Some analysts have criticized Bajaj Finance Ltd for changing a few of its time period loans to so-called flexi-loans, because it comes at a time of economic stress and loan moratorium.
The corporate, India’s largest non-bank lender, disclosed the conversion at its annual common assembly on Tuesday. Below flexi-loans, debtors are sometimes allowed to defer principal repayments for some time, for which the lender fees a charge or increased curiosity. Such merchandise are pretty frequent. Nonetheless, the conversion has raised asset-quality issues due to its timing. Based on the first-quarter earnings reported this week, Bajaj Finance has transformed ₹8,600 crore of time period loans into flexi-loans for a change charge, permitting clients to service solely curiosity for a predetermined interval.
“The query is whether or not this product quantities to quasi-restructuring and the way ought to the ₹3,600 crore of loans that are at present beneath moratorium be handled as soon as transformed right into a flexi loan. Whereas the corporate says almost 25% of the loan e-book was flexi loans earlier than covid, there are issues whether or not the corporate goes up the chance curve for profitability in these difficult instances. Subsequently, are we understanding the chance appropriately?” an analyst with a overseas brokerage mentioned on situation of anonymity.
The Bajaj Finance administration, nonetheless, clarified it has been providing flexi loans for the final 5 years. As of 31 March, the lender had present flexi loans of ₹36,846 crore. “Within the first quarter, we have been providing the loan product to clients with no overdue and good compensation monitor document. Of the ₹8,600 crore of switched loan, ₹5,000 crore was given to clients not beneath moratorium and ₹3,600 crore beneath moratorium. It’s essential that clients get again to creating month-to-month funds,” Rajeev Jain, MD & CEO, Bajaj Finance.
Flexi loans which constituted ₹8,600 crore this quarter represent 6.2% of complete belongings beneath administration. Of this, 2.6% is beneath moratorium. On the finish of the primary quarter, the buyer sturdy financier noticed the loan e-book beneath moratorium scale back to 15.7% of complete belongings beneath administration from 27.1% as of 30 April. The consolidated moratorium e-book stands at ₹21,705 crore as of 30 June. “We imagine these loans are within the regular course of enterprise, akin to different EMI or interest-only/working capital demand loan (WCDL). A rise on this facility by ₹8,600 within the first quarter is little doubt excessive however even when we add flexi debtors beneath a moratorium of ₹3,600 crore, the moratorium ratio will increase to 18%,” a Kotak Institutional Equities report mentioned.
Based on a observe by Edelweiss Securities, this product reduces the EMI burden by almost 50% which is able to assist clients in these difficult instances. “Is there an uncertainty on these merchandise —to an extent, sure, however then, this was a necessity of the hour and in any case, the corporate has longer than 5 years’ expertise in dealing with this product,” it mentioned.
The administration additionally mentioned solely clients with a very good credit score historical past are eligible for this loan and therefore, there aren’t any issues on asset high quality.