Bajaj Finance Limited — Q1 FY26 earnings call

Call held 24 Jul 2025

Management summary

Bajaj Finance reported a strong Q1 FY26 with 25% YoY AUM growth and 22% PAT growth, driven by record loan bookings and customer additions. Asset quality remained stable with Net NPA at 0.5%, and cost of funds improved. However, credit costs remained elevated due to stress in MSME and auto finance segments, leading to strategic pruning of these businesses. The company is also navigating a leadership transition and focusing on digital transformation.

Highlights

  • AUM growth of 25% YoY to INR 4,41,450 crores, demonstrating strong business expansion.

  • PAT grew 22% YoY and ROE stood at 19%, indicating robust profitability.

  • Record 13.5 million loans booked and 4.7 million new customers added, expanding customer franchise to 106.5 million.

  • Cost of funds improved by 20 basis points sequentially to 7.79%, supported by NCD and bank borrowing strategies.

  • Net NPA remained low at 50 basis points (0.5%), reflecting stable asset quality despite elevated credit costs in specific segments.

Concerns

  • Credit costs remained elevated in Q1 at 2.02%, 5 basis points higher QoQ, primarily due to 2-wheeler/3-wheeler and MSME segments.

  • Consumer leverage continues to be an area of concern, leading to pruning of most businesses and slower growth in MSME and auto finance.

  • Deposit contribution to the balance sheet is expected to decline from 19% to 15-16% by year-end, increasing reliance on other funding sources.

  • MSME business showing strains with 13 out of 17 key industries experiencing slowdown and 3 showing contraction.

Key financials

  1. AUM ₹4.41L Cr +25%YoY
  2. PAT — +22%YoY
  3. PBT — +21%YoY
  4. ROE 19%
  5. Net NPA 0.5%
  6. Cost of Funds 7.8% -0.2%QoQ
  7. Credit Cost 2% +0.05%QoQ
  8. Opex to Total Income 32.7%
  9. GNPA 1%
  10. Tier 1 Capital 21.2%
  11. Customer Franchise 106.5 Mn
  12. Loans Booked 13.5 Mn
  13. New Customers Added 4.7 Mn
  14. NII Growth 4.8%
  15. Fee Income Growth 17%
  16. Deposit Contribution 19%
  17. Overall PCR 52%

What they filed

Q1 FY27: revenue up 18.6%, net profit up 29.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue14,488 15,371 15,638 16,697 17,184 +19%17,870 +16%18,430 +18%19,802 +19%
Net profit5,614 3,706 3,940 4,133 4,251 −24%4,581 +24%4,840 +23%5,346 +29%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Mortgage
    31% Share of Balance Sheet
  • MFI
    40% Share of Balance Sheet
  • Gold Loans
    2.3% Share of Balance Sheet
  • 2-wheeler and 3-wheeler
    6.4% GNPA
  • MSME Lending
    1.8% Sequential GNPA

Capital allocation

high confidence
  • Liquidity Liquidity disclosed Liquidity buffer stood at just a tad below INR 15,000 crores as of 30th June. Tier 1 capital was at 21.19%. The company is increasing reliance on NCD, ECB, and bank borrowings as deposit contribution is expected to decline. NCDs are being borrowed at 7%-7.1% (down from 8% corridor), and 85% of bank money is on external benchmark rates with full 100 bps transmission. CP rates have seen 80-90 bps improvement. Retail deposit volumes have come down as they are now priced similarly to NCD/bank money.
    Important point to cover is liquidity and cost of funds liquidity buffer stood at just a tad below INR 15,000 crores as of 30th June. Cost of funds came in at 7.79%, an improvement of -- from a sequential standpoint of 20 basis points. In FY '26, overall, we estimate cost of funds to come in at 760 to 765. This is not taking into account any further cuts that may come at this point in time. However on the other hand, what you will see correspondingly is that the deposit contribution of the balance sheet may go down to 17-odd percent from where it was 20% to at this point in time in 19%, it will probably go down to between 15% to 16%. It's possible depending on the growth momentum. So for the next 12 months, there will be a higher reliance on NCD, ECB and bank borrowings to ensure we deliver rightful cost of funds to the business. On Panel 6, NIM grew 22%, net total income grew 21%. Opex to total income I've talked about. We started to deploy AI capabilities to improve productivity. Employee headcount stood at 65,528 and employee attrition in quarter was 16.9%, a little higher than what it was on a year-on-year basis. It's higher by 100 basis points. ... We are borrowing NCD at 8% corridor. We are now borrowing between 7% and 7.1% mostly. ... We have 85% of the bank moneys on external benchmark rate. That has seen transmission, as we speak today, full transmission of 100-basis-point. ... We have seen 80-basis-point, 90-basis-point improvement in CP rates as well in the recent times. ... Retail deposits. We were paying probably 70 80 basis points higher than the moneys that we are borrowing through a combination of bank and NCDs. We have priced now retail deposit exactly the same price as the NCD bank money is for us. As a result, the volumes have come down for now. It's at one-third the volume where we were earlier.

Guidance & targets

Cost of Funds

  • Cost of Funds Cost of Funds · FY26 · High confidence 7.60% to 7.65%
    In FY '26, overall, we estimate cost of funds to come in at 760 to 765.

    — Rajeev Jain

NIM

  • NIM Expansion NIM · by end of the year · High confidence 10 basis points

    Previously 5 to 10 basis points → 10 basis points

    I think we are reasonably confident that probably 10 basis points of NIM expansion could happen by end of the year.

    — Sandeep Jain

Fee Income

  • Fee Income Growth Fee Income · FY26 · High confidence 13% to 15%
    So I think on the fee income side, we have guided for 13% to 15% for the current year.

    — Sandeep Jain

Credit Cost

  • Credit Cost Guardrail Credit Cost · FY26 · High confidence 1.85% to 1.95%
    We continue to hold 185 - 195 basis points of guardrail for the current year on a full year basis.

    — Sandeep Jain

AUM Growth

  • AUM Growth AUM Growth · FY26 · Medium confidence 23-24%

    Previously 24-25% → 23-24%

    Right now, I would hold between 23-24%. But we would have -- also have a clearer view as we complete Q2.

    — Rajeev Jain

Customer Franchise

  • Customer Franchise Customer Franchise · this year · High confidence 120 million
    So and we can see a clear road map this year, we'll probably end at 120 million.

    — Rajeev Jain

New Customer Acquisition

  • New Customers from App New Customer Acquisition · a year · High confidence 2-3 million
    this could give us 2 million to 3 million new customers a year who would take the approval on the app exactly for the same product, walk into the store and out in out in Sorry, so we are continuing to invest in top of the funnel to make sure that it remains active and energized.

    — Rajeev Jain

Deposit Contribution

  • Deposit Contribution to Balance Sheet Deposit Contribution · by end of this year · High confidence 15% to 16%

    Previously 19% → 15% to 16%

    This will go down to probably 16% by end of this year.

    — Sandeep Jain

2-wheeler/3-wheeler business

  • Book Size 2-wheeler/3-wheeler business · by March '26 · High confidence 3,500 - 4,000 crores
    It will wind down to virtually 3,500 - 4,000 by March '26.

    — Rajeev Jain

What to watch in Q2 FY26

AUM Growth Trajectory

after Q2
Current 23-24% (assessment)
Target Clearer view on FY26 AUM growth

Why it matters

Management indicated a clearer view on AUM growth guidance will be provided after the completion of Q2, which is crucial for assessing full-year performance.

I would think about one more quarter, Abhishek, before we give you a very clear view. Right now, I would hold between 23-24%. But we would have -- also have a clearer view as we complete Q2.

Risks & concerns

  • MSME Business Strains and Slowdown

    high

    13 out of 17 key MSME industries are showing slowdown, with 3 in contraction, creating a 'perfect storm' with reduced credit supply.

    Management acknowledged

  • Elevated Credit Costs

    medium

    Credit costs remained elevated in Q1 at 2.02%, 5 basis points higher QoQ, particularly in 2-wheeler/3-wheeler and MSME businesses.

    Management acknowledged

  • Consumer Leverage and Business Pruning

    medium

    Consumer leverage is a concern, leading the company to prune most businesses and reduce contribution from customers with multiple loans.

    Management acknowledged

  • Political Risk in Karnataka

    medium

    Political risk in Karnataka has led to a 40-50% cut in business in the region, impacting rural B2C.

    Management acknowledged

  • Leadership Transition and Succession Planning

    medium

    MD and Director Anup tendered resignation; Board has asked for a detailed succession plan within 6 months, with clarity closer to March '28.

    Management acknowledged

  • Intense Competitive Activity in Mortgage Business

    medium

    Intense competitive activity is leading to pressure on volumes and attrition in the BHFL mortgage business.

    Management acknowledged

Q&A highlights

5 direct
Succession planning for MD/Director Partial
I have to go back to the Board and the NRC in the next 6 months' time with a detailed succession planning process is all I would like to comment at this point of time on this point, Viral. And I hope you appreciate the sentiment.

Analyst questioned the transition process and future plans for leadership, which management indicated would be addressed internally and presented to the Board within 6 months, with clarity closer to March '28.

Asked by Viral Shah

NIM expansion guidance Direct
I think we are reasonably confident that probably 10 basis points of NIM expansion could happen by end of the year.

Analyst sought clarification on NIM guidance, which was revised from 5-10 bps to a more confident 10 bps expansion by year-end, driven by rate cuts and cost of funds improvement.

Asked by Viral Shah

MSME stress subsegments and percolation to secured loans Direct
But let me just spend 2 minutes on MSME to make the point, we principally track 17 key industries in MSME, out of which 13 that we are seeing are exhibiting signs of slowdown, and 3, actually. So in a way, it's all 17. It's other than 1; 3 are actually showing contraction.

Analyst inquired about specific stress areas within MSME and potential spillover to secured segments, to which management detailed the widespread slowdown across 13 of 17 tracked industries.

Asked by Viral Shah

Unsecured business loans and customer leverage Direct
the BL business even pre-COVID used to have 14% - 15% of the customers who have multiple loans. We see this is a working capital loan rather than a consumption loan, a BL loan. So it is very common, and I have done business loan for 30 years. ... 14% of customers used to have multiple loans that went all the way to 21%. We have now brought it down to 17%.

Analyst asked about leverage at the promoter level in unsecured business loans, and management clarified the historical and current percentage of customers with multiple loans, indicating a reduction from 21% to 17%.

Asked by Piran Engineer

Customer addition momentum and cross-selling slowdown Partial
Yes. So Kuntal, 4.7 million new customer acquisition after last 2 years of record 15 million and 16 million, even I'm a little surprised at time. Thank God there is a population in India. As much in a lighter vein, as on a serious point, I think we build distribution which is able to generate that kind of top of funnel. Mind you in the private sector, there will be only two - three players and we are much younger, who are above 100 million franchise.

Analyst noted a slowdown in customer addition and cross-selling YoY, prompting management to explain the context of record past acquisitions and the focus on strategic partnerships and digital assets to maintain momentum.

Asked by Kunal Shah

NII growth vs AUM growth and NIM decline Direct
I think the liquidity buffers were deployed more in terms of mutual funds in the last quarter. And the mutual fund income goes and sits in a separate line item, which is net gain on fair value change. Adjusted for that, NIM was largely flattish on a Q-o-Q basis.

Analyst observed a discrepancy between NII growth (4.8%) and AUM growth (5.9% QoQ), implying NIM decline. Management clarified this was due to deployment of liquidity buffers into mutual funds, whose income is reported separately, making NIM largely flat on a QoQ adjusted basis.

Asked by Chintan

AUM growth guidance revision Partial
I was seeing you guys at decimal; we move a percentage like. Don't read anything into it, wait until Q2 end. We'll also have greater -- right now, as Sandeep likes to say, it's not guidance, it's assessment. The assessment is what we published in as part of Q4 holds.

Analyst questioned the slight reduction in AUM growth guidance (23-24% vs 24-25% previously). Management stated it's an assessment, not a hard guidance, and a clearer view will be provided after Q2.

Asked by Abhijit Tibrewal

MSME working capital loans and risk of credit cycle Direct
So what I'm trying to understand is now that you acknowledge that this storm was sudden and which is where we are slowing down, I'm just thinking aloud here that if everyone starts rationing credit in business loan slash working capital loans. Do you think that we might again kind of get into some kind of a credit cycle in this segment?

Analyst probed if the sudden stress in MSME, coupled with potential credit rationing by lenders, could lead to a broader credit cycle in the segment. Management acknowledged the 'perfect storm' but emphasized the higher quality of their MSME customers.

Asked by Abhijit Tibrewal

2 min read 6 chapters

Detailed narrative

Q1 FY26 Performance Overview

Bajaj Finance reported a strong start to FY26 with AUM growing 25% YoY to INR 4,41,450 crores. PAT increased by 22% and PBT by 21%, with ROE at 19%. The company booked a record 13.5 million loans and added 4.7 million new customers, expanding its customer franchise to 106.5 million. Net NPA remained low at 0.5% (50 basis points), indicating stable asset quality.

Asset Quality and Credit Costs

Credit costs remained elevated in Q1 at 2.02%, a 5 basis point increase QoQ, primarily driven by the 2-wheeler/3-wheeler and MSME businesses. The 2-wheeler/3-wheeler segment saw GNPA move from 3.4% to 6.38% YoY, while MSME lending's sequential GNPA moved from 1.48% to 1.76%. The company has taken actions to prune these businesses and expects credit costs to move sideways in Q2 before declining from Q3 onwards. Overall PCR stood at 52%, down from 53.73% due to restructuring of Stage 1 accounts.

Strategic Adjustments and Business Pruning

Management highlighted consumer leverage as a key concern, leading to actions across most products to reduce exposure to customers with multiple loans. Since January, the company has been pruning businesses, particularly in MSME and 2-wheeler/3-wheeler segments. The 2-wheeler/3-wheeler book is expected to wind down to INR 3,500-4,000 crores by March '26. Business in Karnataka was cut by 40-50% due to political risk, and MFI business was also cut by 35-40%.

Funding and Liquidity Management

The cost of funds improved by 20 basis points sequentially to 7.79%. For FY26, the company estimates cost of funds to be 7.60% to 7.65%. Deposit contribution to the balance sheet, currently at 19%, is expected to decrease to 15-16% by year-end, increasing reliance on NCD, ECB, and bank borrowings. NCDs are now being borrowed at 7%-7.1% (down from 8% corridor), and 85% of bank money is on external benchmark rates with full 100 bps transmission. Retail deposit volumes have reduced as they are now priced similarly to other funding sources.

Digital Transformation and Customer Franchise

The company's FinAI transformation strategy is starting to go live, with AI capabilities being deployed to improve productivity. The customer franchise reached 106.5 million, with a target to reach 120 million by year-end. The company's app is evolving into a 'super app' with BALIC (insurance) already live and government services accessible by end of July. New customer acquisition from the app is projected to add 2-3 million customers annually.

Leadership Transition and Succession Planning

Anup, the MD and Director of BFL, tendered his resignation for personal reasons. The Board has accepted this and requested a detailed succession plan within the next 6 months. Rajeev Jain will continue in an operating role until March '28 to ensure continuity and stability, with clarity on succession planning expected closer to that date.

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