In FY24, Bajaj Finance's cost of funds increased by 70 basis points to 7.74%

In FY24, Bajaj Finance's cost of funds increased by 70 basis points to 7.74%

Bajaj Finance said earlier today that its consolidated profit after tax increased by 21% to Rs 3,825 crore in the fourth quarter of the financial year 2023–24 from Rs 3,158 crore in the same time the previous year.

According to a business presentation for investors, Bajaj Finance, the biggest non-bank lender in India, saw a 70 basis point (Bp) rise in its consolidated cost of funds in the 2023–24 fiscal year, to 7.74 percent.

The company's cost of funds was 7.04 percent in the preceding fiscal year.

The growing expense of capital may have an effect on Bajaj Finance's margin performance, according to analysts surveyed by Moneycontrol. Higher borrowing expenses for the lender might result from a rise in the cost of funds.

The cost of capital for Bajaj Finance rose by 10 basis points on a quarter to 7.86 percent during the reporting quarter.

Similarly, from January to March of the financial year 2023–2024, Bajaj Housing Finance's cost of funds increased by 12 basis points each quarter to 7.82 percent.

According to a Moneycontrol article from April 18, analysts predicted that non-banking financial corporations (NBFCs) for the January–March quarter may disclose increased funding costs, which would put pressure on NIMs.

"Since the last quarter of fiscal 2024, the cost of borrowing for NBFCs has already increased by 25 to 50 basis points." Net interest margins (NIMs) might shrink somewhat as a consequence of the higher cost of funding, according to a research from rating agency CRISIL.

The Reserve Bank of India's (RBI) regulation move in November 2023 to raise risk weights by 25 percentage points on such exposures as well as on lending to higher-rated NBFCs, according to the paper, may have an impact on credit growth, particularly unsecured consumer credit.

The NBFCs have increased the risk weight for retail loans, with the exception of housing, education, auto, microfinance, and SHG loans, as well as loans secured by gold jewelry.

The business projects that by July or August, the cost of funds will peak, and by September 2024, the composition of AUM would shift to include secured assets.

In an investor presentation, the business said, "As a result, we expect a 30–40 bps moderation in NIM over the next two quarters over our current levels."

Bajaj Finance said earlier today that its consolidated profit after tax increased by 21% to Rs 3,825 crore in the fourth quarter of the financial year 2023–24 from Rs 3,158 crore in the same time the previous year.

Included in the consolidated figures are the operations of Bajaj Housing Finance and Bajaj Financial Securities, the lender's subsidiaries.

Net earnings exceeded forecasts made by analysts. Experts forecast a 22% increase in net profit year over year, driven by growth in credit, but they issue a warning that the margin outlook may be negatively impacted by rising funding costs.

Moneycontrol gathered the average estimate of five brokerages, and they predicted that Bajaj Finance's net profit in Q4FY24 would increase by 22% to Rs 3,836 crore from the same time the previous year.

The company's improved asset quality, net interest income, and growing assets under management have all contributed to its higher net profit.