By Nishit Navin and Siddhi Nayak
BENGALURU/MUMBAI (Reuters) -Bajaj Finance, one of India’s largest non-banking finance companies, reported a smaller-than-expected second-quarter profit on Tuesday as it set aside more funds for potential bad loans.
The company reported a consolidated profit after tax of 40.14 billion rupees ($477.6 million) in the three months to Sept. 30. Analysts, on average, had expected 43.43 billion rupees, as per estimates compiled by LSEG.
Consolidated numbers include the non-banking financial company’s (NBFC) subsidiaries, Bajaj Housing Finance and Bajaj Financial Securities.
Bajaj Finance’s loan losses and provisions grew 77% on-year to 19.09 billion rupees.
Asset quality worsened, with gross non-performing asset ratio – the ratio of bad loans to total lending – at 1.06% at the end of September, from 0.86% at the end of prior three months, and 0.91% a year earlier.
While demand for consumer credit – including credit card spends – has remained strong over the last few quarters, the quality of lenders’ unsecured loans is showing signs of stress.
Stress on asset quality was seen across all retail and small and medium enterprise loans, Bajaj Finance said. The company “continues to take risk actions by cutting segments and pruning exposures,” managing director Rajeev Jain said on a media call.
“We are cautiously optimistic that loan loss to average AUF (assets under finance) has peaked,” Jain said.
He estimates loan loss to average AUF to go down to 2% by Jan-March from 2.16% in July-September.
Bajaj’s interest income rose nearly 28% to 149.87 billion rupees, driven by a 29% year-on-year rise in its assets under management.
Net interest income, the difference between interest earned and paid on borrowings, grew 23% to 88.38 billion rupees.
The company expects its cost of funds, or the interest rate that it pays to acquire funds for lending or investment, to have peaked in the fiscal second quarter.
Shares of the company ended 1.5% lower ahead of the results.
($1 = 84.0450 Indian rupees)
(Reporting by Nishit Navin; Editing by Janane Venkatraman and Shailesh Kuber)
