Rising cost of funds challenges Bajaj Finance

Earlier today, Bajaj Finance revealed a 21% growth in its consolidated earnings after tax to 3,825 crore in the fourth quarter of the financial year 2023-24 from Rs 3,158 crore in the year-ago time.

Overview of Bajaj Finance’s Financial Performance

Bajaj Finance, India’s largest non-bank lender, witnessed a significant increase in its consolidated cost of funds during the financial year 2023-24. 

The company reported a rise of 70 basis points, reaching 7.74 percent compared to 7.04 percent in the previous fiscal year.

Impact on Margin Performance

Analysts had anticipated that the escalating cost of funds could adversely affect Bajaj Finance’s margin performance. The surge in the cost of funds implies higher borrowing expenses for the lender, potentially leading to margin pressure.

Recent Quarter’s Performance

In the reporting quarter, Bajaj Finance experienced a further uptick in its cost of funds, recording a 10 basis points increase to 7.86 percent. 

Similarly, Bajaj Housing Finance observed a rise of 12 basis points to 7.82 percent during January-March of the financial year 2023-24.

Industry Trends and Regulatory Changes

Industry experts warned about the rising cost of funds among non-banking financial companies (NBFCs) for the January-March quarter. The increased borrowing costs, ranging from 25 to 50 basis points, are expected to squeeze net interest margins (NIMs).

Impact of RBI Regulatory Actions

The regulatory action by the Reserve Bank of India (RBI) in November 2023, which included enhancing risk weights on certain exposures and lending to higher-rated NBFCs, could further impede credit growth. This is particularly relevant for unsecured consumer credit segments.

Conclusion

Bajaj Finance’s challenges with rising cost of funds underscore broader industry trends facing NBFCs. 

Amidst regulatory changes and increasing borrowing expenses, navigating margin pressures remains a key concern for financial institutions operating in India’s dynamic lending landscape.