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Consumer lender Bajaj Finance Ltd’s fourth quarter update showed a mixed picture. The lender has been able to add new customers at a rate similar to pre-pandemic levels.

In an update on its March quarter, the non-banking financial company (NBFC) said it added 2.3 million new customers and 5.5 million new loans during the quarter. To be sure, Bajaj Finance has been able to keep the rate of new customer accretion healthy. But that has been an outcome of not just the company’s efforts but also some luck. Analysts believe that the competition from HDFC Bank may have reduced a bit after the lender was penalised by the regulator on digital lapses. The fact that HDFC Bank could not issue new credit cards worked in favour of Bajaj Finance. The bank has been giving tough competition to the company on consumer loans since the pandemic. Shares rose 1% today but are still down roughly 5% since January.

Given that Bajaj Finance has been able to hook more and more customers onto easy equated monthly instalments, the growth in asset under management has improved. AUM growth was 4% year-on-year and 6% on a sequential basis. Analysts at Morgan Stanley pointed out that AUM growth has exceeded expectations. "We expect the company to have seen healthy traction in consumer B2B (business to business) loans and commercial loans. We also expect a gradual uptick in mortgage loans and consumer B2C (business to consumer)," analysts at Motilal Oswal Financial Services Ltd said in a note.

In other words, there is improvement, but it is slow. Even so, the odds against this growth trajectory have risen because of the second wave of infections now. Regional lockdowns are increasing and Maharashtra’s strict state-wide lockdown for a month has the potential to hit consumption. Most of all analysts worry that the pandemic’s resurgence could hit asset quality again. Those at Credit Suisse are watching out for an increase in provisioning and credit costs for Bajaj Finance in the upcoming quarters.

Valuations have stagnated so far this year with share down 5% since January, a clear reflection of asset quality concerns. For Bajaj Finance to reverse this trend on valuations, it would need to deliver on asset quality.

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