India’s largest consumer lender grew profit 29% and lifted its loan-growth outlook. But it also warned that higher borrowing costs will squeeze margins, and investors focused on that.
Bajaj Finance Q2 results were strong on almost every measure, and the stock still fell. Shares dropped as much as 3% on Wednesday to about ₹935, after slipping 2.5% on Monday before the numbers came out.
Consolidated net profit rose 29% to ₹6,367 crore in the July–September quarter, from ₹4,948 crore a year earlier. Net interest income, the gap between what the lender earns on loans and pays on borrowings, rose 24% to ₹13,335 crore.
Assets under management (AUM) grew 26% to ₹5,84,624 crore, with ₹37,680 crore added in the quarter alone. Asset quality also improved. Gross bad loans fell to 1.06% from 1.24% a year ago, and net bad loans to 0.42% from 0.60%. Loan losses and provisions were ₹2,166 crore, only slightly above last year’s ₹2,080 crore.
Why the stock fell
The concern came from the earnings call. Management signalled pressure on net interest margins as funding costs rise.
The reason is the RBI’s 25-basis-point repo rate hike to 5.50% on 7 October. Bajaj Finance borrows heavily from banks and bond markets, and those costs are now going up. A large part of its loan book is fixed-rate consumer lending, which cannot be repriced quickly. The result is a squeeze between what it pays and what it earns.
Management’s response is to protect return on assets instead of chasing margins. It also raised its AUM growth guidance to 26–27%. JPMorgan highlighted the guidance upgrade, benign asset quality and the focus on preserving returns despite higher funding costs. Several brokerages trimmed their estimates after the call.
Into a headwind?
This quarter shows the lender’s strength and its limits at the same time. Bajaj Finance is growing loans faster than it has in three years while keeping bad loans down, which few lenders can do at this scale.
But it is accelerating just as money gets more expensive. Faster growth at thinner margins can still lift profits, but each rupee lent now earns a little less. Investors have long valued Bajaj Finance as a compounder that grows both loans and margins. If margins stall, they will start pricing it more like a high-growth lender with normal margins.
Bajaj Finance is among the first large lenders to report since the RBI’s hike. If India’s best-run consumer lender is warning on margins, smaller NBFCs with weaker funding will feel it more.
Investors are watching the margin path unfold over the next two quarters and whether the RBI raises rates again. Festive-season loan demand, which arrived late this year, will confirm whether the 26–27% growth guidance is realistic. Any rise in bad loans in unsecured consumer credit would quickly change the picture.
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