Global rating agency Standard and Poor’s today said Bajaj Finance Ltd’s (BFL) intention to raise up to Rs 10,000 crore of equity will further strengthen the company’s robust capital buffer.
“This capital infusion is expected to raise the India-based finance company’s risk-adjusted capital (RAC) ratio to over 15 percent for FY2024, up from approximately 14.3 percent as on March 31, 2023,” it said in the message. the rating agency said in a statement. The company’s capital adequacy ratio was 24.61% and Tier 1 capital was 23.01% as of June 30, 2023.
Standard and Poor’s noted that BFL’s RAC ratio is unlikely to remain above 15 percent in the 2025-26 financial years. This is due to the company’s growth, which is expected to exceed 30% annually over the next two years. Therefore, the company’s pre-diversification RAC ratio may decline to a range of 14.3 to 14.7 percent over the next two financial years. The agency does not foresee any impact on the ratings (BBB-/Stable/A-3) which are in line with India’s sovereign ratings.
BFL, in its filing to the stock exchange, said its assets under management (AUM) increased by 33 percent to approximately Rs 2.9 trillion as on September 30, 2023, compared to Rs 2.18 trillion in the previous year. year. AUM in July to September 2023 (Q2 FY24) increased by around Rs 20,100 crore.
Standard and Poor’s expects BFL’s market capitalization to consistently outperform that of its competitors. BFL’s financial position is also expected to improve from the upcoming listing of its subsidiary, Bajaj Housing Finance Ltd (BHFL). As BHFL is categorized in the higher tier of the Reserve Bank of India’s Scale-Based Regulations, it is mandated to list by September 2025. This development is poised to spur further capital inflows into BHFL and, on consolidated basis, in BFL.
Factors like BFL’s commendable profitability and minimal dividend payouts further strengthen its capitalization. The company’s return on average assets (ROAA) is forecast to flatten to around 4.5 percent for the 2024-2026 financial years, impacted by some pressure on margins. BFL’s ROAA is at par with gold-backed financiers like Muthoot Finance Ltd and Manappuram Finance Ltd and beats that of rated banks.
The agency also noted that BFL’s tight underwriting norms and predominantly mass affluent borrower demographics would offset the risks arising from its aggressive approach to loan expansion.