Bajaj Finance Ltd (NSE: BAJFINANCE) Q2 2025 Earnings Call dated Oct. 22, 2024
Corporate Participants:
Rajeev Jain — Managing Director
Sandeep Jain — Chief Operating Officer & Chief Financial Officer
Anup Saha — Deputy Managing Director
Analysts:
Sameer Bhise — Analyst
Chintan Joshi — Analyst
Dhaval Gada — Analyst
Piran Engineer — Analyst
Kunal Shah — Analyst
Viral Shah — Analyst
Roshan Chutkey — Analyst
Umang Shah — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Bajaj Finance Limited Q2 FY ’25 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. [Operator Instructions]
I now hand the conference over to Mr. Sameer Bhise from JM Financial. Thank you, and over to you, sir.
Sameer Bhise — Analyst
Thank you, Nirav. Good evening, everyone, and welcome to the 2Q FY ’25 earnings conference call of Bajaj Finance. First of all, I would like to thank the management of Bajaj Finance for giving us the opportunity to host the call.
From Bajaj Finance management team, we have Mr. Rajeev Jain, Managing Director; Mr. Anup Saha, Deputy Managing Director; Mr. Sandeep Jain, COO and CFO; as well as the entire senior management team of Bajaj Finance and its subsidiaries. As always, we will have opening comments from the management team, post which we will open the floor for Q&A.
With that, I would now like to hand over to Mr. Rajeev Jain for his opening comments. Over to you. Thank you.
Rajeev Jain — Managing Director
Thank you, JM. Thank you, Sameer. I also have with me Atul Jain, Managing Director of BHFL with me on the call. Very good evening to all of you or good morning depending on the geography. I’ll just take you through the presentation that we have put on the Investors section of the website. I’ll jump straight in on panel number four.
On a consolidated basis, I would say a mixed quarter for us as a firm. Good quarter in terms of volumes, assets under management and operating efficiencies. Loan losses remained elevated in Q2 as well as they were in Q1. As a result, profit growth and return on assets were muted for the quarter. We overall delivered AUM growth of INR19,732 crores in the quarter, booked 9.7 million loans and added just a tad below 4 million new customers to the franchise in Q2. Bajaj Finserv app now has 61.7 million net users.
In terms of AUM, the overall consolidated AUM came in at INR374,000 crores, just a tad below that. Opex to net NII continued to improve, came in at — so expenses remained controlled came in at 33.2%. PBT grew to INR5,401 crores, a PBT growth of 14%. PAT as a result of last year’s deferred tax — 14% to 13% is not — PAT came in at 13%. Is this as a result of the minority interest in BHFL? Okay. Understood. Sorry. PAT came in — PAT grew by 13% to INR4,014 crores. ROE came in at 19.1% and net NPA came in at 46 basis points.
I’ll quickly take you through some of the highlights on panel number five. As I said, AUM grew 29%. New lines of businesses that we have launched in the last five, six quarters have now started to contribute 2% to 3% of AUM growth. Overall, AUM composition, which is appended in the latest section of the presentation on a year-on-year basis remain largely stable. AUM growth I’ve talked about. New loans booked were up 14% to 9.7 million as against last year, we did 8.53 million.
In terms of customer franchise, we added 4 million customers. We now estimate that our overall new customer addition to be 15 million to 16 million in FY ’25, which will be in line with what we originated last year, marginally higher. Last year, we did 14 million customers. This year, we foresee between 15 million to 16 million new customer addition. Customer franchise as a result of the first half of the year having added 8 million new customers stood at 92.1 million customers. And we are optimistic of crossing a milestone of 100 million customers customer franchise in FY ’25 as we finish the year. Cross-sell franchise, which is a key measure of good to not so good, was that just a tad below 58 million customers.
In terms of liquidity, liquidity buffer stood at INR2,200 crores. Cost of funds came in at 7.97%, an increase of 3 basis points on a sequential basis. In general, our assessment is that the cost of funds for the company has actually peaked now. Deposits book grew by 21% and stood at INR66,131 crores. Deposits book growth is obviously softer given that there is a significant amount of price war that’s happening from — across the system. And given the fact that the company has raised — has found other alternative sources, which are more attractive in terms of coupon, we are — the deposit book growth is slower than expected.
On the next panel in terms of operating efficiencies, the net interest income grew by 23% to INR8,838 crores. Overall NIM in our assessment has now stabilized. Between Q1 and Q2, there’s hardly any drop. We think the NIM has now stabilized at these levels from here on. Total net income — net total income grew by 24%. So NII grew by 23% and net total income, NTI, grew by 24%. Opex to net total income grew by — improved to 33.2% versus 34% last year same time. We continue to optimize operating expenses, I would say.
As I’ve said in the past calls that it’s one of the levers that we have to continue to pull through both by optimization on one hand and continue to invest in technology, which is mainly GenAI to improve productivity. Employee headcount stood at 59,400 people on a consolidated basis. We added 4,007 staff in Q2. Annualized attrition was marginally higher than last year at 16.4%.
Credit cost, which is the dampener for the quarter, I would say, because when I look at the PPOP number, came in at 24%?
Sandeep Jain — Chief Operating Officer & Chief Financial Officer
25%.
Rajeev Jain — Managing Director
25%. PPOP number was good. So we managed to do well on AUM, managed to do well on NII, managed to do well in managing expenses, but credit cost was dampener for the quarter. It was so in the last quarter as well. I’ll give you some update on that over the next four or five points.
Gross loan loss and provisions came in at INR1,934 crores. They remained elevated in Q2 as well. If you break up the loan losses in terms of Stage 1 and Stage 2, in Q2, Stage 2 assets have actually reduced by INR357 crores. And because of elevated Stage 2 in Q1, the Stage 3 increased by INR900 crores. And as a result, the net increase in Stage 2 and Stage 3 assets, on a consolidated basis was INR542 crores. It is lower at one level than the previous quarter. It was across all — as I’ll take you through the panel later, across all retail and SME lines of businesses.
So it’s not restricted to the any one segment or any one geography or anyone. There’s marginal inching up across all retail and SME lines of business. We, as a prudent company, continue to take risk actions by either cutting segments or pruning exposures. The gross loss came in at 2.16%. In Q1, that number was 2.12%. So there’s, sequentially, a 4 basis points movement. It was 2.16?
Sandeep Jain — Chief Operating Officer & Chief Financial Officer
1-6, same number [Phonetic].
Rajeev Jain — Managing Director
Oh, same number. Sorry. Gross loss to average assets was 2.16% as it was in Q1 as well. We are cautiously optimistic looking at the portfolio movement or gross flow rate methodology. The loan loss to average AUF has hopefully peaked. And we estimate loan loss to average AUF to go down to 2% or so by Q4. That’s really what our estimates at this point of time is. We’ll, of course, continue to watch the environment and continue to invest in debt management and risk management to sharpen the pencil.
Net loan losses as a result of 2.16% came in at INR1,910 crores. We utilized the management overlay of INR25 crores. And as a result, net loan loss to average AUF came in at 2.13%. If you recall, we had estimated that our net loan loss to average AUF should be in the corridor of 1.75% to 1.85% for FY ’25 with improvement projected in H2.
At this juncture, from a guidance standpoint, I would say that we estimate the FY ’25 net loan loss to average assets to be between 2% and 2.5%. It’s more likely to be 2.05% than to be 2%. The — as a result of this, the GNPA and NPA stood at 1.06% and 0.46% as against 91 basis points and 31 basis points. They still remain amongst the lowest in the industry. But we’ve seen, on a year-over-year basis, slight inching up.
When we look at the portfolio movement across secured, unsecured portfolios, one thing I think jumps out in general is that those clients who have more than three or more live unsecured loans are showing higher propensity to default and, in general, have lower — downstream lower collection efficiencies. So as we look at this data, we are continuing to tighten our underwriting norms for such cohorts of customers across all our products in an intelligent manner. I think that’s really the update on credit costs.
In terms of profitability, consolidated pre-provision profitability grew by 25%. Consolidated profit before tax grew 14% to INR5,401 crores and PAT grew by 13%. The ROA came in at 4-point — just a tad below 4.5%. And ROE came in at 19.1% and capital adequacy remain — continued to remain reasonably strong. Tier 1 capital was just a tad below 21%.
I just wanted to provide two important updates as additional updates standpoint. As you would recall that we, as Bajaj Finance, started doing non-Bajaj auto two-wheeler financing business in June ’22. In September ’22, Bajaj Auto also decided to set up its own captive financing unit, namely Bajaj Auto Credit. BACL started its operations in Q4 of ’24, which was six, seven months ago.
In FY ’24, Bajaj Finance financed 864,000 two-wheelers for Bajaj Auto and 199,000 three-wheelers for Bajaj Auto. In H1 so far, BFL has financed 217,000 two-wheelers and 55,000 three-wheelers of Bajaj Auto, principally meaning that the rest of the business has been booked in by Bajaj Auto in Bajaj Auto Credit Limited. And as a result, the company’s financing to BAL customers has reduced considerably post start of business operations by BACL. I thought it’s important that we provide this update.
As you’re also aware that we have grown our — we started our non-Bajaj auto two-wheeler financing business in 2022. And it’s already grown to around 35,000 accounts per month. That means we have run rate at this point of time of 480,000 accounts on a non-Bajaj Auto two-wheelers. We expect to disburse just a tad below 500,000 accounts in the current year and scale to 720,000-odd accounts in FY ’26. And we — so as Bajaj Auto products AUM goes away, this AUM will replace it fully by FY ’27 — by end FY ’26, stroke FY ’27.
On the three-wheeler business, we’re still evaluating what our strategy should be. So that’s something that’s still open. But the two-wheeler business volumes, we hope to fully mitigate or make up for by March ’26 or so. That’s just an additional update as it has financial implications. I thought we’ll just provide an update.
Just the last point on that we had so far investment-grade rating for our international borrowings from S&P. We were rated investment grade for — by S&P. We are happy to inform you that Moody’s has also assigned Baa3/P-3 rating, which is the sovereign rating to Bajaj Finance as well. So these are the two additional updates that I have. I’ll just quickly run through some of the panels. For BHFL, you would have listened into the call yesterday that their management did. So I’m just skipping that. I’m on panel number — in terms of — rest of the panels are reasonably routine.
If there are any specific questions, we’ll be happy to answer. I thought it’s important I open the call for Q&A. All the panels are completely routine in nature.
Questions and Answers:
Operator
Thank you very much. We’ll now begin with the question-and-answer session. [Operator Instructions] First question is from the line of Chintan Joshi from Autonomous. Please go ahead.
Chintan Joshi
Hi. Can you hear me?
Rajeev Jain
Yes. We can hear you.
Chintan Joshi
Yeah. Hi. Thank you. So two questions, one on asset quality and one on NII. On asset quality, could you give us some more color on what gives you the confidence that slippages and credit costs may have peaked out here? Would be interesting to get some idea across different products and different trends that you are seeing both in your data and perhaps industry data that you observed.
And then on net interest income, if you could please help us think about where NIMs might go over the next year with the rate cut likely, what would the timing benefit be in terms of NIM speaking, would be helpful. Thank you.
Rajeev Jain
So let me use this to principally just take you through the portfolio quality. The main interesting thing that we are seeing in the cycle is actually that the bounce rates are still lower. The portfolio quality when you see on the panel is still holding, the flow rates are higher. I think so it’s a — so people are still defaulting lesser. I keep telling people prior to COVID people think it’s too far away. The default rates are still lower, the flow rates are higher.
So one of the things that we’ve done is looked at the capacity planning and the debt management infrastructure. Out of 4,007 people that you principally saw that we’ve added in Q2, close to 2,000 people have been added in deeper geographies as a result of our sharpened capacity planning. So that gives us one level of confidence. Two, the underwriting actions that we have taken in the last four, five months also gives us the confidence that as we move through the leverage point that I made should start to result in benefit from Q4.
These are the — but as I use the word, we are cautiously optimistic. We hope that the environment continues to remain stable. I would not call it, I would say, the current — if the current state was to remain, given these two actions, one on underwriting and two on further investments in debt management, we are cautiously optimistic that we should — if I give you a texture that at a point in time in terms of clients who came on board non-B2B, non-B2B loans are shorter than a loan. So this point is not relevant. If you have 13% of the clients who came in with 3%-plus personal loans when we gave them, now it’s only 8%, 9%. So that’s the impact on volumes we have taken. It doesn’t mean they’re bad. But as we have got exposures on them as we keep doing more and more such actions, we should see the book start to come back to 185 basis points to 195 basis points of credit cost. That’s on the one part.
Second part is the NIMs, look, I mean Sandeep?
Sandeep Jain
Yeah. I think mean very clearly, as the customer starts to go down, I think with a lag of one or two quarters, we will start to see the benefit very clearly emerge to us as well. We forecast that on a 12-month trading basis, a 25 basis point drop in, let’s say, repo rate should clearly be — lead to a 10 basis point to 12 basis point improvement in the NIM. However, we would like to use the NIM improvement to our advantage to grow some of the secured and new lines of businesses that we added in the last couple of years. Either would be to not take it through the P&L, either would be to use this opportunity for improving the quotient of secured balance in the overall portfolio and continue to create a resilient balance sheet, focusing on the new lines of business that we have launched in the last two years.
Chintan Joshi
Wouldn’t that lead to ROA pressure once the cycle peaks?
Rajeev Jain
At this point in time, I mean, as Sandeep said, we’ll use the reduction. As I said, okay, if you go back to my earlier comments, that the NIM is stabilized, that is one part. We think cost of funds has peaked as the cost of funds. So it’s about management of portfolio. At a portfolio management level, our intent would be to use the reduction to grow our low-margin secured businesses, and we otherwise keep the composition very, very steady.
Sandeep Jain
And I think it’s important, Chintan, that I make this point as we get into FY ’26 and you didn’t make a point on operating efficiencies getting created by rationalizing operating expenses. At the same time, GenAI leading to a lot of areas where we could significantly increase deployment and reduce operating expenses for us. Some of these will become very, very important wins for us to play over the next couple of years.
So operating efficiency will be a dimension that we would like to explore in FY ’26. And beyond that, I think Rajeev did make a point saying that pre-provisioning operating profit still remains strong at 25%. So even if the environment were not to improve, we have a good tailwind coming from pre-provisioning operating profit that should ensure that any NIM improvement, even if it goes towards fueling the secured by the balance sheet and new lines of businesses, should still be able to assist us in terms of delivering rightful ROAs and ROEs for the shareholders.
Chintan Joshi
That’s fair. Just a clarification, Rajeev, you said 185 basis points to 195 basis points previously. I presume you meant 175 basis points to 185 basis points.
Rajeev Jain
No, no, no. Yeah, as we said earlier, that principally the 172 basis points that we used to be pre-COVID based on the regulatory changes and our write-off policy changes adds up being 185 to — between 185 basis points to 195 basis points. That’s really what our go-forward forecast is at least for the next — I would say, next fiscal and then we’ll take it forward from there.
Chintan Joshi
Excellent. Thank you.
Operator
Thank you. Next question is from the line of Dhaval from DSP. Please go ahead.
Dhaval Gada
Yeah. Thanks for the opportunity. Three questions. First is on the rural B2C business and also the business and professional loan, both of them are color-coated yellow. Just if you could give some perspective on when do we see normalization in both these segments. So that’s the first question.
The second one relates to cost to income. And just to the point that Rajeev highlighted earlier on further operating efficiency. So if you — I mean, somewhere in COVID, I think our aspiration was 30%, 31% kind of opex to NII. Is that what one should expect in the medium term based on the business mix that you’re targeting? So some perspective around how much more benefit can one see in the medium term. So that’s the second one.
And the final one is on RBI commentary that we are hearing around various segments relating to growth and asset quality pressure plus the regulatory perspective around NBFC. I mean if you could just highlight how the company is looking at navigating these the current environment, yeah. Those are three questions. Thanks.
Rajeev Jain
Yeah. So look, as you can see, after a long time, after virtually seven, eight quarters, it showed a double-digit growth. Clearly, we are — that portfolio has not grown for the last — has grown single digits for the last six quarters. As we get through the worst of it, we started to slowly grow that. We foresee that portfolio, it will remain yellow. And this is time — there comes a time in any credit business where you cut all the bad cholesterol and you have to build the good business.
We are 18 months into it. We are moving to a phase where we are starting to build a good business. I think that’s point number one on rural B2C that I would like to make. We foresee that business still, however, may grow only by 12% to 14% on a full year basis. That’s on rural B2C at this point in time. Business and professional loans mind you that the hurdle rate is bar is very, very low. As you can see, we color code based on — it used to be 99% in pre-COVID. That’s our “threshold” number. So that’s one part. It’s now at 98.63%, that’s one part.
Two, if you go to SME, we’ve seen some level of elevated flow rates, just go to — we go to panel number — I’m referring to panel number 52. If you see SME lending, you see elevated numbers that on a — no, not this comparison, not this. Just give me one second. Yeah, yes. You see the GNPA come in at 134 basis points — sorry, 164 basis points. It was a year ago, 134 basis points. And that’s how we have — and I repeat Dhaval what I was saying earlier, while 98.63% looks like it is fine. But as I said, across portfolios, whether it’s SME or retail, the default rates are lower and flow rates are higher.
So that’s a little unique situation that we are actually seeing. It’s unique is what I would just say. So given 164 basis points GNPA, we have stamped it as yellow. Having said that, in that, the professional launch part is fine. The MSME businesses are that way only. They are — the risk goes up. We pull back business, risk goes down, we accelerate. I think that’s the nature of the MSME business. So that’s the second point.
Operating efficiencies, look, we are amongst — we are the most efficient. You would know that as you benchmark us across various peers. As we build on this year’s long-range plan or long-range strategy, which is published in January, the intent would be to dramatically transform our operating focus on operating efficiencies using GenAI across call centers to service to what I would call a phase three of digital transformation that we are ready to embark on for us as a firm. Where that takes the number two is an outcome. I think you will see expressions of that in when we share in January the long-range strategy. Do we see operating costs as a lever? Answer is yes. Will we continue to make progress? Answer is yes. I can’t say whether a number will get to 31% ever, because at our base, 31% to 33% is a significant drop, but you will continue to — you should continue to see this number trend down.
On regulatory matters, I would not like to comment, Dhaval. Do we continue to make deep investments in compliance, operational risk? Answer is yes. We have now from 2.5 years ago from very little to now 250 people in first, second and third line of defense, we have? Answer is yes. Are we on a proactive basis on an ongoing manner, looking at areas that we can improve on? The answer is yes, is all I would like to say. We’re investing in all three lines of defense, business and operations compliance, central compliance, internal audit and — we also — when the embargo happened, we embarked on a proactive integrated compliance framework and did a periodical review and created a self-corrective regulatory compliance framework for us. So we’re doing all that that we can to be from a compliance readiness standpoint as a firm.
Sandeep Jain
Just to add maybe a couple of points on opex to NII because that’s a point that you make. I think it’s also important to note that over the last 18 months, we have launched lots of businesses. We have made investments in all those business launches and so on and so forth. As we go along over the next two-year period, I think, one, the investment will be very marginal in terms of only profiling the presence of the businesses and growth. That’s one thing. So this should give us some operating leverage in the subsequent year.
Second, of course, the investment that Rajeev talked about on GenAI capabilities and so on and so forth. But the important point is we would like to pace it out, have 20 basis points, 30 basis points, 40 basis points in a year. Idea is to continue to improve, but the same time, continue to remain invested in the growth of business. That’s a point I thought I should make.
As regards growth, I think Rajeev did call out at the beginning of the call that while the balance sheet grew by 28%, 29% in the current quarter, 2% growth came from new lines of businesses. As we forecast full year, we see the growth at 27%, 28% with the new businesses and mostly being secured in nature, contributing about 2% to 3% of the AUM growth for the current year, which means that the non-new business, which is all existing businesses that we have in the company will see a growth of anywhere between 24% and 25% for the current year. We remain guided by our medium-term guardrails, which is 25%, 27% AUM growth and leading to a 23%, 25% profit compounding. And that’s what we remain guided by.
Rajeev Jain
I think the point that Sandeep made on investments have peaked out and launch of new businesses and geographies is an important point. And they should swing from loss to start to break even stroke generating profit as we get into the next fiscal.
Dhaval Gada
Yeah. Thanks. Just one small follow-up on the rural B2C. Do you think by the end of the year, we can see the business turn into green, which means next year, the growth will normalize or you think it is still few more quarters away?
Rajeev Jain
We are cautiously optimistic of that, I would say.
Sandeep Jain
[Indecipherable]
Rajeev Jain
Yes. But we think as Sandeep was saying, quarter a time [Phonetic], we can forecast the current year. But if we — just to reinforce the point, it’s possible that if we exited a 12%, 14% growth on a year-on-year basis, then next year could start to grow between 23% and 25%.
Dhaval Gada
Got it. Thanks and all the best.
Rajeev Jain
Thank you.
Operator
Thank you. Next question is from the line of Piran Engineer from CLSA. Please go ahead.
Piran Engineer
Yeah. Hi, team. Congrats on the good set of numbers. Just a few questions. Firstly, on the overall asset quality environment, what really — so I know you mentioned that we’ve made underwriting tweaking and improving our collection infrastructure. But what would make the cycle prolonged as in this elevated credit cost cycle. For example, you mentioned 8% to 9% of your clients have three-plus loans versus 13% earlier, but you could have other irresponsible lenders lend to these people, right? So just trying to get a sense of what’s changing right now versus, say, three months back?
Rajeev Jain
Well, I think, one, the fact is that various actions by the bank has started to slow down the unsecured market. I think if you take the first half, if I’m not mistaken, based on the Bureau data, the personal loan year-on-year growth is degrowth, if I’m not mistaken. I think it’s minus 3%, 4%. So I think in terms of disbursals, not AUM, so clearly, the supply side has slowed down. So that was probably mostly needed to availability it become very easy. So I think that’s one at a meta data level point I would like to make.
Two, as we further prune segments as we reduce exposure, we’re doing both pruning segments and reducing exposures. I think mix of both these factors and when excesses happen at times, there is a phase of excesses. Post that, good also don’t last too long and bad also doesn’t last too long. I don’t believe it will last too long either way, right? So as the portfolio get washed, you should see improvement. But as I said, we remain cautiously optimistic of the same.
Piran Engineer
Got it. Got it. And just secondly, on our fee income, now I noticed that it’s a little bit weak, considering the fact that the ban on those digital lending products was lifted and that itself was some INR60 crores of quarter. So if I kind of adjust for that, it does not look like we’ve seen any fee income growth. In fact, we’ve seen degrowth Q-o-Q. So anything here to read into it?
Rajeev Jain
Seasonally…
Piran Engineer
Degrowth has because of, I mean, summer season versus non-summer season. But last time, we didn’t have those digital lending products, right, which are banned?
Rajeev Jain
Yes.
Piran Engineer
Now we would have added. So I would have expected to be at least flat. So — is this because of the RBL thing where collections we are not doing for them and, therefore, fee and opex both are proportionately lower?
Sandeep Jain
Yeah. So Piran, point number one, I think if you’re referring to last year, whether we had the fee income or the digital lending fee income not being there. I think last year, the action by RBI was in November. So quarter two last year, we did have that income from a Y-o-Y comparable point of view. However, the other point that you’re making on the co-branded credit card, where the collection activities was earlier managed by us, incrementally starting quarter two. That activity has moved to RBL rightfully so. And that has an impact in terms of overall fee income for the quarter from a comparative point of view.
Piran Engineer
Got it. Got it.
Rajeev Jain
He was making a point on sequential basis, if I’m not mistaken.
Piran Engineer
Yeah. I was making a point on sequential.
Rajeev Jain
[Indecipherable] sequential.
Piran Engineer
No, I was — Q-o-Q.
Rajeev Jain
Yeah.
Piran Engineer
Because the last quarter — two months you all didn’t do to that product, right?
Sandeep Jain
Yeah. The answer is then very clearly, the transfer of the collections activity to RBL Bank, which otherwise would have come to us as payment towards the collections activity, would have set in the fee income.
Piran Engineer
Okay. Fair enough. And just on the NIM outlook, did I hear it correctly that NIM will be stable, assuming no rate cuts further? Or is it that cost of funds will be stable, but yield could still decline because of portfolio mix?
Rajeev Jain
Both are peak and AUM composition should stabilize both.
Piran Engineer
Got it. Got it. Okay. That’s it from my end. Thank you and wish you all the best.
Operator
Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah. So firstly, maybe in terms of the overall growth, given the environment wherein we are, we have kept on increasing the credit cost guidance as well. But still, we sound a bit upbeat on the growth despite Bajaj Auto business, maybe I think that’s coming off plus you said like you are tightening a few of the standards. But I think that convention on the growth still seems to be like 27%, 28%. No doubt there is something which is contributing from the new business, but existing is also continuing. So wouldn’t it maybe — maybe in terms of the approach, maybe in terms of the growth versus credit cost? Is there any change in the approach that we are looking or there is no need to change at this point in time?
Rajeev Jain
No, no, there’s no need to — there’s no — as I mentioned earlier, Kunal, that between 2% to 3% or maybe, in fact, as we exit the year, close to 4% of the growth may probably be coming from new lines of business between new two-wheeler to tractor, to new car financing, to CV, we just went live in July to gold loan, while it’s an old business, but growing in a — growing healthily. These are five, six lines of businesses that are yet to, if I may say so, breakout in any given manner.
Some of them will start to break out by the fourth quarter. So if you knock this off, the organic — so called, even this is organic, the organic number would have looked like 24%, 25%. So it’s just the — we use the good times over the last 24 months to launch or complete our product suite as a firm. which is helping us continue to generate AUM momentum without having to compromise in any given manner, the credit quality.
Kunal Shah
Sure. And secondly, in terms of urban B2C. So if you look at Stage 2, that still continues to be quite elevated, almost similar to where it was in the last quarter as well. and that — and then we had seen this kind of increase out there as well of almost like 38-odd basis points in GNPA and maybe as you indicated, for SME lending, maybe moving from 1.4% to 1.6%, made it like get into the amber. Do you see the risk of urban B2C also getting into amber given the collection efficiency and this kind of trend in Stage 2?
Rajeev Jain
No, we remain watchful, Kunal, is what I would say. And as I said earlier in the call, — as I said earlier in the call that we saw inching up on panel 51 across. So technically, so clearly, there is pressure across — now mind you, you can see the numbers and absolute numbers in urban sales finance and rural sales finance are smaller, but one has seen movement across lines on a year-on-year basis. So we remain watchful. And the only point I would like to make is that between managing risk and managing growth, we’ll choose credit, we will choose credit, so is the only point I would make.
Sandeep Jain
And Kunal, I think there’s a technical thing also because of number of days logic for DPD classification and given that most of our customers get banked on second, there is that one month plus and minus that happens between quarter one and quarter two. So that’s one thing that I think is an important point. But leaving that aside, I think it’s also important to the point that Rajeev mentioned at the beginning of the call as part of the portfolio quality that in the current quarter, the Stage 2 and Stage 3 has actually gone up by INR542 crores. And we did make a point in that the number was much lower than the last quarter.
Just to give you context, last quarter, the Stage 2 and Stage 3 on account of various disruptions that we had referred to in Q1, and I’m a repeating it, has seen actually INR1,100 crores of movement.
Rajeev Jain
Has seen, yes.
Sandeep Jain
So Q1 had seen INR1,100 crores of addition to Stage 2 and Stage 3 versus that in the current quarter, the movement to Stage 2 and Stage 3 is INR542 crores. So there is that level of improvement that is clearly visible.
Kunal Shah
Got it. And last question was that the option to create the management overlay buffer against this one-time gain? And would you have done that? Or maybe that was not there from the auditors, and that’s the reason we [Indecipherable] guidance and still maybe not have created any buffer out there against this one-off?
Sandeep Jain
Yeah. Kunal, just to clarify, when we mean option, I think we don’t have options. We look at the data point and based on that decide what is the right thing to do. The one-time gain does not necessarily give you an opportunity or option to create provisions. We looked at the information. And based on that, we did not felt a need at this point in time to create an overlay. However, to the other point that you made, even from accounting perspective, the gain fits in standalone financials on a consol basis goes and sits in the reserve. So if there was a question — that was a point that you were highlighting, yes, it’s in the consol numbers, it goes and sits in the reserve.
Rajeev Jain
And Kunal, I’ll reiterate the point that I made that — which I said earlier that if the PPOP is 25%, then we have sufficient margin in the P&L for us to sustain any kind of — I wouldn’t even — at just on this point, I would just make a point that, let’s say, if our long-term — our medium-term guidance, stroke experience — experience stoke guidance is 185 basis points to 190 basis points. And if you’re looking at full year 205 basis points, doesn’t create pressure. It’s a 10% increase, or an 8% increase in credit cost doesn’t create that kind of — year-on-year comparables are looking bad because you were at 156 basis points at that point in time. And we were consuming overlays.
If you do apple to apple, what our run rate is, which is 185 basis points, 190 — 195 basis points, let’s say, for the moment, given our diversity of businesses, and the number on a full year basis coming at 205 basis points, let’s say, worst case, 210 basis points, that’s a 10% stroke, a 7%, 8% — 10% increase in credit cost on a year-on-year basis or from our medium-term experience stroke guidance. So I won’t lose too much sleep over it.
Kunal Shah
Sure. Yeah, sure. Thanks and all the best. Yeah.
Rajeev Jain
Thank you.
Operator
Thank you. Next question is from the line of Viral Shah from IIFL Securities. Please go ahead.
Viral Shah
Yeah. Hi. Thank you for the opportunity. Rajiv, I wanted to ask you were talking about the new businesses and then contributing to growth. But if I look at the distribution slide, for tractor, I see that nearly on a sequential basis, the distribution has halved. So is there anything to read into it? Or what has happened over there?
Sandeep Jain
So what we disclosed out there for the first two quarters is exact number of dealers that we have signed up. But depending on the activation rate that we see as to how many dealers have started booking cases on a two-quarter basis, we do that adjustment. So if you see that drop, that drop is on account of having seen probably less or low business from those counters.
Rajeev Jain
It’s a very early stage of business. Don’t read anything into it.
Viral Shah
Got it. And…
Rajeev Jain
[Indecipherable] is now boarding between INR65 crores, INR70 crores of volumes per month since January. We started the business in January. We are cautiously growing this. It’s a business to be grown cautiously only given that it has a different repayment behavior and patterns. So nothing to read into that line, but we are now disbursing between INR60 crores to INR70 crores of volumes a month in…
Viral Shah
Got it. And…
Rajeev Jain
Key geographies.
Viral Shah
Sorry. You were saying something.
Rajeev Jain
No, no. Go ahead.
Viral Shah
And secondly, if I look at the two-wheeler and three-wheeler business, right, you mentioned about the Bajaj Auto Credit and that business. Wanted to understand like, is there any, say, ROA or the profitability differential between, say, doing the non-captive business versus the captive business? Just trying to understand if at all there can be any profitability pressure.
Rajeev Jain
It’s a fair question. So principally, look, we group two-wheeler — this company was formed to do Bajaj Auto products. So it’s a little bit of mixed feeling that as that business goes out. It’s a profitable business. But you also used to be — as you have observed over here, it is also a volatile business. All captive businesses are more volatile than non-captive. It’s a global truth in terms of credit performance.
I mean during COVID, we really struggled. It was 5% of the balance sheet and 20% of the GNP. But over cycles, it was a profitable businesss. We foresee that the group two-wheeler financing AUM will mostly wind down fully over the next two years. In fact, that will — since you raised the point, I must make a point, it will actually lead to — as this winds down, it will lead to lowering of our loan loss to average AUF. It’s an important point I must make. If you look at it today, as of September, it’s 4.3% of the balance sheet, and it is 18% of consolidated GNP, this is a factual number as of Q2. So eventually, as this book winds down, we will see the benefit come through in the overall loan loss to average AUF.
Correspondingly, the non-Bajaj book for us because it’s an open architecture business comes in at half the risk cost. That’s been our experience over the last two years. So in the short term, it will have some impact on profitability. Over long term, it will be beneficial in building a lower-risk business and aggregate for us as a firm. So I think that’s really how this migration or transition will principally play out. So it’s a mixed feeling, but…
Viral Shah
No, I understand, and thank you for the detailed this thing, Rajeev, perspective. And while you — because you mentioned also the asset quality piece over there. If I look at your panels that you gave in terms of the portfolio quality, so in that, we have seen that in this quarter, sequentially, it has moved up, right? The Stage 1 has come down and even versus, say, if I compare it, I understand, even from a Y-o-Y basis, it’s come down. Whereas over this period, I would expect that the non-captive business would have built up just in terms of the size of size and the contribution of it.
Rajeev Jain
No, no. It will take us two years. As I said earlier, we are at 35,000. We used to do 65,000. We’re doing very little three-wheeler. We used to do 20,000. And every three-wheeler is virtually equivalent to 2.5, 3 two-wheelers. So it will take us, as I said earlier, two years to fully make up for the AUM. So that’s why, as I said, there’ll be short-term impact on profitability because AR will go down. It’s by March ’26, we’ll start to make up as much AR addition as Bajaj Auto used to do with us in terms of quarterly addition. But we are very clear, it’s half the risk cost. That is super clear to us.
Viral Shah
Got it. But my question was actually more on the asset quality front, like what was — what drove the sequential…
Rajeev Jain
[Indecipherable] high credit base. So last year was abnormally low credit phase. I must make a point to you. Its long-term average loan loss to average assets has been in the region of 4%. Last year, you see this number was looking like 1.5% and recoveries were very high. So this business went through an ultra-low credit cost phase last year, rather last two years. It went through 2021, ’22, very high credit cost phase. Then it went through in extremely low, lowest that we have seen in the last, I would say, 17, 18 years phase. It is normalizing, but inching up more higher than it longer-term trend. I must make that point as well. So that’s really how volatile, we have seen it to be actually. Peaking, bottoming and right now, rising, but rising above the long-term threshold.
Viral Shah
Got it. And Rajeev, if I may, one more question. If I look at the real B2C panel, right? Over there, if I look at sequentially, there seems to be some bit of improvement. And of course, you mentioned and you discussed that at length. My question was that given the way the cash flows are in the rural India and especially the asset quality pain that the MFI players are witnessing like I was actually a bit surprised to look at this. If you can just throw some more light on this.
Rajeev Jain
We would get only 5% of the clients in this entire portfolio who would get — not even that much actually. 2%, 3% of the clients would probably qualify for MFI. Anup…
Anup Saha
Yeah. The only other point, I think — this is Anup here. When we classify this as rural and what MFI classified, those are the villages of India. So I would — MFI would be even one tier lower. So that’s the first…
Rajeev Jain
Two tier.
Anup Saha
Two tier lower because those are the 6.5 lakh villages we largely talk about. Our rural is still the smaller towns and cities. That’s…
Rajeev Jain
550-plus [Phonetic] cities.
Anup Saha
Yeah. And second point is the MFI equivalent segment will be very small. That would be 3%, 4%, so who can be like household income below INR3 lakh or so on and so forth. So there will be not much of overlap there.
Viral Shah
Got it. Makes sense. And thank you so much. All the best.
Rajeev Jain
Separately on this rural stress, I mean, we also, as I mentioned, always for the last five, six quarters because of the rural B2C that we don’t see such the so-called rural distress pressure in the B2B business, where we deal with millions of customers. So it’s a little bit of — it’s anecdotal, but the rural B2B performance is not anecdotal. Even when you’re looking at the seasons growth at this point in time, we have 15, 17 days into the season, we are seeing the momentum to be reasonably strong in rural. So it’s — we are driven more by our experience rather than by our — rather than by our — by anecdotes. So rural B2B continues to be strong, both in terms of momentum and in terms of credit performance. B2C, of course, you’ve seen pressure and we’ve acted on.
Viral Shah
Got it. No, makes a lot of sense.
Sandeep Jain
[Indecipherable] I think it’s important that I call it out. Rural B2C also includes MFI JLG business that we run independently. It’s about INR600 crores of balance sheet that we have. That was sitting there. The portfolio continues to remain reasonably healthy.
Rajeev Jain
It’s very young.
Viral Shah
Yeah, understood. That I agree.
Operator
Thank you.
Rajeev Jain
We’ll break that somewhere in time. It’s too…
Sandeep Jain
[Indecipherable]
Rajeev Jain
Yeah. It’s not relevant. That’s why.
Operator
Next question is from the line of Roshan from ICICI Prudential. Please go ahead.
Roshan Chutkey
Yeah. Thanks for taking my questions. Firstly, you mentioned the 13% number to be the live unsecured loans overlap that — 3-plus live unsecured overlap loans number. That was the case a few years ago. What was it? It was not clear, 13% dipping to 9%?
Rajeev Jain
[Indecipherable] was 8%. Let me tell you, give you full numbers since you’re asking. It was 8%. It went to the peak of 13%. It’s now down to 9%, 10%. So it’s not like this is a new thing. But the supply of those clients’ propensity to take has increased. And because the supply increase or availability increase, their borrowing pattern increase. So it’s not like it was — pre COVID, it was zero. It was 8% in our customer banking. It went up all the way to 13%, it’s down to 9%, 10%.
Roshan Chutkey
Right. And when I look at this amber color panel and your GNPA movement, if I — the GNPA has increased across the board, like you said, but you chose to call out SME lending and rural B2C alone as amber. Anything more to the water is not there in data?
Rajeev Jain
It is management assessment, Roshan, nothing else. Where we are tightening in a transparent manner we are assessing. You — as you rightly — as I pointed out as you are reinforcing, you’ve seen movement even in gold loan, right? On a year-on-year basis, 35 basis points, GNPA is 1.53%. I’m giving an example to make a point. right? Or 60 basis points and urban sales finance gone to 81%. But wherever we tighten and we act on is really what we — or things go lower than pre-COVID or higher than pre-COVID in terms of delinquencies, that’s how we would — we, in general, provide management assurance to be. So it is — there is. I hope that makes it clear.
Roshan Chutkey
Yeah. Yeah. The other question I have here is last quarter, you said bounce rates are stable, but whatever has bounced is turning out to be very chronic.
Rajeev Jain
[Indecipherable] yes. That is — as I said, the flow rates, I use the word flow rate, it’s the same point. The defaults remain lower, but flow rates are higher. That has not changed, Roshan, as yet.
Roshan Chutkey
Right. And just one last question. There was this suicide case that has happened, right? So any comments on that?
Rajeev Jain
We are very saddened by the incident and our prayers are with the family. We’ve referred the incident that happened. It’s very, very unfortunate and sad incident that happened. We’ve referred to our internally — internal disciplinary action committee for investigation and recommendation. And we’ll go by and you’ve shared our action abilities or learnings that we’ve taken away with the Board as well, is all I have to say.
Roshan Chutkey
Sure. Thanks. That’s all from my side and all the very best.
Rajeev Jain
Thank you.
Operator
Thank you. Next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.
Umang Shah
Yeah. Hi. Good evening. Thanks for taking my question. I have two questions. One is, Rajeev, if you could — I mean, you — at the beginning of the call, you already mentioned that probably by the end [Indecipherable], you’ll share long-range plan, but just some color as to how should we look at the stand-alone Bajaj Finance entity maybe broadly in terms of growth and profitability and ROE given that Atul has already spelled it out about Bajaj Housing Finance on the Bajaj Housing earnings call, I mean that will give us some clarity on how should we look at the stand-alone entity maybe from a two- to three-year perspective?
Rajeev Jain
Just because we happen to have listed the firm and offloaded 11%, we continue to be 90% — just a short of 90% owner of Bajaj Housing Finance, and that’s why we still look at it as sum of parts. While they have the independent journey and independent — but they are 31% of the balance sheet today on a consolidated basis, I don’t foresee the composition, their contribution to profitability, et cetera, so on and so forth to change in any given manner. So we still look at it as sum of parts of BHFL, BFSL and BFL and we continue to be excited about both the subsidiaries and, of course, the core operating business of Bajaj Finance. So we — at least in my head, until I run it, I continue to look at it on a consolidated basis is what I would say.
Umang Shah
Understood. Fair point. And just the second question is on clearly, we are getting a little mix sort of views or commentaries when it comes to consumption trends [Indecipherable]
Rajeev Jain
We losing…
Operator
We are losing your audio. Can you [Indecipherable].
Umang Shah
[Indecipherable] Am I audible?
Rajeev Jain
Yeah. It’s a little better now.
Umang Shah
Yeah. I just wanted to take [Indecipherable]
Operator
Umang, sorry, we are still not able to hear you.
Rajeev Jain
I assume that — I assume he’s asking a question on season.
Umang Shah
Yeah, that’s correct. On the festive demand. Yeah.
Rajeev Jain
Yeah. So look, in the discretionary consumption businesses that we are in, what we are principally seeing is that if you look at the first quarter growth for us was 8% in terms of units sold. Second quarter was actually 9%. When I’m talking — when I say discretionary consumption, I’m talking our point-of-sale businesses, which is CD, digital, rural, CD, lifestyle, e-com. So far, if I look at the first, the season — festival season started on 3 of October. We are virtually 18, 19 days into it. So far at this point time looks like the count growth is like between 20% and 21% — between 20%, 21%, 22%, depending on a day.
Every day, it is during the 30 days is important. The season will end on 3 of November. So far, into 19 days into the season, number looking like 21%. In terms of count, in terms of value, in terms of discretionary, it’s clearly, prices have cooled a little across across phones and televisions and so on and so forth, given a reduction in raw material prices. We are seeing a 19%, 20% growth between — so I would call that on our base a good number. I mean it’s — so if I take our — and mind you, we’re talking 2 million [Phonetic] kind of number being delivered. So it’s a very large representative sample of what we are seeing, at least in our categories so far in the first 19 days of the season.
Umang Shah
Perfect. This is quite helpful. Thank you so much and wish you good luck. Thanks.
Rajeev Jain
Thank you.
Operator
Thank you very much. Ladies and gentlemen, we’ll take that as the last question. I’ll now hand the conference over to Mr. Sameer Bhise for closing comments.
Sameer Bhise
[Indecipherable] everyone for joining this call today evening, and thank you to the team from Bajaj Finance for giving us the opportunity to host the call. Thank you, Rajeev, Sandeep, Anup and Atul. Thank you.
Rajeev Jain
Thank you, all. Thank you. Bye, bye.
Operator
[Operator Closing Remarks]