Bajaj Finance Ltd Management Discussions.

Bajaj Finance Ltd. (BFL, Bajaj Finance, or the Company) is a deposit-taking Non-Banking Financial Company (NBFC-D) registered with the Reserve Bank of India (RBI). It is classified as an NBFC-Investment and Credit Company (NBFC-ICC) with the RBI. It is a subsidiary of Bajaj Finserv Ltd. and is engaged in the business of lending, and acceptance of deposits. The Company has a diversified lending portfolio across retail, SMEs and commercial customers with significant presence in urban and rural India. It accepts public and corporate deposits and offers variety of financial services products to its customers.

BFL has two 100% subsidiaries. These are: (i) Bajaj Housing Finance Ltd. (BHFL or Bajaj Housing) which is registered with National Housing Bank as a Housing Finance Company (HFC); and (ii) Bajaj Financial Securities Ltd. (BFinsec), which is registered with the Securities and Exchange Board of India (SEBI) as a stock broker and depository participant. BFinsec commenced its operations in the financial year 2019-20 (FY2020).

The COVID-19 pandemic

The COVID-19 pandemic is a once in a lifetime occurrence that has brought with it unimaginable suffering to people and to almost all sections of the economy. When the pandemic struck and led to nationwide lockdowns to curtail the transmission of disease, it was natural to fear that the global economy would stay in extreme stress of the kind not seen since the Great Depression and would have a long-lasting economic impact.

To counter the crippling impact of the lockdowns on economies, the worlds policymakers have resorted to fiscal and monetary measures never seen before in global economic history. It still remains to be seen if these relief measures sufficed, and whether actions taken by Governments across the globe adequately compensated for the disruptions created in the lives of people.

Fortunately, science prevailed. Multiple vaccines were found with impressive efficacy levels in less than a year — which will probably rank as among one of the most incredible achievements in science. The announcement of successful development of vaccines seemed to lift spirits around the world. Unfortunately, the advent of winter saw several countries battle second waves of COVID-19 infections, including more virulent strains leading to partial lockdowns. The race between vaccines and variants is heating up as massive vaccination drives are underway. Much depends on blocking transmission and not just the disease.

The only three preventives are masks, social distancing and vaccinations. However, to vaccinate even half of the worlds population of 7.8 billion is going to take years. The production, storage and distribution challenges require that Governments prioritise the vaccinations in a judicious manner so as to limit the human toll.

Fortunately for India, which is home to some of the largest vaccine makers in the world, the supply constraints should be limited and temporary. Moreover, our experience in implementing large scale vaccination programmes should help in vaccinating our vulnerable population. Even so, with many states in India witnessing a seriously full-blown second surge of COVID-19, the vaccination challenge is enormous.

After an estimated historic correction of (3.3%) in 2020, the International Monetary Fund (IMF) has projected the global economy to grow 6% in calendar year 2021 and 4.4% in 2022 on the back of the fiscal and monetary support provided by Governments of the world over coupled with widespread vaccination.

We know that India can ill afford another country-wide lockdown such as was imposed from March to June 2020. The impact on the economy and employment was severe in the first instance; and cannot be repeated yet again.

The lockdown that continued throughout the first quarter of the FY2021 saw Indias GDP for April-June 2020 contracting by a massive 24.4%. Even the second quarter was terrible, with GDP shrinking by 7.3% in July-September 2020. Thereafter, we have seen a rebound — thanks to the resilience of our citizens, our entrepreneurs and of our economy.

The third quarter (October-December 2020) saw a small positive growth of 0.4% compared to the same period in the previous year. The second advance estimates of national income for FY2021 released by the Central Statistics Office (CSO) on 26 February 2021 anticipates the total contraction for FY2021 to be 8% — implying a significant V shaped bounce-back in the second half of the year. The most recent IMF forecast has also raised Indias GDP growth estimate for FY2022 from 11.5% to 12.5%. If that were to occur, it will be the most significant growth turnaround among all the major nations of the world, including China.

The only grey cloud at present is the huge surge in infections that started with the second wave beginning in early March 2021. Hopefully, a serious increase in the pace of vaccinations across the country will bring this surge down; and if we keep all enterprises and workers open for business, it should not affect the economy in any significant manner.

Macroeconomic Overview

Given the impact of the pandemic, FY2021 was expected to be an extremely demanding year. The consensus was that GDP growth in FY2021 would not only be negative but also would constitute the greatest fall in growth since 1979-80.

In fact, the degrowth in GDP was much larger than expected. For April-June 2020, real GDP contracted by a massive 24.4%. India had never recorded a quarter of negative growth since it began issuing such data publicly in 1996. No other large economy shrank so much during the pandemic. In the second quarter, July-September 2020, GDP again contracted by 7.3%. The consensus was that growth in the second half of the fiscal year would be far less than what was needed to erase the effect of the deep recession in the first half.

Thankfully, we began to witness early signs on resumption of economic activity in the second half of the year with several high frequency indicators suggesting that the economy was back on to positive growth. The third quarter (October-December 2020) recorded a GDP growth of 0.4%. And, as mentioned earlier, the second advance estimates of national income for FY2021 released by the CSO indicates a negative GDP growth of 8% for FY2021. Though this was bad enough, the contraction will be far less than earlier thought of — and we should see the fourth quarter (January-March 2021) showing relatively robust growth.

Table 1 gives the data on real GDP and gross value added (GVA) growth for the last four financial years.

Table 1: Growth in real GDP and GVA, India

FY2018 (3rd RE) FY2019 (2nd RE) FY2020 (1st RE) FY2021 (2nd AE)
Real GDP growth 6.8% 6.5% 4.0% (8.0%)
Real GVA growth 6.2% 5.9% 4.1% (6.5%)

Source: Government of India,CSO. AE denotes advance estimate and RE denotes revised estimate.

In the past, India has seen a recession only thrice: in 1957-58, 1965-66 and 1979-80. The reason was the same each time — that of monsoon shocks affecting agriculture, which was then a sizeable part of the economy. The lockdown induced recession in FY2021 was different with agriculture being a bright spot, since agricultural activity was largely unhindered even during the lockdown phase. The manufacturing sector that initially suffered has since benefitted from the recovery aided by the pent-up demand and shifting consumer preferences. The services sector is showing a weaker recovery especially hotels, travel and entertainment industry.

Retail inflation, measured by the Consumer Price Index (CPI), which had moderated in March 2020 with food inflation easing from double digits in December 2019-January 2020 again surged on account of supply disruptions in April 2020 to 8.6% from 7.8% in March 2020 despite agriculture being the bright spot. CPI breached the RBIs upper tolerance threshold of 6% for six consecutive months (June to November 2020) before falling to 4.6% in December 2020 on the back of easing food prices and favourable base effects. The RBI monetary policy dated 7 April 2021 estimates the CPI inflation for the fourth quarter at 5%.

To alleviate the economic stress induced by the pandemic the Government of India announced a Rs. 20.9 lakh crore economic package (or about 10% of GDP). Of this, 1.2% of GDP comprised direct fiscal spending and the rest consisted of (i) loans and guarantee schemes of Rs. 10.4 lakh crore, or about 5% of GDP and (ii) the RBIs liquidity measures of Rs. 8.01 lakh crore, or about 3.8% of GDP. The guarantee schemes and liquidity measures aided growth in bank credit, enabled abundant liquidity in the financial sector — which was directed toward impacted segments like industrial and service sector.

Non-food credit growth of the scheduled commercial banks in the aggregate was 6.7% as of 26 March 2021 over 27 March 2020. Credit growth to industrial sector over the same period was 0.4%. Having said that, credit growth within the industrial sector was the largest in the medium scale industry and the overall credit growth was brought down owing to a contraction of credit to large scale industry. The credit growth in personal loan segment witnessed decline in growth rates to 10.2% as of 26 March 2021 over 27 March 2020 compared to 15.0% as of 27 March 2020 over

29 March 2019.

Various measures taken by the RBI ensured sufficient liquidity at all times during FY2021, and thus calmed sentiments in bond markets which had seen volatile conditions in March and April 2020. The RBI reduced its policy rates only once during this fiscal on 22 May 2020 by 40 basis points (bps) to 4%. As an additional measure to increase credit intermediation, the RBI increased the margin between repo and reverse repo from 25 bps to 65 bps. The central banks unprecedented monetary easing and open market purchases kept interest rates at comfortable levels during the year despite a record growth in Government borrowings. It was only after the announcement of a growth-centric and expansionary Union Budget for 2021-22 that yields in bond markets rose on expectations of the increased borrowing programme of the Government of India.

While the RBI has maintained an accommodative stance so far, multiple factors like sticky inflation levels, elevated crude oil prices, and risks of US treasury yields will play a part in its ultra-accommodative stance and may have a consequential impact on interest rates in FY2022.

The Government is taking on the onus of heavy lifting to revive the investment cycle. A growth-centric and expansionary Union Budget for 2021-22 puts out hope that it will set the tone for infrastructure growth over the next few years. The fiscal deficit for 2021-22 is budgeted at 6.8% of Indias GDP — though high but way below the revised estimate of 9.5% in 2020-21. Given the unprecedented economic havoc caused by the pandemic, such deficits are in line with actions taken globally. Indeed, most experts feel that FY2022 is a year when fiscal discipline will be kept in partial abeyance. Even so, implementation of the various budget measures is now all-crucial for the economic and fiscal health of the nation.

We believe that the resilience shown by the Indian economy coupled with (i) a growth-centric Union Budget and (ii) the RBI maintaining an accommodative stance to sustain growth on a durable basis, will see the Indian economy grow at a faster clip than other economies. As mentioned earlier, the only cause for concern is the resurgence of infections and partial lockdowns in some states.

Industry Overview

NBFCs have become important constituents of the financial sector and have been recording higher credit growth than scheduled commercial banks (SCBs) over the past few years. NBFCs are continuously leveraging their superior understanding of regional dynamics, well-developed collection system and personalised services to expedite financial inclusion in India. Lower transaction costs, quick decision making, customer orientation and prompt provision of services have typically differentiated NBFCs from banks. Considering the reach and expanse of NBFCs, these are well-suited for bridging the financing gap. Systemically important NBFCs have demonstrated agility, innovation and frugality to provide formal financial services to millions of Indians.

Over the last decade, NBFCs have witnessed phenomenal growth. From being around 12% of the balance sheet size of banks in 2010, these are now more than a quarter of the size of banks.

NBFCs are the largest net borrowers of funds from the financial system with gross payables of Rs. 9.37 lakh crore as of

30 September 2020. HFCs are the second largest borrowers of funds from the financial system with gross payables of around Rs. 6.20 lakh crore as at 30 September 2020.

Given their large interconnection with the financial system and the importance of the NBFC in credit intermediation, the RBI has been enhancing the regulatory oversight of large NBFCs. Keeping in mind potential systemic risks that NBFCs might pose to the financial system, the RBI in its Discussion Paper on Revised Regulatory Framework for NBFCs: A Scale-Based Approach (12 January 2021) seeks to balance regulatory arbitrage in favour of NBFCs and the recent growth trajectory of NBFCs by adopting a new approach towards regulating NBFCs.

With the spread of the pandemic and imposition of lockdowns to contain the spread of disease, we had in our last years Management Discussion and Analysis said that:

"the outlook for the coming year is expected to be extremely demanding. In the current situation, lending businesses face four daunting challenges of (i) disruption in business acquisition, (ii) providing customers adequate relief on their debt servicing obligations, (iii) dealing with a weakened customer service and debt recovery infrastructure, and (iv) continuing to service their own debt."

How the scenario unfolded on these four parameters in FY2021 is given below.

The continuing lockdown till June 2020 and a gradual opening of economy thereafter resulted in a sharp reduction in inquiries for consumer credit and consequent lower acquisition of business.

Consumer credit — which was growing at 36% on year-on-year basis for the period ended December 2019 — registered a severe contraction showing a sharp degrowth of 34% for the period ended June 2020. Despite a pick-up in economic activity thereafter, the inquiry levels still registered a contraction of 14% on year-on-year basis for the period ended December 2020.

The disruption in business was most severe for NBFCs and HFCs who registered a negative growth of 25% on a year-on-year basis for the period ended December 2020 versus a growth of 47% for the period ended December 2019. Home loans business witnessed a faster revival in volumes on the back of supportive property prices, stamp duty reductions by some state Governments and favourable interest rate environment as lenders thronged to lower risk assets.

On 27 March 2020, the RBI had announced a moratorium for EMIs / payments falling due from 1 March 2020 till 31 May 2020. This moratorium was further extended on 23 May 2020 for all EMIs / payments falling due up to 31 August 2020.

Approximately 40.4% of total outstanding loans of financial institutions as on 31 August 2020 were under moratorium covering approximately 45.6% of customers (Source: RBI Report on Trend and Progress of Banking in India).

To provide further relief to distressed customers, the RBI in its notification dated 6 August 2020, allowed banks, NBFCs and HFCs to undertake one-time restructuring of stressed loans on account of COVID-19 pandemic. NBFCs and HFCs were more impacted than banks as these entities had to provide moratorium to their customers, without getting similar relief on their liabilities.

To provide additional relief, the Government of India announced ex-gratia payment to lenders for waiving off compound interest for loans up to Rs. 2 crore for some category of borrowers.

Recently, the Honourable Supreme Court has directed all banks and financial institutions to refund compound interest, interest on interest or penal interest collected during the moratorium period irrespective of the loan amount and category of borrowers. The Supreme Court also lifted the ban it had imposed on declaring accounts of borrowers as non-performing assets.

Customer servicing and debt recovery was already envisaged as a challenge during the pandemic induced stress. Individuals were losing their livelihoods and businesses were struggling to overcome disruptions while facing demand-supply constraints.

To provide succour to customers, the authorities went all out to offer relief by announcing equated monthly interest (EMI) moratoriums, Emergency Credit Line Guarantee Scheme for the SME sector, relief on compound interest and a resolution framework for COVID-19 related stress.

Debt recovery in the first half of the fiscal was severely disrupted. However, the second half saw some semblance of normalcy with the gradual opening up of the economy as customers and lenders came to terms with the emerging scenario. However, this pandemic induced disruption has impacted the portfolio quality of all lenders; and they will have to redefine customer service and debt recovery in the post-pandemic world.

The first three challenges were common to banks, NBFCs and HFCs. The last, namely continuing to service their own debt created severe stress for NBFCs and HFCs. The known structural arbitrage that NBFCs and HFCs enjoyed such as not maintaining a Cash Reserve Ratio (CRR) and a Statutory Liquidity Ratio (SLR) became a severe disadvantage during the pandemic. The unfolding of events after the lockdown resulted in creating a scenario of NBFCs having to provide adequate relief on debt servicing obligations to their customers while not being granted the same relief on their liabilities. NBFCs and HFCs who had adopted prudent practices of maintaining adequate liquidity were able to tide over this problem; others could not.

Thus, the business model of the NBFC sector was severely tested in FY2021. This was the fourth large external stress that the sector has faced in the last few years, namely, (i) demonetisation, (ii) GST implementation, (iii) failure of a large NBFC, and (iv) the pandemic. The fact that many NBFCs have managed to overcome these severe stresses without significant impact is a testimony to their resilience. With superior capital adequacy, better margins, frugal cost management and lower non-performing assets (NPAs), the NBFC sector is well poised to seize the opportunity provided in the post-pandemic revival cycle. The revised regulatory framework proposed by the RBI intends to make the NBFC sector more resilient.

The Company

BFL is present in 2,988 locations across the country, including 1,690 locations in rural / smaller towns and villages. It focuses on six broad categories: (i) consumer lending, (ii) SME lending, (iii) commercial lending, (iv) rural lending,

(v) deposits; and (vi) partnerships and services.

The Company had to steer through a difficult year due to the COVID-19 pandemic. Having recorded envious performance metrics over the last 12 years from FY2009 to FY2020 with compounded annual growth rate (CAGR) of 45% in its consolidated AUM and 58% in its consolidated profit after tax, BFL delivered marginal growth in its consolidated AUM of 4% and a degrowth in its consolidated profit after tax of 16% while ensuring adequate loan loss provisioning for risks emanating from COVID-19 induced stress.

Despite significantly elevated level of losses in FY2021, the Company delivered return on assets and return on equity of 3.1% and 12.8% respectively on a consolidated basis. In this exceptional year of lower acquisition volumes, higher liquidity buffers and increased recovery costs, BFL has once again demonstrated the resilience of its business model which generates strong pre-impairment profitability to absorb higher losses resulting from a crisis.

The Company remains well capitalised with a capital-to-risk weighted asset ratio (CRAR) of 28.31% as on 31 March 2021.

It remains among the best capitalised large NBFCs in India.

In the face of the pandemic, the Company swiftly evolved a revised two-pronged approach which focused on: (i) conservation and prudence, and (ii) capitalising on the opportunity provided by the disruption to completely transform its business model.

Conservation and prudence encompassed capital management, maintaining abundant liquidity, reducing operating expenses, expansion of collections and servicing capability, strengthening of underwriting norms and a very sharp view on risk metrics.

BFL maintained a conservative stance on volumes as post-lockdown restrictions were gradually lifted till August 2020 given extended moratoriums, disruption in economic activity, weakened portfolio quality and collections, and absence of updated customer bureau data. The Company staggered its volume revival over a period by business portfolios, as each business required different levels of calibration. The business-wise performance is discussed in detail in the Business Update section.

On the liability side, the Company continued to maintain higher liquidity buffers to counter reduced EMI inflows induced by moratoriums and continued contractual liability for repayments. It was only when market conditions stabilised in the third quarter that BFL started to wind down the excess liquidity buffer. While maintaining higher liquidity buffers, the Company also kept strong vigil on its cost of borrowings resulting in a decrease of 55 bps over FY2020. As on 31 March 2021, BFLs consolidated borrowings stood at Rs. 131,645 crore.

The Company also deployed Zero Based Budgeting to reimagine all its businesses and functions and sharply reduce its operating expenses. Some of these were structural in nature while others were transient. These cost cuts encompassed freeze on advertisements and promotions, calibration of salaries and incentives, travel, training, tele-calling cost etc. along with productivity enhancement. Together, these have helped to absorb the enhanced recovery costs in the current year.

BFL also took steps to provide customers additional channels to engage with the Company. As examples, it offered EMI moratorium and resolution plans to customers to mitigate their cashflow stress; and strengthened digital channels for servicing and overdue payments. It increased collections resourcing to service a larger pool of customers in delinquency, and mitigate risk of higher loan losses. The Company established 10 dedicated collection servicing branches, trained approximately 6,700 agents on DRA (Debt Recovery Agent) and improved customer feedback on collections.

Using its robust risk management and portfolio monitoring framework, BFL took enhanced credit costs based on emerging trends across its different portfolios. During the year, the Company advanced its write-off policy due to COVID-19 induced stress and took an accelerated charge off of about Rs. 4,193 crore of loan accounts by utilising existing provisions against such loan accounts. BFL holds a management overlay provision for macroeconomic factors and COVID-19 of Rs. 840 crore as on 31 March 2021.

As a result of its deeply embedded risk culture and robust risk management practices, the Companys portfolio quality as of 31 March 2021 continues to remain strong. BFLs consolidated Gross NPA at 1.79% and Net NPA at 0.75% are among the lowest in the NBFC industry.

In the backdrop of this exceptional year and the Companys steps to overcome the challenges it faced, the consolidated performance highlights for FY2021 are given below.

BFLs Consolidated Performance Highlights, FY2021

• Number of new loans booked: 16.88 million.

• Customer franchise: grew by 14% to 48.6 million.

• Assets under management (AUM): increased by 4% to Rs. 152,947 crore.

• Total income: increased by 1% to Rs. 26,683 crore.

• Net interest income (NII): rose by 2% to Rs. 17,269 crore.

• Total operating expenses (Opex): de-grew by 6% to Rs. 5,308 crore.

• Opex to NII improved to 30.7% from 33.5% in FY2020.

• Pre-impairment operating profit: increased by 6% to Rs. 11,961 crore.

• Impairment on financial instruments: increased by 52% to Rs. 5,969 crore.

• Profit before tax (PBT): decreased by 18% to Rs. 5,992 crore.

• Profit after tax (PAT): decreased by 16% to Rs. 4,420 crore.

• Capital adequacy ratio as of 31 March 2021 was 28.31%, which is well above the RBI norms.

Tier I adequacy was 25.11%.

The Company strongly believes in "Never let a crisis go to waste". Utilising the opportunity provided, it chose to accelerate its transformational journey that it had embarked upon in the third quarter of FY2020. BFL is confident that it will come out of this crisis with enhanced customer experience, stronger volume momentum, deep digital orientation and a leaner cost structure.

Business Transformation

BFL is one of the largest and most diversified NBFCs in India. It has the experience of working with approximately 48.6 million customers since it started its transformational journey in FY2008 from a mono-line captive lender to a diversified financial service business. During this period, BFL expanded its footprint to 2,988 locations with distribution network of over 110,300 points of sale and created presence in the digital space.

The Company was among the early movers to transit to digital process in the financial services industry. It had already moved from Physical to Phygital in a seamless manner and has embarked to move to the last phase, namely Digital, in the last three years.

In its long-range planning exercise in November 2019, the Company has imagined a completely new way of conducting business and to move to providing financial products and services to its 48.6 million existing customers in a seamless manner by creating an omnichannel framework. The omnichannel model would provide a flexibility to the customer to move between online to offline and vice versa in a frictionless manner.

Earlier, BFL had envisaged a four-year execution timeline. The Company has seized the opportunity provided by the pandemic induced transition to the digital world to expedite its business transformation process. It plans to complete this transformation process in a phased wise manner between July 2021 and October 2021.

This business transformation focuses on building an omnichannel model to deliver significant business velocity, reduction in operating costs and significant improvement in customer experience. This model, with an integrated offering of products and services, will enable BFL to become a moment of truth company for its customers.

In addition to business transformation, the Company also resorted to Zero Based Budgeting to reimagine all its businesses and functions and sharply reduce its operating cost.

Business transformation requires significant changes in operating processes and core technology stack of the Company. These are detailed below.

BFL is developing five proprietary marketplaces. These involve: (i) the EMI store; (ii) the Insurance Marketplace;

(iii) the Investment Marketplace; (iv) BFL Health; and (v) the Broking App with the help of group companies. These five apps will provide customers with an option to review, compare and buy host of financial products and services across electronics, insurance, investments and health category.

Having received approval for running its own wallet business, BFL has developed a wallet application called Bajaj Pay. This will offer an integrated payment solution comprising of UPI, PPI, EMI card and credit card to its customers. The Company will start offering Bajaj Pay to its customers in the first quarter of FY2022.

BFL is also developing a Bajaj Pay for merchants. This should broaden the payment solution offering of the Company to its approximately 98,300 merchants; and enable higher growth and larger market shares.

The Company plans to partner with 25+ adjunct app ecosystem which have related products or services offering for its customers. These apps will provide adjacency to BFLs core offerings, and thus increase the customer stickiness.

It is developing and significantly transforming four productivity apps: (i) the Sales One app; (ii) the Merchant app;

(iii) the Collections app; and (iv) the Partner app. These apps will significantly improve productivity and efficiencies of employees, channel partners and the merchant ecosystem.

Business Update

In the current year, BFL disbursed 16.88 million loans — representing a de-growth of 38% over FY2020, due to lower acquisition on account of pandemic induced lockdown, gradual reopening of the economy, absence of updated bureau information, and elevated levels of perceived and incurred risk in the lending business. The Company witnessed a decent recovery of business volumes between the third and the fourth quarter of FY2021. The third quarter saw a degrowth of 21% and the fourth quarter saw degrowth of 9%.

The Companys customer franchise as on 31 March 2021 stood at 48.6 million, or a growth of 14% over FY2020. The Company acquired over 6.2 million new customers in FY2021. BFL is present in 2,988 locations across the country, including 1,690 locations in rural / smaller towns and villages. It operates through more than 110,300 distribution points across India.

Consumer Lending: consumer electronics, furniture, digital products, e-commerce purchases and daily spends financing

BFL continued to be the dominant lender for consumer electronics, furniture and digital products in India, and financed 8.9 million consumer electronics and digital products purchases in FY2021. This segment saw some shift in consumer preferences as a result of changed lifestyles amidst the pandemic.

Increased demand for dish washers and electronic products enabling connectivity was palpable. However, supply of television panels was impacted between April to December 2020, initially on account of supply disruptions caused by lockdown and later owing to border tensions between China and India. The traditional April-June surge in demand for air conditioners did not materialise due to lockdowns. In the current year till December 2020, import of LCD panels was lower by 44% as compared to same period of the previous year.

BFLs unique Existing Member Identification (EMI) card, with about 23.8 million cards in force, enables customers to avail instant finance after the first purchase in over 98,300 points of sale. In FY2021, EMI cards enabled the Company to finance over 8.7 million purchases across all sales finance categories: consumer electronics, digital products, lifestyle products, lifecare, e-commerce and other retail spends.

The Company launched its health EMI card product which provides customers with features and benefits like higher financing limits; EMI facility at multi-speciality hospitals; discounts on medicines and medical tests; and various other wellness benefits. The Company distributed 1.1 million health EMI cards in FY2021.

Bajaj Finance remained the largest financier of Bajaj Auto motorcycles and three-wheelers in FY2021. There was an increased demand for personal mobility during the pandemic. However, BFL chose to remain cautious in view of increased credit cost during the pandemic and tightened its credit norms on new acquisition to acquire better customers. It financed purchase of over 614,000 motorcycles and about 59,300 three-wheelers in FY2021. This constituted over 34% of domestic sales of Bajaj motorcycles and 54% of domestic sales of Bajaj three-wheelers.

BFLs lifestyle financing business is inherently based on discretionary spends and, hence, saw muted demand. It financed approximately 288,000 transactions in FY2021, which represented a de-growth of 47% versus the previous year. Given the widely distributed nature of the business and relatively higher ticket spends compare to other sales financing business, BFL has maintained a cautious stance regarding this specific portfolio.

The Company finances its existing EMI card customers for their purchases through e-commerce platforms. Here, BFL expanded its online relationships from 33 to 74 partners.

Despite the dominance of e-commerce platforms during the pandemic, the Company remained cautious in this line of business and financed about 1.7 million transactions in FY2021 — representing a de-growth of 38% versus the previous year. The Company made the offering even more secure and frictionless by enabling customers to use their mobile number and OTP instead of a 16-digit EMI Card number.

The retail spends financing business offers easy instalment options to customers for small ticket purchases like fashion, eyewear, cycles, insurance, tyres, car accessories and servicing, and small appliances. During the year, the Company has reoriented this business to focus on fewer geographies, relatively large format distributers and higher ticket spends which are more economically viable. This business is now operational in 145 locations with a footprint of over 14,300 partner stores across India. BFL financed nearly 344,000 purchases in FY2021 compared to around 1,955,000 in FY2020.

Personal Loans

The Company maintained a cautious stance across all its B2C businesses till Q3 FY2021 due to increase in delinquencies, higher level of EMI moratoriums and absence of updated bureau data. It started to gradually rebuild its volumes only from latter part of Q3 after the post-EMI moratorium performance became visible and bureau information went fully onstream.

The personal loan cross sell (PLCS) business is a pre-approved loan origination programme for existing customers of BFL.

It relies on risk analytics, campaign management and a digital acquisition strategy. This business has an optimal mix of salaried and self-employed customers. The PLCS business was fully stopped in the first quarter and gradually started in the second quarter with tighter credit norms. As a result, the AUM for the business de-grew in FY2021 by 10% over FY2020 to Rs. 17,209 crore. The business is currently recovering to its pre-pandemic volumes.

Salaried personal loans (SPL) are offered to affluent salaried customers with annual gross earnings of over Rs. 600,000.

The SPL business AUM grew by 7% over FY2020 to Rs. 12,101 crore. SPL saw much faster recovery in portfolio quality and volumes compared to other businesses.

SME Lending

SME lending offers unsecured and secured loans to small businesses. SME lending consists of working capital loans and term facilities to SMEs, MSMEs and professionals. Secured loans to SME and MSME customers are offered against their home, office or four-wheeler.

SME segment was expected to witness severe disruptions on account of the pandemic induced economic slowdown. However, recognising that this sector provides the largest employment outside the agriculture sector, the Government of India carved out a special Emergency Credit Line Guarantee Scheme (ECLGS) to provide top-up financing to mitigate the disruptions caused to their working capital cycles. This scheme enabled the SME sector to service their financial obligations and remain liquid — leading to a much lower losses for the financial system than anticipated. BFL disbursed Rs. 934 crore across 23,703 customers under ECLGS.

For Businesses

Unsecured SME loans to businesses AUM de-grew by 4% over FY2020 to Rs. 11,401 crore on account of lower acquisition and tightening of credit norms due to weakened cashflows of SME and MSMEs. The business is present in over 1,400 locations in India. Secured loans AUM de-grew by 15% over FY2020 to Rs. 635 crore.

For Professionals

BFL offers loans to doctors, engineers and chartered accountants under this category. It consists of working capital loans and term facilities. Its AUM grew by 9% over FY2020 to Rs. 8,021 crore on the back of continued strong portfolio quality even during the pandemic period. The business is present in over 1,400 locations in India. In FY2020, BFL started medical equipment financing business by entering tie-ups with top-tier medical equipment manufacturers and their dealers. This business is ancillary to the professional loans business.

The Companys unique Hybrid Flexi Loan feature enables customers to have an option of servicing only interest in the initial 12 to 24 months of the loan tenor and the flexibility of multiple repayment and drawls within the contracted repayment plan. Understanding the need of SME customer during pandemic times, BFL proactively approached its existing customers with impeccable repayment track records to avail of the option of converting their existing term loans into Hybrid Flexi Loans.

Rural Lending

BFL offers all its lending and deposits products which include consumer B2B lending, personal loans, gold loan, retail deposits etc. in small towns and villages through its rural lending business. In FY2021, BFL expanded its rural lending footprint adding 333 locations and deepening its rural geographical presence. At the end of FY2021, it was present in 1,690 locations across 21 states and union territories in India.