Bajaj Finance Ltd (BAJFINANCE) Q3 FY23 Earnings Concall Transcript

Bajaj Finance Ltd (NSE: BAJFINANCE) Q3 FY23 Earnings Concall dated Jan. 27, 2023

Corporate Participants:

Rajeev Jain — Managing Director

Sandeep Jain — Chief Financial Officer

Manish Jain — Chief Executive Officer

Analysts:

Subramanian Iyer — Morgan Stanley — Analyst

Piran Engineer — CLSA — Analyst

Ashish Sharma — Enam Asset Management — Analyst

Abhishek Murarka — HSBC — Analyst

Harshvardhan Agrawal — IDFC Mutual Fund — Analyst

Kuntal Shah — Oakland Capital — Analyst

Nischint Chawathe — Kotak — Analyst

Krishnan ASV — HDFC Securities — Analyst

Dhaval Gada — DSP — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Bajaj Finance Q3 FY 2023 Earnings Conference Call, hosted by Morgan Stanley. This event is not for members of the press. If you are a member of the press please disconnect and reach-out separately.

For important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. Please note that this call and your questions will be recorded and may in turn some consensus, distributed to clients and/or made publicly available. By-heart base in this event, you consent to such recording, distribution and publication. [Operator Instructions]

I’ll now hand over to your host, Mr. Subramanian Iyer from Morgan Stanley to begin. Thank you and over to you sir.

Subramanian Iyer — Morgan Stanley — Analyst

Thank you, Charlie. Hello, everyone. This Subramanian Iyer from Morgan Stanley. Thank you very much for joining us for the Bajaj Finance earnings [Technical Issues] to discuss the Q3 FY’23 results. To discuss the results, I’m pleased to welcome Mr. Rajeev Jain, Managing Director, Mr. Sandeep Jain, Chief Financial Officer, and other senior members of the management team. Thanks, Rajeev and Sandeep for giving us the opportunity to host you. So without further ado, I now invite Rajeev to take us through the key financial highlights for the quarter, post which we will open up — open the floor for Q&A.

With that, over to you, Rajeev.

Rajeev Jain — Managing Director

Thank you, Subbu. Thank you, Morgan Stanley. Good evening to all of you or good morning, depending on the geography. I have, along with Sandeep here, I have Atul Jain, who’s the Managing Director, BHFL; Anup Saha, Deputy CEO, BFL and a few other colleagues from the company. I’ll jump right in to the investor presentation that is uploaded in the Investors section of our website.

Jumping on very quickly, I’ll try and speak for 20 odd minutes and from there on, then we can take on questions. Jumping right on to panel number four, overall, good quarter, I would say across all financial and portfolio metrics albeit marginally lower AUM growth. On track overall to deliver INR52,000 crores, INR53,000 crores of core AUM growth in FY’23 that leaves only one quarter left. So far, the growth has been around INR39,000 odd crores of core AUM growth.

Q3 clearly witnessed highest ever loan book and new customer addition and I’ll talk about it in the next panel. In terms of going fully digital, now we have 31 million consumers on the app. In terms of net installs, Phase 2 of consumer app is [Technical Issues] now go live experience. On track both on app and web to fully go digital by March ’23.

Some quick stats AUM grew 27% just a tad below INR231,000 crore. Opex to NII came in at 34.7%. And I’ll talk about it as we — to manage later. PAT came in at just a tad below INR3,000 crores at INR2,973 crores year-on-year growth of 40%, ROE at — just a tad below 24% on an annualized basis and net NPA at 41 basis points. So as I said, good quarter on financial and portfolio metrics for the company.

Diving deep in on panel number five, CORE AUM growth was INR12,476 crores, slightly shorter mainly due in the mortgage side of the business, due to intense pricing pressures. So predominantly the growth was lower on account of slower mortgage disbursements, and I’ll cover that when we talk BHFL. Even 27% we talked about new loans came in at 7.84 million, last year same time, we were booked 7.5 — 7.44 million. B2B disbursements were INR16,026 crores on a year-on-year basis up 6%. October was pretty good for B2B for consumer discretionary, November-December, the demand slowdown significantly. So-far January, first 27 days — 26 days of the month is looking much better.

In terms of new customer additions, we added first time across 3 million customers and added 3.14 million customers in the quarter. Overall, it looks like, we started the year thinking we’ll do 9 million to 10 million. It looks like we’ll cross 11 million new customers in the current year. Customer franchise 66 million, we’ll probably end anywhere between 68.5 million to 69 million customer franchise, ending March.

Location, clearly we have present in we’re — out of 140 odd crore population, we are currently present in 110 odd crore coverage, we added 29 locations. We forecasted it will grow, we’ll probably add 400 locations. It looks like we’ll probably add 250 and 300, only in the current year. Competitive intensity, I’ve talked about this point for last three, four quarters, it remains highly elevated, everybody seems to — wants to do retail.

Between growth and margin, margin takes precedent that’s our fundamental view at the management philosophy level. So we continue to protect, which is evident in point number nine. So cost of funds went up — was 7.14%, it increased by 23 basis points, but the overall NIM didn’t go — remain flat. It didn’t dilute. So that’s the principle one that we are making that between growth and margin, choose margin. We, of course, want to grow. We are a growth-oriented business. We want to grow well. But between choosing — between the two, the choice is clearly on margin and because it creates a greater sustainability of business from a long-term standpoint.

Our liquidity buffer was strong at just a tad below INR13,000 crores. Given the overall strong ALM management, as you can see, the pass-through, even cost of funds is very gradual. Quarter two to three was 23 basis points before that it was another 20 odd basis points. In the first nine months of the year, the total entries are 45 basis points. So given that we run a longer — our liability maturity longer than the asset maturity, we’ll continue to see a lot more gradual pass-through on cost of funds as we move along even into the next year.

Our deposit book slower in the last quarter versus the first two quarters, we clearly took a lot more aggressive stand. In the first two quarters, it was — it was the right thing to do. But we have to deploy all that level you originate. So our rate increases in Q3 have been slower than what it was in Q1 and Q2. Having said that, the balance sheet still grew by — deposit value just grew bu INR3,562 crores. Overall, now it’s 21% of the balance sheet. On a standalone basis, I think it’s 28% of the balance sheet. And we were very clear on a consolidated basis. It will be 25% of the balance sheet sometime in the medium-term.

NII grew 24%. Actually, actual growth was 28% last year in Q3, IPO financing was at the peak and the company earned during that period INR203 crores of IPO financing, which of course, is then has been discontinued from April 1 based due to regulation. So adjusted on a core basis, the NII growth was actually 28% versus the real number that you’re seeing at 24% and that will become evident as Q4 gets done. Opex to NII improved, we’re beginning to see some level of operating leverage emerge move down from 35.9% to 34.7% as the core balance sheet starts to build up quarter-after-quarter, with the similar kind of product mix. We should start to see some level of operating leverage emerge, it’s still be marginally higher than it was at pre-COVID level let me just flag that as well.

Q4, we are reasonably comfortable that we’ll be able to sustain these metrics as we get into next year, we will — it will be lower than the current year, we are clear about that. I think next year, so we have peaked on building out the operating expenses, investments frame and as the balance sheet builds out, we should see improvement on that. Loan losses by INR841 crores, 1.4% to 1.5% of average assets, we continue to hold INR1,000 crores of management overlay for uncertainties at this point in time. G&P and NPA were lowest — whereas at lowest, I think we lower than that only when we were INR13,000 crores of the balance sheet in 2013. Sorry. And it was six month NPA classification. So clearly, lowest, lowest ever that we’ve been in the last 16 years and as Sandeep saying classification is different, came in at 114 and 41 basis points.

Stage 2 down, Stage 3 marginally up, and as you can see balance sheet is build out — building out, it’s up by INR80 odd crores. All portfolios are green including the AF portfolio now. Product mix was steady across all different nine verticals that we publish across B2B, B2C and so on and so forth. Consolidated profit after tax, as we talked about capital adequacy remains pretty strong Tier 1 capital was at 23.3%.

Employee headcount stood at 40,700 we added I think 1,500 — 1,600 — 1,400 — 1,300 employee in between Q2 and Q3 across the three companies. You are aware, we disclose it to The Street point number 23 that we’ve taken a 41.5% stake in Snapwork Technologies to strengthen our technology roadmap. BHFL, where as I said earlier, the quarter was little slower, approvals grew 14% at INR14,514 crores. Disbursements were INR7,429 crore as against INR7,000 crore, just a tad below INR8,000 crores in Q3 last year. It was — in the quarter, a de-growth, but overall AUM is still up 33% on a nine-month basis to INR66,000 crore.

Portfolio composition pretty steady between 61% of the balance sheet is home loan balance sheet and so on and so forth. Cost of funds increased by 49 basis points. The entire balance sheet is principally variable, so the pass-through has happened equally. So to that extent, this balance sheet is protected from interest rate risk. Liquidity buffer was quite strong, as you are expecting stronger disbursements, but — so as you can see liquidity buffer remain pretty strong. They are well-capitalized borrowing, mix was steady.

Opex to NII came in at 24.5%, this improvement because NIM has expanded loan losses. We’re down 50% Y-o-Y. BHFL will also hold the management overlay of INR242 odd crores. They are clearly lowest risk business in India, in terms of mortgages. The gross NPAs at 23 basis points and 10 basis points, net NPA by far — as far that scale, it’s not amongst the lowest to this balance sheet in India with a 61% home loan business.

Stage 2 assets hardly anything to talk about, given the number. Stage 3 assets at INR135 crores. So BFSL added 77,000, so pretty — other than disbursements, which was slow, and as a result, AUM growth was slow. And I would say, quarter four BHFL was also good on all financial metrics, other than the disbursement and corresponding AUM growth, which we are hopeful between Q4 and Q1, should come back to growth as well.

BFSL added 77,000 customers, 24 locations, they’ve got branches in now, it added six locations in Q3 alone. It will end the year with 30 odd locations as BFSL. We did a significant upgrade to the app and the web platform, added 45 new features. We’ll be adding another between 55 and 60 new features in Q4 as well. And yes, it should be lot more solid and strong as we exit Q4 or the current fiscal to significantly grow this, the BFSL as a business in the next fiscal.

MTF book, which is our course — proposition we bring to table continues to grow and profit came in at INR3 crores. Last year, they also added a similar benefit like, we had IPO financing benefit on account of IPO allocation. They had a INR7 crore one-time profit sitting in there. Their headcount is at 532 people. So that’s end the quarter in substance in terms of financials and growth metrics.

Omnipresence very quickly, I’ll just jump right in just interest of time to — as I said, we will fully go live across web and app by March ’23. So I’ll not cover point — page number 10 and 11, but just cover the metrics that we publish. So locations will be little short, we will probably do 300 odd locations in the current year, say 400, 450, that’s why you see yellow there now. Otherwise on downloads, net installs, in-app program, we are looking super green, top five in financial domain in Play Store. We are right there in top five. Service requests are growing quarter-on-quarter 20% to 25%, so significant improvement in service metrics as a result of us going. So this is of all the service requests raise — of all service requests, their customer mix now 23% — 22% of them are coming through the app and are migrating to app. We foresee that this number in the medium-term could probably go to 40%, 45%.

Wallet accounts is only one, which is the yellow, otherwise UPI handles, bill pay transactions, we were fully green, 18 million rewards we issued in the quarter. QR, deployment has now started to gather pace. We are now adding 7,500 to 8,000 merchant QRs on a daily basis. We foresee that in the current quarter. We’ll probably add just a tad below 0.5 million new merchants QRs because the entire functionality and the infrastructure went live in November, we tested that in December. Currently, we’re adding anywhere between 7,500 to 8,000 merchant QRs on a daily basis. So we expect to start becoming visible in as at the point-of-sale universally in the next fiscal.

So what we’ve done to the app this year, from nowhere, we’ve become top five in terms of downloads. And monthly downloads on our — on an average, yeah, between 5 million to 6 million. We intend to do that for the payments business from a merchant QR standpoint in the next fiscal.

Let me move — panel — let’s go to panel, yeah, these are all green, as you can see there. Our customer franchise metrics, this is a panel that we published in second quarter. Clearly, you can see that as the franchise grows — despite the franchise growing, the profit per customer and AUM per customer continues to grow. Now that’s the acquire and cross-sell strategy and this is — so we remain confident that that did — that despite growing franchise, we don’t foresee that our AUM per customer, PAT per customer will get compromised in any given matter.

This — from now on fourth quarter of — with the third quarter results, we will start to publish to the Street in general, a long range strategy update on a rolling basis. We as a company have been doing this for 13 years. We thought time has come from maturity standpoint to start to publish that to investors as well. So what we see is a very quick average version of what we do. Let me just given that we’re talking about it for the first time, this is on Panel 16. What do we do as part of what we call longer range strategy? It’s an annual five-year rolling strategy plan with an execution plan of 12 to 24 months. We look at the macro as part of the ruling framework and look at the industry outlook, look at the technology megatrend, look at business megatrend, select the benchmark company to learn from and create a bottom up financial plan. It’s a highly institutionalized and rigorous process and involves the top 500 people in the company on an annual basis for a 45 to 50 day period and we’ve been doing it for last 13 years.

So we thought, we will start to given the maturity, the company time has come for us to start to update that to the investors as well. Very quickly, it’s viewed around basic construct. Basic construct of the company is on six key pillars. What is our ambition as a company, what is our strategy as a company, what is our approach as a company, what is the philosophy around which we have build the business and what do we expect our market share and profit share to be as a company in this country. If you go to ambition, clearly ambition is to be a leading payments and financial service company. We have 100 million consumers. We will end this year with 70 million consumers, as I said earlier. 3% of payment GMV, 3.4% of total credit, and 4% to 5% of retail credit, that’s clearly the ambition for us as a company from a long-range standpoint.

Strategy is to build only payments and financials service company, wherever the consumer goes, goes to branch, goes to app, goes to web, goes to social, goes for rewards and eventually goes virtual, we want to be omnipresent offering all our products and services. Approach has remained simple for the last 13 years, acquire and cross-sell across all assets and liabilities and broking products to consumers, small business, commercial and rural consumers in India across all consumer platforms. So with lastly, build business as a 10-year view, we very clear financial services are build with a 10-year view and delivered through cycle — through the cycle 19% to 21% shareholder returns. We’ve done that, adjusted for COVID, done that successfully over the last 12, 13 years and we intend to continue to do that. We think because of our construct has helped us deliver that, at a design level, because we take a longer-term view on building our businesses, helps us anchor our business much more strongly.

The market share clearly among the top five in every respect of product that we are in. That’s the ambition at a design level and profit share to be among the top most — 20 most profitable companies in India and five to six most profitable financial service companies in India on a sustainable basis is really the frame is, that’s the construct. Now if you take that construct and say, what does that convergence to strategy from a ruling standpoint is really what you see on the next panel. We see industry growing from — it grew the past data is factual. The next data is our forecast. Like everybody is right to forecast, we have right forecast. Our forecast is in the total rate will go from INR149 lakh crores to INR237 lakh crore and grew by 12.5% CAGR over a next five-year period.

This is the panel that you see Panel 20. This is the overall retail mix of India, largely steady over the last 10 years, we foreseen that not to change. When we look at it, we find that and we do know that for a while that we’re not there in 28% of retail rate categories at a fundamental level, which is auto, CVs and agri, which is what you see penciled in here at 16%, 8%, 4%, if you take FY’23 estimates.

So that’s really where we see the market headed, where we see the forecast from retail mix standpoint. From a megatrend standpoint, what you see in this panel, Panel 21 is these are 15 megatrends at a management level, we identified that we are investing in, across India stack, platforms, products and technology, these are the 15 areas, they’ll go through. The megatrends don’t change, but they get versionized overtime. So clearly, we see, in India stack around aggregated to be one of the big game changing moments for regional financial services where we see.

On platforms, we see 500 million Indians are on social platform, we think it’s a big game-changer. We think reward is a big frame when we’ll look at leading companies, which are in retail business and so on and so. We think pre-own given, where prices of new products have gone through a design level from digital products, to motorcycles, to cars is a thematically a very big change as you move from here. And in technology, AR has become consumerized, it just became really. Vernacular and voice has really how the rural consumer is engaging with any of the companies, who are in — who are deeper into India. So these are 15 megatrend that we’ve identified and will provide update on this every — at the end of every third quarter on an annual basis.

If you take all these three, the strategic construct any retail business is organized as products, geography, platforms, horizontals, this is really where any retail business is organized. I’m not going to get into detail, but clearly on products, the intent is to be among the top five players in each product line. On geographies, we are already in 40,000 just a tad below 4,000 cities in India. So far our strategy was, where TV there Finserv, we are now saying, wherever there is Finserv, all products of Finserv should be there or Bajaj Finance should be there.

On platforms, clearly build out social and rewards, the way we built-out app and web over the last 2.5 years, built on the foundation of that and build that out as big over the next 18 odd months as you build-out app and web to be. On horizontals, clearly STP across all products as we go fully digital, we need more and more and more STP on service, FPC and so on and so forth, now continuing to as we grow larger in size, continuing to diversify our liability profile. And on subsidiaries, leverage our platforms to drive to originate mortgages and broking accounts for subsidiaries, 12% to 15% of the business, we think of retail mortgages and 20% to 25% of broking accounts would or should come from us as we take a five year view. And we will — and we’ll build this out as we delivers it.

What does that means, from an execution standpoint is, we will launch — you see here, I don’t have to go through it. It’s mentioned in a very clear terms. But we took a view that we were so far used to do LAP only in Bajaj Housing Finance, but as we came to conclusion that as we build out MSME, it’s one of the core products. So BHFL would also do, and BFL would also do. When we looked at external market benchmarking, we found that one of the largest players, which has a non-bank and a bank also always did it that way. And if you want to grow MSME then we’ll probably have to take do LAP in both the entities. Bajaj Plus, which is so-called Finance Plus in January, we already rolled out.

Launched new autos, I think after mortgages is the lowest risk category, makes less money, but we’ve invested last four years in building our used cars, we are among the now top four, five monthly originators of used cars, we seeing on the back of that. And during that of the total outstanding in India of small of auto loans, 33% sits on our current franchise as 70 million. And the experience that we are having with two-wheeler open architecture, we launched the business in June. We already now originating 8,000 to 9,000 open architecture two-wheeler loans, gives us significant confidence that we can build out in a business in the new CV loans as well. MFI given how deep we’ve gone into India is a business that we launched in a phase manner in Q4 and tractor in Q1.

In the — on the commercial side, emerging corporate business in Q3, B2B, on QR and EDC in Q4, and so on and so forth. So that’s really the eight megatrends out of 15 that I showed you, we would do in FY’24 and balance seven in FY’25. So that’s the sum and substance gist of it, will start to provide, what that means on a rolling basis, is that it — at least our forecast is — that is 4.5 years from now will have 110 million to 120 million consumers franchise, we’ll have cross-sale franchise of 65 million to 70 million, India payment GMV versus our 3% ambition would be between 1% and 1.25%, share of total rate would be between 2.5% to 2.75%. You can see the numbers there. They’re largely self-explanatory. Profit per customer would continue to move in tandem, and AUM per customer should continue to grow in line with nominal GDP and return on equity should continue to sustain.

So we thought that that’s really what we’ll share with you. As I said on Panel 25, we’ll start to share along with Q3 results every year from here on. The process for us starts in October every year as a company and ends in December. That’s the quarter. Last point as my team is reminding me, Panel 59 composition remains steady, 6% to 5%, 8% to 7%, 20%-20%, so on and so forth. As I’ve always said, between 1% and 2% plus minus that’s really where, as you can see, because mortgages are slower for the quarter, the mix from — sorry, actually AUM, business loans are slower. Mortgages on AUM basis went up actually from 32% to 33%. Last point, and part of it is a point that is important I make that we originate customers through our B2B business.

Balance sheet stack is now down to 9%. So the seasonality that used to exist at a particular point in time in Q3 and Q1 for us increasingly has gone away. And the contribution of B2B as a balance sheet business will keep going on. It’s possible sitting here next year, the 9% number, which looked like 10% last year same time, may look like 8%. It’s very much possible because balance sheet is becoming shorter and shorter. Churn is higher and higher. It would continue to generate disproportionately high customers to whom we excel in cross selling. That’s really what we do. That’s how we’ve created a business model. So increasingly, you will not see Q3 or Q1, which is really where B2B, at a point in time, when this contribution used to be 14%, 15%, you would see swings. The swings will not be there. In fact, if I take the reverse point that the Q2 balance sheet grew faster, Q2, the balance sheet grew INR14,700 odd crore, in Q3 its gone only INR12,700 crore. So at seasonality effect in the balance sheet mix is largely gone away. It’s an important point that I thought I’ll anchor. Rest, I think we are fine on portfolio metrics.

Happy to take questions — with me and some of my senior colleagues.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] Our first question comes from Piran Engineer of CLSA. Piran, your line is open. Please go ahead.

Piran Engineer — CLSA — Analyst

Yeah, yeah. Thank you and congrats on the good set of numbers. Just a couple of questions, firstly, earlier this month in Davos, Mr. Bajaj said that Bajaj Fin is looking to hire 3,000 to 4,000 engineers. It was a CNBC interview. I don’t know whether he was referring to Bajaj Finance or Finserv, but just wanted to get your thoughts on, what the strategy is out there, because it seems to be a slightly larger number in context of the FinTech that’s out there?

Rajeev Jain — Managing Director

Yeah. So we are — we have hired already for the current year 650 engineers from colleges, just to give you texture on, the freshers just being hired by us as BFL in — so I don’t know — so I can talk for BFL and clearly I’m sure that must be happening for other group companies as well. We hired 650 odd engineers as freshers. Last year we hired 300, the year before we hired 150. So clearly we do foresee the next year, we’ll be hiring 1,000 odd people, and that gets decided in June because we go to campuses in August from engineering colleges standpoint. So I’m — we as BFL, add just freshers —

Piran Engineer — CLSA — Analyst

Okay, sir. Okay. That makes sense. Secondly, just not related to the quarter, but when I look at the insurance, trying to understand what sort of fee income potential is out there from insurance cross-sell. And then when we see the commission income you’ll earn from Bajaj Life and Bajaj General, it’s only INR25 crores, INR30 crores annually. So am I reading this data wrong in terms of — is there more in terms of what can be done here, because it seems to be a very small number?

Sandeep Jain — Chief Financial Officer

So Piran, you’re only referring to life insurance business. I think there is health insurance business, there is general insurance business. There’s extended warranty, etc. All these products carry different commission structures and they do contribute significantly in terms of oral financial outcome. So that’s what the reply?

Rajeev Jain — Managing Director

And we are open architecture.

Sandeep Jain — Chief Financial Officer

We are open architecture. We now work with 27 insurance companies, we are working now nine already. We can do tie-up with 18 more insurance companies.

Piran Engineer — CLSA — Analyst

But would you be willing to share broadly what sort of fee income you learn annually from insurance costs? Like overall out of all your tie-ups?

Rajeev Jain — Managing Director

Piran, as I said they do contribute material to the overall numbers. We have not disclosed it separately. We’ll see if there’s a possibility for us to disclose separately in the annual report.

Piran Engineer — CLSA — Analyst

Okay, fair enough. And just lastly, can you cross sell a DBS credit card to an RBL customer and vice verse? Or is the contract that once you go in that the customers locked with that?

Rajeev Jain — Managing Director

[Technical Issues] Manish is answering. Yeah.

Manish Jain — Chief Executive Officer

Yeah. So as a governance principle, we do not cross DBS COBRA to an RBL and vice versa. Okay. However, if the customer has closed this card on either side, then as it period — after the cooling period, and then governance after a particular cooling period, it is then allowed to be cross-sold the other card. But we do not do it while the — while the card is still alive. That’s the governance’s principle that we apply.

Piran Engineer — CLSA — Analyst

Got it. But, okay. That makes sense. Thank you and all the best.

Rajeev Jain — Managing Director

Thank you.

Operator

Thank you. Our next question comes from Ashish Sharma of Enam Asset Management. Ashish, your line is open. Please go ahead.

Ashish Sharma — Enam Asset Management — Analyst

Yeah, hi. Thanks for the opportunity. Rajeev, fabulous update on the LRS, just one question on LRS, so as per the strategy, we would want to do everything organic? Or is inorganic also part of this whole long range plan?

Rajeev Jain — Managing Director

Organic. We build businesses all organic.

Ashish Sharma — Enam Asset Management — Analyst

Okay. Okay. Great. Perfect. Second question would be on the BHFL. So you mentioned about the competitive intensity. Just also wanted to get some perspective on the — I mean, how the demand has sort of panned out, given that there has been a very, very sharp increase in interest rates, I mean, the home loan rate? So it’s only competitive intensity? Or there also has been some sort of some impact on the demand because interest rates have moved so rapidly?

Sandeep Jain — Chief Financial Officer

So we are looking at the — in the [Indecipherable] we are looking at RBI data. I’m not mistaken, which is published. If a nine month data that shows the housing loan, including private sector loans, growth is only 9%, 8.89%, if I’m not mistaken. I think that that’s really what I saw the number to be, if my memory corrects me — memory is correct. So clearly, nine month view looks like a 9% odd kind of number at this point then times in terms of addition. Rest, Atul can add on.

Rajeev Jain — Managing Director

Yeah. Right, so competitive intensity and that also fueled by a lot of rate increase. As of now on the primary sales, because the market has two part, primary and secondary, which is balance transfer on the primary. In the primary side in the demand, we have not seen any significant downturn of the rate. Rate is catching up. On the secondary side, given the rate increases happening at a regular side, there is a bit of a compression. So not on the primary side, but in the secondary side, there is a compression.

Ashish Sharma — Enam Asset Management — Analyst

Okay, no problem.

Rajeev Jain — Managing Director

As we said — as we said, we have to choose our bests in terms of how do we price. And mind you, we only do salaries. We don’t do self-employed mortgages. So in fact, in home loans also, it’s the most intensely competitive space, everybody wants because self-employed home loans are — in our assessment not priced for risk. So it is the most intense part of home loans that we are competing in or continue to compete in. So a quarter here, quarter there really doesn’t bother us, but don’t want to lose margin, whatever is — little is there in the home loan business, any which way.

Ashish Sharma — Enam Asset Management — Analyst

Sure, sure. Yeah, yeah. Just lastly, on this performance of operating costs being lower than the revenue, I mean, you expect that we can sustain now given that we’ve already done our investments and now I think there’s just one some color on that Rajeev?

Rajeev Jain — Managing Director

Yeah. Yeah. So as I said, Q4, we will sustain from a guidance standpoint. Largest part of our opex lines are salary increases so on and so forth. New hiring, new, so as we build out, we will provide an outlook by — for next year by Q4, Ashish. But we are clearly seeing operating leverage emerge. That is super clear. Where will it anchor? I think by end of Q4, we will provide guidance on that as well for next fiscal.

Ashish Sharma — Enam Asset Management — Analyst

Perfect, Rajeev. Thank you and all the best for the next quarter. Thank you.

Rajeev Jain — Managing Director

Thank you.

Operator

Thank you. Our next question comes from Abhishek Murarka of HSBC. Abhishek, your line is open. Please go ahead.

Abhishek Murarka — HSBC — Analyst

Yeah. Hi, Rajeev and team thanks for taking my question. My first question is on this long range strategy, a conversion into a bank is not part of it. How are you thinking about that as part of a long range? Because if you get 100 million, 110 million customers, you would already be among the largest of there, so how are you thinking about the conversion to a bank?

Rajeev Jain — Managing Director

Yeah. I said this in our AGM in July, Abhishek. There’s no plan to convert into a bank in a reasonably uncluttered manner, let me make a point, again. So in that — that’s as I’m clever as I can get or as clear as I can get, there’s no plan to be a bank. And we foresee that even these numbers get us to be smaller than the current largest loan bank just about this, at today’s level. I’m talking 4.5 years forward, you know. So if and our gross NPA, net NPA sustained performance over long periods of time does not give us any kind of — poses any kind of — and if you continue to manage the business as well as we’ve done over the last 10 years, does not create any kind of reason for us to get bank. So these numbers don’t assume a bank. And we don’t like to be a bank.

Abhishek Murarka — HSBC — Analyst

Got it. Got it. Sure, sure. And the second one is, again, in your long range plan, you said you’ll do LAP or LAP in both BFL, BHFL and roughly model down the business model followed by somebody else. What will be the difference again? Will it be like a customer profile difference, or will it be similar?

Rajeev Jain — Managing Director

No, it’s very — it’s similar, except, okay, so let’s just step back for a moment. The business loan, business of ours, we are amongst the — we have 22, 23 per — as per bureau data. And when I say market share, I talked about, I’m talking on a runs. We only look at verifiable source. We are interested, either let’s say, RBI data, which is, but that’s say aggregate credit data. If I otherwise, in product lines, the only data that is relying on is bureau data. That is bureau says, how many loans are booked as consumer durable loan, over trend line on a long-term sustainable metric, if I take for business loans booked in India on a one quarter lag basis that shows that 21% to 23% of the loans business — booked as business loans in India, is with us. Okay. They are all small businesses or professionals.

When we look at the MSME sector in India, that market is INR23.5 lakh crore. So business loan market of that is only 4%. As we want to dominate and we want to be leading player in MSME space, we came to a conclusion that just BHFL doing will not be sufficient, and that business of ours is lot more B2B. We are very, very strong from a — this geography, distribution is very, very strong. We sustainably — there are only two players in India who have done business loan for the last 15 years, never shutting it. And we are one of those. We — gives us very high credibility with the distribution ecosystem. So I think we’ve already, as I said, started it, I think it’s starting to move with all guns blazing already.

So and Atul is here on the call, he is a big votary of the fact that the market is very, very large that the BHFL can continue to gather and we can continue to gather without any kind of compromise or conflict in any given manner on the loan against property business. And again, price — at a price and market basis, adjusted to emerging markets price differently from Tier 2 markets, price difference from Tier 1 market, we offer business loan in 2,000 cities in India. Yeah. Plus a level of product differentiation in terms of — that’s, that’s — okay.

Abhishek Murarka — HSBC — Analyst

Perfect. Perfect. Yeah. And just the last question, in your fees and commission expenses, now that has declined Q-o-Q, whereas your new loans booked and customer acquisition and sequential AUM growth, all of those has — have been pretty strong. So how do we think about this? Is it that you’re doing something yourselves or through the app and therefore you’re getting some operating leverage, or how should we think about this?

Sandeep Jain — Chief Financial Officer

So Abhishek, we are all [Indecipherable] accounting. So the organization causes an exciting opex side that gets a multiple along with the income. So what do you see? A large portion of that is recovery commission as a portfolio quality continues to improve, the recovery commission has come down actually. So that’s the reason.

Abhishek Murarka — HSBC — Analyst

Okay. Got it. Got it. Thank you so much. Thank you. And all the best for the quarter.

Rajeev Jain — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from Harshvardhan Agrawal of IDFC Mutual Fund. Harshvardhan, your line is open. Please go ahead.

Harshvardhan Agrawal — IDFC Mutual Fund — Analyst

Hi, sir. Thanks for the opportunity. So can you please tell us, what are the rate hikes that you’ve taken across products, apart from home loan? If you’ve taken that and what’s the broad quantum of it?

Rajeev Jain — Managing Director

Quantum would be — so as you can see, as we said, that’s so far, we have managed to neutralize, the impact of increasing cost of funds and increasing — I haven’t seen in a staggered manner pricing as well. So in the fixed rate businesses, you would’ve probably so far passed through 60, 70, 50, 60, yeah, 50 — depending on business-to-business, 50, 60, 70 basis points. I mean you know, that’s how — I mean, it would defer to business-by-business differ on our — differ on our level of competitiveness in the business, defers on our moat in the business. So quantum would be hard to —

Sandeep Jain — Chief Financial Officer

So the variable price business would’ve got completely reprice in line with market rate. The fixed rate businesses would see incremental repricing, which is as Rajeev said, 50 to 70 business point depending on business-to-business. The impact of it will become visible over a period of time.

Harshvardhan Agrawal — IDFC Mutual Fund — Analyst

Sure. Sure. And sir, another question is, what percentage of a book loan is PSL compliant today?

Rajeev Jain — Managing Director

PSL compliant, we don’t track. But in BFL, we track also — yeah, I mean — I mean, as I said, anywhere part is not to be a bank, as I told Abhishek earlier. So there’s no need to track, but if I tracked it, it’ll probably anywhere between my sense is across on a consolidated basis 14% to 16%. I mean, if we track this. Lastly, we did this exercise in ’20, we have not done this exercises since then. We should track it in some of our processes in BHFL, but not in BFL.

Harshvardhan Agrawal — IDFC Mutual Fund — Analyst

And sir, one last question is about, you mentioned that you will be getting into MFI business and tractor financing, now that those are like very competitive businesses. So what kind of right to win we have in those areas?

Rajeev Jain — Managing Director

So, look — so two, three things. You could ask the same question even for autos. So we are on the same page, right? But autos, as I mentioned, we have a very large existing franchise sitting, so to be fair. MFI clearly, the core moat that we are looking at is, we are very, very deep. We are now in, as I said, INR110 crores penetration. There’s still INR30 crore coverage left. So we understand that market, we understand the state, understand the market, understand the local district level understanding we have, having done various businesses. That’s point number one. So we start with — our plan is to start with two states. I must flag one thing, none of these are going to grow overnight. As I said, we build businesses with a five to seven year view. So it’ll be staggered frame. As I said, we launched two-wheeler in June. We are only in two states in India. We launched only when I launched two-wheeler open architecture in June, we’ve launched only Gujarat and Maharashtra. It’s only, now we are going into top 15 cities in India. So it’ll be a staggered frame business must find its feet first, and then we grow. So there’s no urgency. When we have looked in the past or when we launched a business and when it became materially significant to balance sheet and P&L, it appears to us that it takes anywhere between 3.5 to 4.5 years by the time it becomes material, either from a profit boost standpoint or from a balance sheet standpoint. So I think it’s important I flag that.

We launched MFI and UPI in Tamil Nadu. We are looking at two states and over a bit of four years build out in 10 states in India. Tractors, we — okay, when we look at even tractors, we find there are 600,000 of our customers who have a current active tractor loan, just to give you texture, so same thing that applies for PV, applies for tractor as well. So MFI, I must also flag, as RBI came out the new requirements in September, which became effective October, and we will look at those metrics. We found that there are a set of loans that we do on a monthly basis in personal loans, cross sell 3% to 4% doesn’t qualify, and we start to tag them as MFI. And when you look at the performance, we come to a conclusion that there is merit in us pursuing the business as well. So there is some level of experience even there sitting there based on the new RBI regulation requirements. So that’s the background on these three existing customer and deep knowledge of the geography from MFI.

Harshvardhan Agrawal — IDFC Mutual Fund — Analyst

Sure. Sure. Thanks. Thanks a lot, sir.

Operator

Thank you. Our next question comes from Kuntal Shah of Oakland Capital. Kuntal, your line is open. Please go ahead.

Kuntal Shah — Oakland Capital — Analyst

Hey. Hey, Rajeev and team, thanks for this update on LRS and credibility of meeting with distribution ecosystem. My questions are two, what is the status of credit card approval by RBI for us and NBFCs in general, where do things stand and what timelines you expect for us to begin that business? And secondly, this quarter saw addition of only 27 location, and for 27, also your guiding only 600 odd addition. So are we slowing down on geographical reach or how do we rate this? These are my two questions. Thank you.

Rajeev Jain — Managing Director

So credit card, we applied Kuntal. We are waiting. We are hopeful, is all I can say, and we’ll go by whatever RBI will do, they will do it for the industry in general. I would like to believe. So for the non-bank pack and based on credentials, is the response on credit card, Kuntal. In terms of geography, the economics must work. Principle number one, I don’t have to be present in all 140 crore of population in India. The economics must work. As I tell people that from west of India to south of India, every 30 kilometers on the highway, we have a branch now. If you stayed on the highway, this is from Gujarat to — the large parts of opportunities, regional part of opportunity from the population coverage and the economics would work, we principally now see only UP and Bihar and some parts of Northeast. And that’s really one of the frames that you see. We foresee that in a five year horizon, we’ll probably now land up opening only 445 ood locations. Let me give you a specific number of that 400 will actually come in UP, Bihar and Northeast, only 45 is the gap that we see in rest of India. Sorry. Other than, as Anup is correcting me other than MFI. So urban stroke, rural business as you know it today, we’ll have a eventual net addition from here next five-year standpoint of 4.5 years for only 445. That too 400 in UP, Bihar and Northeast and balance 45 are some of the blind spots in rest of India and as we build out MFI LAP. So that should give us INR123 crore, INR124 odd crore coverage as a redesign level.

The bigger frame Kuntal, from the next five years for us, from a strategic standpoint on LRS as I said earlier, earlier, used to be [Foreign Speech] products. I think that’s the — when we look at it, let me give you texture that only 3% of our locations have 80% plus of our products. We know that. So but those products gave us experience, they gave us a branch, they gave us understanding of the market, they gave us understanding of the consumer. The next step on geographic infrastructure is about in a templated manner, get all our products. So that’s really where we are headed. Sometime, sometime in maybe next year, LRS update or thereafter, we’ll start to provide update on how some of these things are moving as well to create greater degree of transparency in the process. So but strategy is 445 more locations in 4.5 years, but focus on [Foreign Speech] products.

Operator

Thank you. Our next question comes from Nischint Chawathe of Kotak. Nischint, your line is open. Please proceed.

Nischint Chawathe — Kotak — Analyst

Yeah. Thanks for taking my question. Again, Rajeev, the same point about going into the prime segments of the market. You’ve already focused on the prime segments and the mass affluent class. Now I understand that you — you by now have reach across the country across every particular, which on the highway. But still, this is a very different market run with a very different mindset. Most of the companies will be successful out here are sort of hyper local companies were morphed into regional players. These are, again, largely collection based models. So how are you changing the entire business for this? I mean, is it something that you are kind of trying to do it on an experimental stage? Or would you kind of win the completely different mini enterprise within the Bajaj planned businesses like other NBFC?

Rajeev Jain — Managing Director

It’s a good point. It’s a very good point. As the company grows larger and by one of the — one of the frames of the company, and we’ve done that, Nischint, good you made this point. We’ve coming to conclusion, as we grow larger. We need to create few of the businesses have to be paradise out. So in way, actually, we now have, with more — microfinance, we’ll have three paradise units in the company. The two existing paradise units in the company are actually payments business, the technology operations, business development, HR, sits as a paradise unit adjusted for risk, payments has some very little risk on the fraud and so on so forth standpoint, otherwise adjusted for risk, sits as a paradise unit. If you’ve done the same thing and good you raise the point, I forgot to — I missed making that point. If you go to our omnipresence update on the panel, panel number, you will see that we’ve actually upgraded our gold loan branches from 179, full year estimate was 225. It’s at 375. By FY’24, we’ve signed off, FY’24, we will have 650 standalone gold loan branches. So we have actually, even paradise, we came to a conclusion that we need to paradise gold loan as well.

So now paradise it out, adjusted for risk as said otherwise, operations, cash, sales, administration, HR of the units has been paradise out. MFI will also be paradise out. So we understand fully that these businesses have different nuances. They have to be run differently. What do we bring to the table in MFI? Unfortunately, in instance, when I look at the industry, I still find very poor stroke, relatively poor technology option. And one has to scale these businesses, they must be run on — they must have significantly deeper technology adoption is what my observer point of view is as a practicing manager that you may make a range as we launch it. But today, our view is, we can bring lots greater and deeper technology intervention from a last mile standpoint to the business and we will be paradise out.

Nischint Chawathe — Kotak — Analyst

So and just one smaller one is, you mentioned that the festive demand was sort of — or whatever the post festive demand was sort of weak for the first two months. And despite that, you had, I think, a record number of plant additions. Typically, you would have the B2B customers sort of driving pre-plant addition. So how do we reconcile these two points?

Rajeev Jain — Managing Director

So two things, as I said, so clearly deeper geography continues to add NTV customers. That’s my number one. So you should 60%, 61%, 62% of the customers continue to be existing, 38%, 39% of the customers on a sustained base. Any differed number between 65%, 35% so continues to be digitally, I mean, continues to be NTB. That is not changed. Plus, if you go to the Panel 13, you see the customers acquired digitally, EMI card acquired digitally are already now tracking at 6.5 lakh a quarter. That number of course, as been Q1 was actually, you can see there, 122,000, 664,000. I have to also still remind people that 60% of these customers pay a fee. So 637,000 came, 60% of them — paid a $8 fee in rent got fully underwritten, fully digital. I spent less than a INR100 across all kinds of marketing infrastructure. And 60% of them pay fee. 40% become active in a 12-month rolling basis and balance we continue to stimulate. So that’s how you should reconcile the number.

Just on the demand outlook, say, 55% of the B2B loans are now digital products, means — mainly phones, while laptops, etc., also are digital products, but take phone. Month-on-month, if you take October — September, October, November, December, if you take the IDC shipment data continues to trend downward. Now that’s the real data. I mean, the shipments in India on a sorry, 7% de-growth — annualized 7% de-growth, and last quarter, like 12%, yeah, 12%, 13%. So I think, but it will recover. I think it is also coming high base, ’21, ’22 children are online. Everybody was online. India would not buy as many laptops as it would’ve liked. Life had to go on, so people got lot more phones. So there will be some degree of year-on-year averaging that also one has to take into account before one takes the view that, is it a structural downturn or a transitory downturn? I think it’s transitory. You should start to see pickup. And as I already said, Jan was looking better.

Nischint Chawathe — Kotak — Analyst

Okay. Thank you very much.

Rajeev Jain — Managing Director

Nischint, it’s been long time, me and Sandeep were remembering you, just on a lighter way.

Nischint Chawathe — Kotak — Analyst

Yes, that’s nice.

Operator

Thank you. Our next question comes from Krishnan ASV of HDFC Securities. Krishnan, your line is open. Please go ahead.

Krishnan ASV — HDFC Securities — Analyst

Yeah. Hi Rajeev and team. I hope I’m audible. Thanks for taking my question. This is more a governance query or an observation if you knew. I mean, clearly, you have been setting an example in all the right ways on so many financial parameters. So it’s a little unusual when you see the level of open circulation on the likely transition around KMP within BFL especially for a franchise that’s been driven so scientifically, is either reflecting a complete lack of governance controls, or it appears to be a deliberate ploy. So I mean, it’s just an observation and probably a feedback if you give. There’s something —

Rajeev Jain — Managing Director

Maybe more specific, Krishnan, I have not understood your point. Can you be more specific?

Krishnan ASV — HDFC Securities — Analyst

In case, there is a likely transition within BFL that you seem to be aware of at a board level, etc. I think this is ideally something that you should bring out in the — I think the public domain. Instead of letting, I mean the pockets of speculation open up, I guess. So there’s just an observation, Rajeev, I didn’t want to —

Rajeev Jain — Managing Director

As when we do — as when we do, we will — as when the board decides or such discussions happen, we will, of course, let The Street know. I mean, there’s no discussion on it at all. So there’s nothing for us to disclose.

Krishnan ASV — HDFC Securities — Analyst

Great. Okay. So my second question is a little bit now to do with the business per se. And this goes back to one of the earlier queries around how do you prevent from being a mass affluent franchise to something that becomes a little more mass oriented, and what kind of risk controls do you have in place in order to prepare the franchise for that? So maybe if you could just elaborate a little bit?

Rajeev Jain — Managing Director

I for courses, Krishnan, a, obviously, so it — as I said it’s horses for courses, even in the businesses that we are in, somebody could argue that is gold loan may mass business or a mass affluent business. The way we run the businesses, our average ticket sizes 3X of that of what non-bank lender runs. So we find pockets even within that. And so because we think share of wallet eventually works better than number of customers. So even within, as we get into some of these businesses we look for pockets. Now if you take the two-wheeler financing business that we’ve launched in open architecture, we are doing at this one time more Honda than we are doing, let’s say, Hero, if you — it’s no secret that that customer, scooter customer is better than another mass motorcycle customer.

So we tend to, at a philosophy level, identify pockets where customer has better behavior from a consumer standpoint, has a larger wallet for us to cross sell too. So that’s the philosophical response to the answer. May there be such opportunity MFI, I mean, the business to rely only in of Q3. So we will, as we get deeper into it, we have already in January. We will take a view there. Otherwise for PV, the industry itself has transitioned to mass — super mass affluent rather if you see the structure of industry, the mass cars are not selling, only affluent and super affluent cars are selling. So gold loan, I gave you example, two-wheeler, I gave you example. So we will look for wallets rather than look for balance sheet.

Krishnan ASV — HDFC Securities — Analyst

Got it, got it. Thank you. Thank you, Rajeev.

Rajeev Jain — Managing Director

Thank you.

Operator

The final question we have time for today comes from Dhaval Gada of DSP. Dhaval, your line is open. Please go ahead.

Dhaval Gada — DSP — Analyst

Yeah, thank you for your opportunity, congrats on good set of numbers, Rajeev. So just one sort of question more from a clarification or understanding perspective, so from the LRS slide, it sort of implies about INR6.3 lakh crores of AUM by FY’27 and about INR26,000 crore of profit, which sort of implies 26%, 27% AUM growth than the 23%, 24% profit growth. The question is basically, you’ve given a three-year sort of target of doubling the AUM, which sort again implies 26%, 27% AUM growth, and you have a long-term guidance on Panel 30, which again implies similar outcomes. So normally most companies will see that as you grow in size in many companies, the growth starts tapering off or — even size sort of comes into the picture. In our case actually, we seem to be in a room, where we’ll be sort of steady compounding for a fairly long period of time. What would you attribute this to? Is it the funding franchise with this — is it the product suite that that is driving it? I mean, what exactly is the reason for this in a fairly long period of compounding at a similar pace of growth?

Rajeev Jain — Managing Director

10% of the loans booked in India plus minus between 9% and 10% of loans booked in India every month, but only 3% of assets. Let me give you one single metric. If I take long-term bureau data that means just on the franchise is a gap of 7% sitting there. So one, you need full product coverage goes back to the LRS conversation, and two, you need platforms. That’s really where the investments in existing in the last 2.5 years in app and web platform, and in the next two years in a social and rewards platform, between products and platforms and consumers, we already have, we just — and with the long-term orientation that we have, just keep playing along. I mean, is all we need to do. I don’t think we need to reinvent anything. Just we got to keep mining. And as I said, product coverage will get completed. Platforms, we have built out over the last three years and a 70 million franchise with the 40 million best customers is some ending this year. All we just need to do is continue to just mine those clients. So that’s what gives us the confidence. Let me make a point. And I’m not — Sandeep wants to say something. Yeah.

So that thing remains tremendous opportunity to do it too quickly. It’s a problem do it too slowly is a problem, yesterday cruising altitude, growth oriented, so that we are all on same page. Don’t see this to be a challenge. And mind you, I’m not making a new point. In July, we made the point in AGM that we will get to INR4 lakh crore. So I’m not that is — that was three years ago. This is [Indecipherable] and in that one year is gone. We will add, this year I’ve said already INR53,000 crores of balance sheet, don’t do much. INR52,000 crores, INR53,000 crores between INR64,000 crores to INR67,000 crores and INR75,000 crores to INR80,000 crores. Sum up the number, as I keep telling people, it took us 15 years to get to INR2 lakh crore. And it’ll take only 18 years for us to get to INR4 lakh crores. So that’s compounding. And we are very clear. We are not letting this opportunity go to build a once in a while opportunity that comes our way in building this business out.

Dhaval Gada — DSP — Analyst

Got it. Thanks. Thanks, Rajeev. And wish you all the very best. Thank you.

Operator

Thank you. This concludes today’s Q&A session. So therefore, I hand back over to the management team for any closing remarks.

Rajeev Jain — Managing Director

No. Thank you. Have a good weekend. Thank you for your patience.