Detailed Narrative
Bajaj Finance reported a robust Q2 FY26, with Assets Under Management (AUM) growing by 24% year-on-year to INR 462,261 crores. This growth was broad-based, with new lines of businesses contributing 3% to the overall AUM expansion. The company's customer franchise significantly expanded, crossing 110 million to reach 110.64 million, with 4.13 million new customers added in the quarter alone. Despite this strong performance, the full-year AUM growth guidance for FY26 was prudently revised downwards to 22-23% from an earlier assessment of 24-25%, primarily due to risk actions in the MSME business and revised assessments from Bajaj Housing Finance Limited (BHFL).
Profitability metrics remained steady, with ROA and ROE maintained. The cost of funds improved by 27 basis points in Q2, settling at 7.52%, and is expected to remain in the 7.5% to 7.55% range for the full year FY26. Net Interest Margin (NIM) remained flat compared to Q1. Operating efficiencies also saw improvement, with the Opex to NTI ratio improving to 32.6% from 33.2% in the prior year's Q2. However, credit costs remained elevated, with loan loss to average AUF at 2.05% (up from 2.02% in Q1), leading to an expectation that full-year credit cost will be at the upper end of the guided range of 1.85% to 1.95%.
Management highlighted specific actions taken to address credit quality, particularly in the MSME segment, where unsecured volumes were cut by 25%, leading to an expected growth of only 10-12% for FY26. The captive 2-wheeler and 3-wheeler finance business, which contributes 1.5% of AUM but 9% of loan losses, is being phased out, expected to significantly improve asset quality from FY27. Subsidiaries BHFL and BFSL also showed strong performance, with BHFL's AUM growing 24% and PAT 18%, and BFSL's AUM growing 40% with profits up 27%.
A key strategic focus remains the FinAI transformation, with significant progress reported. 442 AI voice bots are live, contributing INR 2,000 crores in origination in Q2. The company aims for 85-90% of loan application quality checks to be AI-performed eventually, and all communication to incorporate BOTs by March '26. The festive season was exceptionally strong, with 7.4 million loans disbursed (up 26% YoY) and 2.3 million new customers added. The gold loan business is targeted to reach INR 27,000-30,000 crores by March '27, supported by an expansion of 900 new branches.