Fincos create strong niches

 

 

Bajaj Finance Ltd’s (BFL) comfortable capital levels and its strong market position drove credit rating, said Standard & Poor’s Global Ratings.

It has assigned BFL ‘BBB-‘ long-term issuer credit rating. The outlook is stable.

“We also assigned our ‘A-3′ short-term issuer credit rating to the India-based finance company,” said S&P on 31 Jan 2019.

BFL is exposed to economic risk in India, which is its only market. In recent years, Indian finance companies (fincos) have taken market share away from public sector banks because of these banks’ asset quality and capital challenges.

“We believe that Indian fincos, such as BFL, face greater operating risk than banks because fincos usually have no access to central bank funding, and have less onerous regulations, notwithstanding some regulations on capital adequacy, asset quality, and asset-liability management.

“That said, several fincos in India have created strong niches, domain expertise, and economies of scale to support revenue stability and mitigate competitive pressures. Our starting point for rating fincos in India is therefore ‘bb’,” said S&P.

BFL has a strong market position in consumer durables and two- and three-wheeler financing, which supports its reach in the Indian retail market.

As of 31 Dec 2018, the company had assets under management of Rs.1.0 trillion.

However, it is a relatively small player in India’s fragmented nonbank financial institution (NBFI) space, with a market share of 3.9% because a sizable portion of its loans are short-tenor loans, leading to frequent churn in its portfolio.

BFL has a vast consumer base, standing at about 32.6 million (live and dormant customers) in the third quarter of fiscal 2019 (ending March 31, 2019).

In terms of geography, it is well diversified within India with a distribution network of 1,736 branches (of which 528 are franchisees in rural areas).

Moreover, the company also benefits from recurring business from financing two- and three-wheelers manufactured by group company Bajaj Auto, which is globally amongst the top five largest two-wheeler manufacturers and a market leader in three-wheeler manufacturing.

Being a captive financier, BFL plays a critical role in helping Bajaj Auto meet sales targets and maintain market share.

The company was the largest financier of Bajaj motorcycles and three-wheelers in fiscal 2018.

The company also benefits from the strong brand name of the group and linkages with other group entities. fiinews.com