 "Bajaj Finance's equity raising to boost already solid capital base: S&P")
Global rating agency Standard and Poor’s stated today that Bajaj Finance Ltd's (BFL) intention to raise up to Rs 10,000 crore in equity will further bolster the company's robust capital buffer.
"This capital infusion is expected to elevate the risk-adjusted capital (RAC) ratio of the India-based financial company above 15 per cent for the financial year 2024, in contrast with approximately 14.3 per cent as of March 31, 2023," the rating agency conveyed in a statement. The company's capital adequacy ratio was at 24.61 per cent, and the Tier-I capital was 23.01 per cent as of June 30, 2023.
Standard and Poor’s noted that BFL's RAC ratio is unlikely to sustain above 15 per cent during the financial years 2025-2026. This is attributed to the company's growth, which is projected to exceed 30 per cent annually in the ensuing two years. Consequently, the company's pre-diversification RAC ratio might decline to a range of 14.3 to 14.7 per cent over the following two financial years. The agency does not foresee any influence on the ratings (BBB-/Stable/A-3), which align with the sovereign ratings on India.
BFL, in its communication to the exchange, reported that its Assets under Management (AUM) surged by 33 per cent, amounting to roughly Rs 2.9 trillion as of September 30, 2023, in comparison to Rs 2.18 trillion the previous year. The AUM in the period from July to September 2023 (Q2 FY24) increased by about Rs 20,100 crore.
Standard and Poor’s anticipates BFL's capitalisation to consistently surpass that of its competitors. BFL's financial position is also predicted to gain from the upcoming listing of its subsidiary, Bajaj Housing Finance Ltd (BHFL). Since BHFL is categorised in the superior tier of the Reserve Bank of India's Scale Based Regulations, it is mandated to list by September 2025. This development is poised to stimulate further capital influx into BHFL and, on a consolidated basis, into BFL.
Factors like BFL's commendable profitability and minimal dividend disbursements further fortify its capitalisation. The company's return on average assets (ROAA) is projected to level out to around 4.5 per cent for the financial years 2024-2026, influenced by some margin pressures. BFL's ROAA is on par with gold-backed financiers like Muthoot Finance Ltd and Manappuram Finance Ltd and surpasses that of the rated banks.
The agency also remarked that BFL's stringent underwriting norms and predominantly mass-affluent borrower demographics would counterbalance the risks arising from its assertive loan expansion approach.