relaxed the upper limit for bank financing to NBFCs.
While the Bajaj Finance's reliance on bank funding has gradually gone down in the last 5-6 years, the NCDs share in the funding profile has seen a change from 30 per cent to 35 per cent of its total borrowings. Deposits have also achieved a critical share of one-fourth from negligible some six years ago. Last year, banks which got RBI money at the repo rate under its long term repo operation (LTRO), invested in the NCDs of high-rated NBFCs for quick gains.
Bajaj Finance with a dominant share in consumer durable loans has been stress-testing its loan assets quite regularly. The second lockdown is also likely to impact NBFCs like Bajaj Finance as there are no new government or regulatory reliefs. The NPA classification norms are also in place. The company's gross NPAs after the lifting of the Supreme Court's NPA standstill is expected to touch 2.86 per cent. But the current restructuring and earlier moratorium hide the real stress in the system.
The company has always maintained good liquidity buffer. The company had liquidity buffer of Rs 14,347 crore as on December 31, 2020, which is 11 per cent . The company had earlier planned to go back to its pre-Covid liquidity buffer of 7-8 per cent of its borrowings by March 2021. There is always a cost attached to excess liquidity, but the challenging Covid environment has forced many good NBFCs and banks to sit on higher liquidity to meet any short-term obligations like deposit outflows.
The company is well capitalised with capital adequacy ratio at 28.18 per cent in December 2020. In fact, it has adequate capital to meet growth target for the next 2-3 years.Currently, the company is focussing on existing customer base for cross-selling and also growing its asset under management. The company reported a AUM of Rs 1.47 lakh crore, income of Rs 26,386 crore and profits of Rs 5,264 crore for 2019-20.