Bajaj Finance Ltd (BAJFINANCE) Q4 2022 Earnings Concall Transcript

Bajaj Finance Ltd (NSE: BAJFINANCE) Q4 2022 earnings concall dated Apr. 26, 2022

Corporate Participants:

Rajeev Jain — Managing Director

Anurag Jain — Chief – Information & Technology Officer

Rakesh Bhatt — Chief Executive Officer – Bajaj Finserv MARKETS

Sandeep Jain — Chief Financial Officer

Analysts:

Subramanian Iyer — Morgan Stanley — Analyst

Kunal Shah — ICICI Securities — Analyst

Abhishek Murarka — HSBC — Analyst

Apurva Deshmukh — CRISIL Limited — Analyst

Nischint Chawathe — Kotak Securities — Analyst

Sameer Bhise — JM Financial — Analyst

Kuntal Shah — Oaklane Capital — Analyst

Parag Jariwala — White Oak India — Analyst

Abhijit Tibrewal — Motilal Oswal — Analyst

 

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Bajaj Finance Q4 FY’22 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 certain circumstances be distributed to clients and/or made publicly available. By participating in this event, you consent to such recording, distribution and publication.

[Operator Instructions] I now hand the conference over to Mr. Subramanian Iyer from Morgan Stanley. Thank you, and over to you, sir.

Subramanian Iyer — Morgan Stanley — Analyst

Thank you, Stephen. Hello, everyone. This is Subramanian Iyer from Morgan Stanley. Thank you very much for joining us for the Bajaj Finance earnings call to discuss the Q4 FY’22 results. To discuss the results, I’m very pleased to welcome Mr. Rajeev Jain, Managing Director; Mr. Sandeep Jain, Chief Financial Officer; and other senior members of the management team. We thank you for giving us the opportunity to host you.

I now invite Mr. Rajeev Jain to take us through the key financial highlights for the quarter, post which we will open the floor for Q&A.

With that, over to you Rajeev.

Rajeev Jain — Managing Director

Thank you, Subu. Thank you, Morgan Stanley, for hosting us for this evening. Very good evening to all of you. I realize it’s late in the day. We also just finished our Board meeting 10 minutes ago. But here we are with the quarter.

I’ll refer to the Investors section of — I mean, the deck that we uploaded in our website in the Investors section. I’ll quickly jump in the interest of time to Panel 4 essentially, headline — heading that has quarter gone by.

Overall, I would say, last quarter, we had said, it is a good quarter. And I was hoping that we will have a better quarter than the good quarter. And that’s what we achieved excellent for. So excellent quarter for the company, I would say, Q4 that went by, both portfolio quality and profitability. So we are quite satisfied with the quarter that has gone by. Fourth quarter is always very important to us because it fundamentally determines how, what is our entry run rate into the next fiscal years in general.

The only business agenda across geography, app, web platform, which I’ll cover in some time continues to accelerate in Q4 as well. Overall, I would say, as I said, entry run rate is very important from a business standpoint. We are quite excited about the FY’23 prospects.

If you took a level to view on the key metrics, the core AUM grew to INR1,92,000 crore, a year-on-year growth of 26%; opex to NIM came in at 34.6% versus 34.5%; PAT came in at a record high of INR2,420 crores, year-on-year growth of 80%; ROE came in at 5.7%, not annualized but a year ago it was 3.7%. On a full year basis, the ROE came in at 17.4%. The exit run rate for the last two quarters of the ROE has been 22.5%. Net NPA, we are back to pre-COVID levels, marginally lower than pre-COVID. December ’19 was the last quarter of, what I would say, pre-COVID quarter both gross NPA and net NPA are back to pre-COVID levels, net NPA came in at 68 basis points, a year ago it was 75 basis points. On a full year basis, balance sheet has gone 26%; opex to NIM has came in at 34.6%; full year PAT growth has been 59% at INR7,028 crores; full-year ROE 17.5%; and net NPA is at 68 basis points.

Some more color to the financials that — over to Panel 5, I’ll only cover the high points, point number three is irrelevant, 6.28 million loans versus 5.5 million loans that we did in Q4. Overall, we booked just a tad below 25 million loans in the year that went by. Overall, the fourth point is a new metric that we started to provide from this quarter onwards, the B2B consumption businesses, the divergence between volume growth and value growth has increased dramatically. So I thought it’s appropriate that we have started to share this metric with you.

The volume growth in the last quarter was 15%. The value growth was actually 27%. In the B2B consumption businesses, overall disbursements were INR13,200-odd crores against INR10,400-odd crores. We acquired 2.2 million customers. Overall, the customer franchise stood at 57.57 million, that’s a 19% growth.

Last year was the year that we acquired highest number of new customers to the franchise. We acquired 9 million customers. Cross-sell franchise 32.77 million, year-on-year growth. So franchise grew 19%, but cross-sell franchise grew 32%. Bodes well for the new acquisition that we’ve been putting on board in the last seven, eight quarters. We remain comfortable acquiring it — adding 8 million to 9 million new customers to the franchise in FY’23 as well.

We added 81 new locations. Total locations presence are now 3,504 locations and 133,000 distribution points. Competitive intensity, I talked about in the last quarter remained elevated. We, as I’ve said, we had rather focus on margin than to focus on balance sheet growth. If I will trade off between the two clearly, we would choose margin. Margin, we continue to protect. On aggregate basis, it reflected in AUM growth was 26% and NIM growth actually came in at 30%. So we continue to protect margin in Q4 that went by as well.

Our cost of funds continue to help, came in at 6.7%. Liquidity buffer is now — we’ve been working hard to dial it down is, as of April 30, it would have dialed it — dialed down to this number, because the Q4 number is little artificially suppressed by INR3,000-odd crores. It was because of the large tranche of IPO financing that we did, which was quarter crossing. So it would have looked like INR13,000 crore in absence of that number, but would have dialed down to sub INR10,000 crore as we close April. So overall, one of the drags in the P&L, one of the large drags in the P&L has also gone away at — from what was legacy of COVID over the last two years.

Over to Panel 6. Deposit book crossed INR30,000 crores at INR30,800 crores, consolidated mix of 19%, opex to NIM came in at 34.5%. As we said in Q3, we continue to invest in teams and technology for business transformation.

We are now reasonably clear that given — and we so far talked about geo-expansion and app platform and what we’re going to share with you today. And in next few slides is we are investing very deep in building a web platform as well for the last eight, nine months.

Given the deep investments in all these three areas, which we think are clearly needed for what we think is a full-fledge omni present financial services company, we think opex to NIM will remain elevated for FY’23 as well, is really one of the views that we have and I thought it’s important we articulate that.

Our loan losses and provisions came in at INR702 crores. On a run rate basis, they were at INR602 crores. We took INR100 crore charge on one large B2B commercial account, which went into NPA across the banking system. So the case with us as well. So we took an additional charge in that account of — it’s INR383 crore account. We’ve now provided INR200 crores.

Overall, loan loss to average receivables in the quarter was 40 basis points. So that technically gives us a run rate of 152 basis points. As I said, the INR702 crores has a one timer of INR100 crores, so probably gives us a run rate of 145 basis points to 150 basis points as we get into FY’23. On a quarterly basis, this may trigger now better than pre-COVID levels at this point in time.

We continue to carry management overlay. We have not diluted overlay. We had management overlay of INR1,052 crores. And in Q3, it came in at INR1,060 crores. So we continue to look for the watch out for fourth wave and as a result have chosen not to dilute any management overlay. And we’re watching for any signs of — if the next six-months are fine, then we will slowly start to work towards releasing part of this management overlay.

Portfolio metrics overall and debt management efficiencies continue to improve. They improved further in Q4 versus Q3, and are clearly on new acquisition, management of the portfolio, debt management efficiencies are better than pre-COVID level across most businesses, not all, but most I would say. Gross NPA and net NPA, I talked about, it came in at 160 basis points and 68 basis points, they’re better than pre-COVID.

Stage 2, on an absolute basis came down by INR1,300 crores, INR1,400 crores and INR1,500 crores between Q3 and Q4. So even on an absolute basis, the numbers are leaving aside the percentages came down. Stage 3 came down remained flat. This is mainly on account of the INR383 crore account that actually stepped in. So adjusted for that, it came down by INR383 odd — INR400 odd crores. So despite such a large account flowing in the overall Stage 3 assets remain flat. Portfolio composition across Stage 1, Stage 2 and Stage 3 at a mixed level is now better than pre-COVID.

Very quickly just from a management assurance standpoint, I’m in Panel 17. Portfolio quality, 10 portfolios in our management assessment are green and one is yellow, which is still two-wheeler and three-wheeler but it’s moved from red to yellow remains so far the next four, five months should be somewhere in green, we are hoping by end of second quarter.

Consolidated profit I already talked about grew 80%, capital adequacy remained strong at 27.22%. Tier 1 capital was just a tad below 25% at 24.75%. The Board of Directors of the company given the strong performance of the company. And given that we grew, the aggregate balance sheet grew INR39,000-odd crore. And we still did not dilute capital adequacy have announced — have recommended a dividend of INR20 per equity share for — which is a 1000% dividend. This will amount to dividend policy of the company says that we can distribute dividend between 15% and 25%, and this number comes to subject to shareholders approval to 19.7% — sorry, yes, 19.2%. Oh, sorry, 19.2% — 19.1%.

Point number 22, RBI has allowed a deferment where we’ve chosen — we’ve already transitioned, so chosen to not take it and it’s a way of life for us now. BHFL, overall, AUM grew well. From a profit standpoint, they came in soft. The AUM grew by 37%, profits for the quarter grew by 11%, there the — mainly caused by opex. In the last two quarters you’ve taken a position to significantly accelerate investments in growing distribution. So it’s a transient opex phase. We also infused INR2,500 crores of additional capital. So it’s the right time for them to make decisions to invest for the next level of growth of the company. On 5th of April, we — 7th of April, BHFL infused INR2,500 cores of capital in BHFL.

BHFL gross NPA, net NPA performance continue to remain quite strong amongst the lowest in the industry came in at 31 basis points and 14 basis points. And I would say it’s a creditable performance on credit costs given the amount. As I said, delivered a 11% growth to INR198 crores for the quarter and capital adequacy came in at 19.72% but would have moved up further to close to 37-odd percent as a result of the inclusion that we’ve actually done.

Bajaj Financial Securities, we continue to systematically and gradually continue to build the company. Focus in quality of franchise rather than quantity of franchise added 62,000 customers, activation rates of this customer franchise is now anywhere between 60 day activation on broking accounts is between 30% to 37% is really where the number is, and that’s our focus, rather than adding new customers and having inactive customers, we’ve chosen to focus on activation rates, which are 60 day activation redesign.

Margin trade financing which we think is the future of the business. The balance sheet grew to INR720 crores. And we think it will be an important dimension to build a large broking business, from our perspective. That profit came in at INR9 crores.

So that’s really the key financial indicators, overall quite satisfied with the quarter. All metrics are looking good and we are quite — and as a result, we are quite excited about the prospects FY’23.

Now, let me just cover next five minutes on Panel 10 on omnipresence strategy. You would notice that we were essentially transitioned from using the word business transformation to articulating it as they are omnipresence strategy. That’s really how — as our audited accounts get released and the MD&A and information perspective appears. This is the frame of omnipresence strategy that we intend to continue to work over a period of next three to five-years.

Let me just give you some texture on that. Just from a forward-looking standpoint, first point is that omnipresence strategy will expand — I’m in panel 10. From geography and digital app platform, these are the two pillars so far of the omnipresence strategy to also include creating a digital web platform. So these are the three pillars. We also think in the future, there will be a social and virtual. Eventually there may be five pillars, but so far we are working on building until September ’20 on building two pillars which was geography and digital app platform. As digital app platform takes the life of its own, we decided that it’s time to investing in the third pillar, which is the digital web platform.

Fundamentally between the app platform and digital web platform, the digital web platform will get delivered in two phases between September and March — September ’22 and March ’23. That’s one part of the conversation. It intends to essentially — web remains the largest driver of traffic — traffic, volumes and service to customers in the digital space. It’s bigger, it remains bigger than app.

App comes with many benefits, also comes with a set of limitations. If you want to be a digital enterprise, you are very clear that we got to play in both these cases equally, large, equally strong and equally strategic, and that’s really now we’ve taken a decision to build a web platform, which will fundamentally provide a platform-agnostic experience. So you can stop an app and go to web and you’ll start from there. And again, go to web, stop from there and start from app. At a design level that’s really where we are in the last eight, nine months. We’ve been investing in building the domain, talent and technology to build a large digital platform. We’ve added 250 odd new people in this space to build this out.

We will, as I said, completely transform the web experience enabled by common technology infrastructure there between web and app to, what I would say, to the extent possible, reasonable extent possible, I would say is really where the design thought process is. So, we’re taking a customer in view rather than a company out view. The UI/UX will be identical to a digital ad platform for ease of navigation and customer experience. So it will look like app, but it will be a web platform. First phase by October and second phase by March ’23. And we expect by March ’23, by March ’23 just on staying with the conversation, even on the digital platform, we would have delivered Phase 2, which I articulated in the last quarter. So we would have — I would say across all these three areas, by March ’23, we would have completed our transformation journey that we fundamentally embarked on in August 2020. It would have been long two and a half years of driving the company and building an enterprise for the future, I think we have last 11 months to go, as we complete the transformation process in our assessment.

Jumping to the two things that are going concern, dimensions of our or going concern pieces of our omnipresence strategy. But in geography, we added 81 new locations. We continue to invest in UP, Bihar and Northeastern states as we work on omnipresence geographic infrastructure.

Next panel, which is on Panel 11. The insurance market place went live in March ’22. It’s a large build, large capability across nine insurance companies, across eight insurance products, 345 pocket insurance products, four motor insurance products and nine health insurance products allows customers to compare, review, buy policies, service section includes policy documents, claims request and so on and so forth. So it’s a reasonably large asset that we’ve been working on creating over the last 12-months as part of our business transformation strategy which went live.

The investments marketplace in partnership with Bajaj Finserv Direct also went live in February in offering various mutual funds and fixed deposit options to customers. Allow customers to explore, invest, seamless onboarding for mutual fund investors, easy online KYC process and so on, calculators and portfolio view. These are two large market places that have been work in progress for the last or that had been in the — rather that we’ve been building over the last, I would say 14-odd months. Phase 1 of these both these assets have gone live. And we have full pledged plans to — like we talked about our platform, grow them both in size in terms of size and depth as we execute through the year in FY’23.

The reward management system critical to the entire digital journey which is RMS. also went live in March ’22. It will drive higher customer engagement on the app and will deliver much higher conversion rates, which is its purpose. It delivers to us as a company, the ability to offer reward points, cash back into wallet and vouchers for online and offline purchases. So I think it delivers a reasonably robust infrastructure for us to be able to engage customers across product, services, payment options and so on and so forth. So that also went live.

Overall in Q4, on the app platform, which went live as Phase 1, we added 2.6 million net users and as against 3.6 million in Q4. Due to seasonality normally B2B point of sale remains our largest new customer gatherer, so due to seasonality you see that number dropped from 3.6 million to 2.6 million. But — so in Q1, you will see that number go up. In Q2 you will see it go down. In Q3 you will see it go up and Q4 you will see it go down.

Overall, we believe FY’23, we intend to add 14 million to 16 million net new users. That’s really the run rate that we are working with to bring between 14 million and 16 million new users to the franchise, taking us hopefully to 35 million users should be net users, should be on that platform, given that we are on 19 million active users at this point in time. And if we add between 14 million and 16 million, we should have between 30 million and 35 million net active users on the platform by as we exit March ’23.

I talked about it and we put it in public domain for investors to understand that we will do — we had planned that we would deliver as part of Phase 2, 17 new features and components. The final addition as we completed our planning process is essentially that increased sprints, we will deliver 62 new features and component as part of the design as we deliver Phase 3. The time lines are not changing. They may shift by a month or so here and there, that really doesn’t matter from a direction standpoint. But I think by the time we finish Phase 2, we would have a reasonably robust ad platform infrastructure both for MTB and for ETB customers.

I’ll just take two more minutes, and then we are — then I’m done. Just on some statistical data in terms of how the app platform is helping us engage or acquire new customers. We acquired 455,000 new EMI card customers digitally in the quarter that went by. That CIF itself is now 1.8 million that delivered 234,000 new loans in Q4 alone.

Overall EMI store visits, which is the third flagship market place that we have, so the flagship marketplace is B2B marketplace followed by, as I talked about insurance marketplace, followed by investments market place. Eventually, our goal is that as, as these three marketplaces become large and for consumers to compare, review, purchase products, I think should be generating 200 million, 300 million each in a year as we build them out. I think that’s really what the thought processes in the quarter that went by, it had 37 million visits.

We’re investing deep even in EMI store. We are putting in place a plan to build a grounds up EMI store infrastructure, which should be going live sometime at June ’23. And the reason I’m making the point to give you a texture on when I say opex to NIM has been elevated because we continue to invest, investing for the future, investing for engaging customers, investing for generate — for mobilizing and creating hopefully exceptional properties for consumers to do business with us.

— the digital app platform delivered INR1,800 crores of personal loans in the quarter that went by and 29,000 credit cards. Debt management transactions on the app platform came in at tad below 400,000 people paid using — those who have defaulted paid using via platform. So we’re quite encouraged by the level of momentum of the app platform for what I would call accidental defaulters to use the platform to pay us.

Flexi loan transactions stood at 780,000, again, a high transacting products beginning to be relevant from a platform standpoint is coming. 18 engagement partners we added on the app platform and totally now we have 48 more engagement partners.

Payments, we’ve talked about it in the last one year, now numbers have started come in. First of all, the QR based P2M acquiring business went live, it’s our first acquiring business gone into production. The distribution expansion of that or the QR based P2M is now underway. So we will build that out. We have aggressive plans for that in FY’23.

We are continuing to — we have significantly accelerated our investments in building a full service payments business. Nitish Asthana, who joined us as a President, Payments. He came on board in 1st of March. He is driving the entire initiative of building a full service payments business. He has 15, 18-years of experience in just in the payment space and we are giving him the platform to build out a large credible relevant payments business over the next three to five-year horizon.

We are setting aside a reasonable amount of money. We are very clear, we will do full service payments business. Across P2P, EDC terminals, the payment gateway business, we’ll do it either on our own, also strategic partnerships. As I said, we’ve set aside deep investments both in capex and in opex to grow the payment business as we journey through FY’23.

Just a last point on this. 1.7 million wallets were added against 2.5 million, as I said, this again little seasonal. Overall, 6.5 million customers in wallet. The rewards management system will significantly accelerate rewards wallet journey. They said whether in terms rewards, in terms of coins or in terms of cash back, all our engagement with our clients will now go through rewards management. It will create significant transparency, significant — and it will reduce any customer-related issues.

I think transparency levels and customer service related issues will fundamentally I could argue with you get eliminated as a result of our entire rewards management folding into the payment strategy. And we are very clear, we would like to engage more with clients rather than have noise from a customer standpoint.

We started our UPI journey. We added 1.1 million UPI handles against 550,000. These numbers will multiply significantly as we move along. And 1.4 million bill payment transactions also happened. 85% of them are actually our customers is really how — so we are working on our franchise. The acquiring business will work on our distribution ecosystem, reinventing, harnessing, mining whether our customer franchise or our customers or our distribution engine is really where the focus is on the payments business and we’ll build that out.

That’s really in the quarter. I have spoken a lot longer than I normally do. But there were lots of things to cover. We can move on to Q&A.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] The first question is from the line of Kunal Shah from ICICI Securities. Please go ahead.

Kunal Shah — ICICI Securities — Analyst

Yes. Hi, Rajeev. Congratulations for good FY’22. Three questions. Firstly, in terms of the entire web platform. So maybe as a part of the one of the pillars was that earlier articulated and what are the kind of maybe the benefits vis-a-vis with the cost if we have to see, okay, compared to that of the app platform. So will this involve more of cost compared to that of app and vis-a-vis that what could be the benefits of which we expect to accrue? So that’s the first question.

Second, in terms of the master deductions on credit card, what is your assessment of the impact from your end? And third question is on consumer durables. When you see the rise in the delinquency bucket. But still it’s not been there in a lot. So now what could be the reason for the rise and how do you see that going forward? Thank you.

Rajeev Jain — Managing Director

So, as I said, Kunal, that it’s the largest driver of traffic. I think that’s a principal point we need to remember. If we do want to build someday 100 million customer franchise from 4 million to 7 million [phonetic] customer franchise, we think that is as critical to the sales.

App serves its own, as I said, purpose. It’s engagement levels are better. So it’s not a trade-off or it’s not either/or. We got to do both. Now that’s at a 30,000 feet level. I’ll request Anurag or Rakesh to probably further expand on that.

Anurag Jain — Chief – Information & Technology Officer

So it’s not a new strategy for us of our web platform. We are basically today over the investments over the last 10 years, 20 million people come on to our web platform today, all of which huge investments and SGO already done, and 10.5 million come on that one. So what we are saying is, this is more or less a web platform 2.0 for us as a follow through of the app which we have already launched.

What do we want to do as Rajeev has already highlighted to deliver similar customer experience consistent, so that we can switch between app and web. That’s number one. So it’s not a cost angle, it is more of a common customer experience and consistency in experience because the choice the consumer can make on how we want to interact with us, how we want to consume our services.

Lastly, the explore flame of web is immensely huge. And that’s the multiplier benefit of being on the web. Again, that’s the reason we have just taking building our web platform.

Rakesh Bhatt — Chief Executive Officer – Bajaj Finserv MARKETS

Yes, and the cost of web platform — cost of web platform will be significantly less than building the app platform as Rajeev had articulated in the transformation section, wherein the infrastructure layer would be common between the app and the web. So we will be utilizing the common layer to address the web transactions also. So the cost will be less than the development of the app platform.

Rajeev Jain — Managing Director

And just as a last point, Kunal, on that point one that technically it was run by our marketing function, it will be run as a business asset. The way I see, I keep saying within the company that the largest branch is, let’s say app. The second largest branch will be web. And then we’ll have 3,504 more branches. So that’s really how I see the business to be. The largest branch is that it can become web tomorrow. I mean, as you — because as we said, the reach, you don’t have to login in. You can explore the products and the services of the company without having to log in or download. So I think it will offer integrated experience, seamless experience to customers as Rakesh said.

Rakesh Bhatt — Chief Executive Officer – Bajaj Finserv MARKETS

And it’s our omnipresence strategy.

Rajeev Jain — Managing Director

Yes, it will complete our omnipresence strategy. So clearly that’s a level one.

Credit cards, it’s a large — it’s a master circular that’s coming. We are studying the master circular at this point in time. And fundamentally, we will — and we’ll go by what the circular has to essentially — has essentially articulated. Don’t have a point of view on good or bad, positive or negative. It’s as directed by RBI. We got to all follow whatever state.

One other thing, consumer durable, we have captured there a bottom. The large B2B account is sitting there, Kunal. And if you go to that panel, you will see that. Yes. Otherwise, it’s at the same levels as it was in Q3, marginally better I think 3, 4 basis points. It’s 99.6 versus 99.58. I told the team to asterisk it. They have not asterisked it probably. So that’s all. Nothing else.

Kunal Shah — ICICI Securities — Analyst

Okay. Sure. Yes. Thank you.

Rajeev Jain — Managing Director

Just a last point. CD business remains at ever best performance in terms of through the door and through — not here, in the portfolio section investment. Yes. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Abhishek Murarka from HSBC. Please go ahead.

Abhishek Murarka — HSBC — Analyst

Hi. Good evening, Rajeev and team. First of all, congratulations for the year, I think, great performance given the challenges. I have two questions. The first is on SME. I believe, a couple of quarters back you had called out some pricing pressure. And just wanted to get an update, how is it now? A lot of large banks are growing at 8% to 10% Q-on-Q. So what do you see in the market?

The second one is basically on your net interest margin outlook, especially now that your liquidity buffer is normalized and potentially there could be a pressure on some of the businesses. How do you see your NIM going forward? And what range of cost to income should one expect by FY’23 given on the investments that are in the pipeline? So yes, those are all my questions.

Rajeev Jain — Managing Director

So the SME business, we have now done that for 14 years. We’ve seen lots of people get excited by the NIM — the gross NIM that comes with it — and eventually when the losses appear, step out of the business. And you’ve seen that play many times. Other than I would say one large player, nobody remain consistently and you can do channel check with dealers, with DSS to know that very clearly.

So it’s one more season where you are seeing lot of people get into the business and excited by the gross margin that it brings to the table and hopefully learn some lessons as we realize that the gross — net margin is eventually more relevant than the gross margin, so that’s point number one.

Point number two, we have been creating significant granularity in the SME business over the last 14 years. We do this business in over 1500 locations. So, it gives us the ability to diversify, one, maintain margin profile but need significant skill. So if you hurry up too quickly in this business, you get hurt. You do it too slowly, the cost kills you. So that’s really what our view on the whole MSME business is and it has not changed.

We believe that after our B2B business is one of the biggest skills we have created over the last 15 years in terms of distinctiveness and differentiation. NIMs, overall at product mix is defined by two, three things, overall pricing, number one, as I’ve said, you want to — don’t want to dilute pricing, it’s because we don’t know there will be more waves. Point number two, product mix is a driver of NIMs, cost of fund and the driver of NIM.

We don’t want to dilute margin, that’s point number one, as I said. I’d rather dilute growth than to dilute margin. Point number two, a product mix, you should estimate that a product mix would continue to remain steady largely with one or two percentage points here and there, probably 100 basis points, given the size of our balance sheet. Point number three, cost of funds, I’ve always said our liability balance sheet is longer than our asset balance sheet, that’s been true for a long, long time.

At least in the near future, which is I would say most of the year, we should be fine and we will go by the year as we — as the year plays it on. For now, we are comfortably placed, I would say for the next two stroke, I could say three quarters, and we’ll play along from there.

I think that covers — opex to NIM, I’ve said it is — it will remain elevated, elevated being defined as it’s a metric that we’ve also have had to circle up in our head. Let me be honest with you, I’ve said this to some investors that we eventually it will lead to better opex to NIM ratios, eventually.

Now that eventually in long-term we are all dead, I think let’s talk FY’23 at this point in time, given the solid momentum we have on most metrics, the stand for — stands by us as a company is to invest. We think it’s the moment for us to, we’ve been investing in the last 18 months. We should invest in FY’23 as well, so that we can create a completely transformed organization, which is fully digital by end of FY’23.

So it will remain elevated or elevated so that your understanding of that is not different from mine and from somebody else, it should remain within this corridor of in a — on a quarter or basis it may go up, so it will remain between 34.5% and 35.5% is really how we see FY’23 to play out.

Should start to go down, but as I’m saying right now, I have said earlier as well, you’re looking at building 2.0 of marketplace. That’s a large investment commitment. We are continuing to invest in geography, because we think it’s a huge opportunity in some of the north and central states in India. Continuing to invest in app platform.

While delivering, I must say that this opex to NIM, please keep in the context that we don’t foresee the long-term guidance metrics of profitability to get compromised in any given manner. So a higher opex to NIM, should not in any way be construed as they’re leading to a lower ROE or a lower profit growth.

So, there is no direct correlation, at least for FY’23, and that’s why we as management believe from a long-term standpoint is a rightful movement to invest. That if the ROE is not really compromised, if growth momentum is strong, that’s the moment to invest rather than investing when you are going — if you’re going through a bad time. So we’re looking forward to FY’23 and given how the metrics are looking at choosing to invest without compromising on, as I said ROA, stroke ROE in any given manner.

Abhishek Murarka — HSBC — Analyst

Sure, Rajeev, that was very comprehensive. Thank you so much. Just squeezing in one very quick —

Operator

Mr. Murarka?

Abhishek Murarka — HSBC — Analyst

Yes.

Operator

So sorry to interrupt, but for any follow-up maybe request to rejoin the queue, please?

Abhishek Murarka — HSBC — Analyst

Sure. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Apurva Deshmukh from CRISIL Limited. Please go ahead.

Apurva Deshmukh — CRISIL Limited — Analyst

Hi. Good evening, sir. Congratulations on your results. So thank you for taking my question. And first question is, I would like to understand what would be the percentage of consumer durables and personal loan individually in your standalone AUM of Bajaj Finance? And what is your market share in these two segments among the NBFCs?

Rajeev Jain — Managing Director

Apurva, so if you go to panel 47 of the balance sheet, you would fundamentally see that of the balance sheet INR15,000 crores of the INR146,000 crores of standalone balance sheet is in. So add two INR15,000 crores — INR14,977 crores and INR4,129 crores. This is that — close to INR20,000 crores in terms of balance sheet of the consumer durable financing. It of course, as many other businesses sitting there in that there is consumer electronic, there’s furniture, there’s e-com financing and so on and so forth. On aggregate basis, it is 10% of the balance sheet.

Apurva Deshmukh — CRISIL Limited — Analyst

Okay. And similarly about personal loan individually?

Rajeev Jain — Managing Director

Personal loan, you should — it’s just staying with the same panel, you should look at the consumer B2C business and rural B2C business. If you see 37 and 15 that’s 53, you should knock off from that let’s say INR2,000-odd crores of INR2,200-odd crores of gold loans to — it will be INR50,000-odd crores plus-minus.

Apurva Deshmukh — CRISIL Limited — Analyst

Okay. Thank you so much, sir.

Operator

Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.

Nischint Chawathe — Kotak Securities — Analyst

Am I audible?

Rajeev Jain — Managing Director

Yes. Yes, Nischint.

Nischint Chawathe — Kotak Securities — Analyst

Could you spell out or give some guidance on what could be the total quantum of rewards that you could pay out next year in terms of its impact on P&L?

Rajeev Jain — Managing Director

Yes. So Nischint, I would say, I mean, as I said, there is no need for a specific number but sales promotion continues to be discretionary play if you’re doing well as a company and we want to engage more you would accelerate. If we are not meeting our goals, then we would decelerate. For any company it remains discretionary number.

We have a plan for the year. As I said, we will put all our rewards, which we did even earlier through various means is now going to go through reward management system. For last year, I don’t have the number on — in hand would be and last two years have been soft, because we were given the kind of charge offs that we’re taking from a loan loss and provision standpoint. But I would say, if we take 2018-2019 — ’19-’20, sorry. ’19-’20, that number would have been around INR300-odd crores, maybe a little more.

Nischint Chawathe — Kotak Securities — Analyst

Would that kind of change significantly —

Rajeev Jain — Managing Director

Sandeep is looking at me, saying the number is not correct, so maybe Sandeep can correct the number.

Sandeep Jain — Chief Financial Officer

So, the number was in the range of INR180 crores to INR200 crores. So that’s correct number.

Rajeev Jain — Managing Director

INR200 crores is the number? Yes.

Nischint Chawathe — Kotak Securities — Analyst

And would you just scale up with volume for the future here? Why should the percentage go up given the fact that [Speech Overlap] more competitive business?

Rajeev Jain — Managing Director

So two parts of this Nischint. So this was prior to payment. This was to stimulate our customers to do more business with us, okay? The payments point that I made earlier is over and above. So it’s in addition. So let’s say just an event — just on a customer franchise basis is the number of INR200 crores goes to INR300 crores, let’s say for hypothetical sake, it will be INR300 crores. That will go through the rewards management frame. And in addition, whatever we’ve given to the payments as due will be additional.

However, as I said, earlier Nischint, it depends on how we are doing, fundamentally is determined by what’s our stand in terms of management of — our customer franchise origination and management of P&L is discretionary.

Nischint Chawathe — Kotak Securities — Analyst

Sure. Thanks. The second question is actually on the app developed by Bajaj Finserv and we’re just trying to understand that do other lenders on that platform get access to your EMI store?

Rajeev Jain — Managing Director

No. That companies are arm’s length basis, it’s got nothing to do with us. They work with us. They have two roles that they play. They build market places for us, they’ve build the market places on an arm’s length basis as a technology vendor. They also do distribution of products for us and that’s all what they do is independent to them.

Nischint Chawathe — Kotak Securities — Analyst

But the EMI store is also visible on the platform, right?

Rajeev Jain — Managing Director

Sorry. So they run like any digital distributor would run, they run in algo or an engine, which determines that based on the segmentation of the customer, they may prop up — prop us up, prop up somebody else up or prop up a new age lender, depends on how deeply integrated their lending distribution partner with them is, and it’s organized that way, to the best of my understanding.

Nischint Chawathe — Kotak Securities — Analyst

The entire EMI store is developed by them, what I can see on there.

Rajeev Jain — Managing Director

Yes, as a technology partner. Yes. What is also happening is that we just held it back we were to go live on 15th of April. We’ve held it back because we are in season from 1st July onwards and — yes, we are creating a new brand called Bajaj Mall and from 1st of July, given these two assets will become completely distinct from each other. So actually, it’s ready to go into production. We’ve held it back, because we are in season time.

Nischint Chawathe — Kotak Securities — Analyst

That answers my question. Thank you.

Operator

Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.

Sameer Bhise — JM Financial — Analyst

Yes. Hi. Thanks for the opportunity. Just wanted to get a sense on how are you thinking about the payments business from a scale-up perspective? Obviously, we have initial head start given the strong physical presence, but in the digital world any sense there? And secondly, would be the whole market versus Bajaj Finance at — would that also entail a creation of two parallel branding mechanisms there?

Rajeev Jain — Managing Director

So, okay. So two parts. As I said earlier, Sameer, that our focus of the payments business if we ever wanted to make it liable is to essentially focus on a franchise, okay? Franchise being defined as customer franchise for payment and their wallet and acquiring franchise for our B2B frame. That’s really the — and these are the two pillars on which it really stands. The third franchise be to on roll or on board millions of merchants, if fundamentally companies have dedicated staff here because they are sitting in those marketplaces with people in the stores and they have intermittent times during the days when they’re busy and rest they are not, they would — we have something on mobile salespeople or mobile sales staff who will do that as well.

These are the three pillars fundamentally on which we are looking at building a payment business. We are building this business so that — these are the three pillars. View is a three-to-five-year view. We are very clear that we need a large payments presence to build out the digital strategy of both app and web for us as a company.

These are the three head starts we have and we are babes in the woods. We are just starting the business. We don’t want to put Nitish who is here on the call under pressure. And we build business is a long-term view and that’s the mandate to him and that’s mandate we’ve taken that it’s a long view.

Market, essentially is, as I said earlier to Nischint, it’s independent and they run their own life. We run our own. And so there is nothing else to comment on that. I think I’ve answered this question two, three times in the last three, four quarters and nothing has changed. Other than as Rakesh said, we’re launching Bajaj Mall on 1st of July. So that will create further differentiation and distinction from a distinctiveness standpoint.

Sameer Bhise — JM Financial — Analyst

Sure. Thank you and all the best.

Rajeev Jain — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Kuntal Shah from Oaklane Capital. Please go ahead.

Kuntal Shah — Oaklane Capital — Analyst

Hi. Thanks, Rajeev, for taking my call. My first question is, you are building all the building lego blocks of the digital payment systems, RMS systems, CRMs. Is there a plan to monetize it by a third-party sales to of APIs and open architecture to third parties in next, say, couple of years? Because it doesn’t make sense for everybody to build everything, right. If somebody has built at scale then can it be delivered by others to deliver service to our customer and their customers? And second question is you mentioned about credit card, but now then the norms are out, what’s your view on going ahead because it seems RBI is aligned with a view?

Rajeev Jain — Managing Director

So I think the purpose of building the entire technology stack is for us to monetize our franchise. I think that’s our objective. We continue to originate 8 million, 9 million new customers. If we stay to the same run rate, we will hopefully have 90 million to 100 million customers in the next four to give-years. That’s a very, very large franchise. Our activity rate, activation rate, share of wallet remains very low with these clients. I think that no monetization can ever make up for what we can do with our franchise, I think, and the skills as part of understanding credit, dispensing credit and managing risk that comes with it.

So I think that’s the first part, but they never say never. Maybe, who knows, five years down the line, we think it’s something to do, but at least not in the next five years, Kuntal. So that’s one part.

Two, as I said earlier, we are studying the credit card guidelines. What it means, we will seek some clarifications and then we’ll determine next step.

Kuntal Shah — Oaklane Capital — Analyst

Thanks for the call. Thanks. I’ll join in the queue. Thank you.

Operator

Thank you. The next question is from the line of Parag Jariwala from White Oak India. Please go ahead.

Parag Jariwala — White Oak India — Analyst

Yes. Rajeev, just one question, in terms of — we’ve seen the HDFC, HDFC Bank merger. Our thought process on converting into a bank, does it kind of impact us anyway? Because overall there is a general belief now in the market that over a period, RBI wants larger NBFC to convert into a bank. So any thoughts on that line as we try preponed or go fast with the bank’s merging? That’s my question.

Rajeev Jain — Managing Director

Yes. No, it’s a fair question given — it’s a tropical question. So, if ever this was to happen, there’ll be three stakeholders involved in this conversation, I only represent one which is management: our management view; the second will be shareholder; third — not in that order necessarily, third will be regulator. Maybe the first will be regulator, second will be shareholders and third will be management.

As management, our view at this point in time, from a long range standpoint is that our focus is on building payments and financial services business. We’re satisfied with the strategic frame that we’ve created. And don’t have a view as management at least from the next three years standpoint on bank. So as management, let me make my stand clear.

On whatever I understand from shareholders, I think Sanjeev is in public domain, talking about what he thinks how financial services is changing for the future. He is, in fact, going one step forward and talking about decentralized finance as a frame. So if I read between lines, that’s not what his view also seems to be at this point in time.

And so we’ll play along. Our view at this point in time in very uncluttered manner and very clearly is that we are focused on building from a financial services business to a payments and financial services business with hopefully 100 million franchises in the next five years. And companies are built for long period. In the long term, given our ambition, could we be one? Probably yes. Long-term is long term. I mean, so we will play along. It’s not on the horizon for next two to three years.

Parag Jariwala — White Oak India — Analyst

Okay. So Rajeev, the point is, I as a shareholder, I also believe it’s a great to be a payment and financial services. But as you rightly said this, on the regulatory side, boding the pressure, we can’t do much about that right?

Rajeev Jain — Managing Director

So RBI has made its stand clear in public domain with the new scale based regulation and has very clearly articulated that if you ever lay a company or put your company, you are bank like regulation, you deem it appropriate to be like bank like regulation and be non-bank, be a guest. At this point in time, we are reading it exactly the way it is. And if I take that — the regulations, our stand is to remain a non-bank for the next two-to-three-year standpoint, meet all the requirements of bank like regulation. We don’t believe it in any manner dilutes our business model. We think actually it strengthens it. We’ve been working on it over the last 18, 24 months. We have always been very clear that arbitrage does not create business model, at least long-term business model. Over the last 15 years — we will complete 15 years of transformation as we started this year. I think we never believed in arbitrage. And I think it’s helped us in good stead.

If you look at various — I mean, it used to be 180 days past due we were allowed as NPA. We saw that go to 150, 120, 90, you never saw any impact. You saw us transition to DPD, you know, never saw any impact on us. Because we believe color of money, lien regulations eventually only serve a particular purpose. If you’re building a long-term business, we must focus on long-term and what is right for a bank to do must be right for us to do.

Parag Jariwala — White Oak India — Analyst

Okay. Thank you. Thanks for the time.

Operator

Thank you. Ladies and gentlemen, due to time constraint, we take one last question from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yes. Hi. Thanks for taking the question. Just two very simple questions. Rajeev, I mean, I think we used to say that you had about 70% market share in the subvention pool. I mean what would be your best estimate now on the subvention pool, has it gone past pre-COVID levels and where has this 70% number moved?

Rajeev Jain — Managing Director

Yes. So it remains — I mean, we track it every month. It has remained between 68% and 70%. For the consumer electronics business, it remains between 57% to 59%. In the digital business, these are two large categories. And in the digital space this number used to be 51%, 52%. So it obviously moved up. In the CD space it remained steady between 68% and 70%. I think that’s really the number I would say. It’s closely monitored and tracked by us, because we are dominant in the space and we would like to ensure we protect our market share in this space.

Abhijit Tibrewal — Motilal Oswal — Analyst

And just one more question from my end, Rajeev. I mean, I think, in one of the slides, you have articulated that in the last quarter you had identified some 17 features in components as part of your Phase 2. And it’s now kind of gone up to 62, if I’m not wrong. So have you identified some new use cases on the payment side? That’s the first question. And we, I mean, a couple of times during the call you suggested that you are building the premiums business with slightly longer three to five-year kind of view. So do you think — I mean for the next two-years, I mean this payments business is not going to be accretive to your bottom line?

Rajeev Jain — Managing Director

It will never be accretive. I mean, Nitish may not fully agree, give the — what would go into engagement versus what let’s say tomorrow the infrastructure business or EDC business may make will never add up. And we invested in the business or decided to venture into the business knowing fully well that. Someday you can surprise us and build out and make the math work, but it looks quite hard to make up at least in the medium term. There is no concept of long-term. Looks hard to make up in the medium term. So we are — purely the goal is to create significantly higher engagement. That’s the purpose both on app and web. And I think that’s the mandate. We want millions of customers use the platform. We want them to remain engaged. We bring entire whole host of financial services, including three large marketplaces to these consumers. We will eventually have — we have I think 48 partners, that by FY’23 will actually go to 100 engagement partners. So 48 engagement partners just by plan is going to 100 engagement partners.

Three large marketplaces, entire bouquet of retail financial services products, payment options, and 100 engagement partner. That’s a very large ecosystem. We use this all this to engage clients. That’s really the purpose [Technical Issues] tool for 100 engagement partners or marketplaces to do transactions. I think that’s really the goal of the payments business at a design level.

The 62 new features fundamentally when we articulated it, we were in the middle of what I would call a long range planning process. By the time we completed the planning process — from project the app platform is now transitioned to business. The company runs metrics on how many customer downloads it had yesterday. It’s a whole host of heart metrics that

Kurush Irani had talked about two, three quarters ago. We still don’t publish them. We are just waiting for some level of maturity before we start to publish them.

From a project it’s a transition to a business. In the current year, the goal of the company is to mobilize the 32,000 people of the company on speaking the language, managing the asset, generating business through the asset, generating services through the asset. So we we’re in the middle of the planning process. By the time we completed the planning process and just in the interest of transparency, I thought we’ll outline that what the final feature output would actually look like. And over the next eight months, the idea is to just deliver them in three sprints. And we are learning as we build it.

So you will see significant changes appear or enhancements appearing as Phase 2 starts to roll — where Phase 2, end of Phase 2 would mean we are satisfied with what we thought if you are a new customer, he or she would be able to get byproducts and so on and so forth. I think that’s really where — what we are seeking from a satisfaction standpoint.

I think that’s really the — I just wanted to make one last point, I think it’s an important point, which I should have mentioned earlier. I have had two, three questions that got asked on credit card. We work on credit card with two leading partners, being RBL Bank and DBS. So we have large franchise. We have deep relationships with them. We continue to remain committed to — we don’t do partnerships for short-term. We already have a four-year partnership with RBL. We’ve just started to dispense new cards with DBS. It’s taken us 12 months to build out the partnership. We’re very clear we build partnerships for long term, and we remain committed to these partnerships for the long term. Whether we can do our business tomorrow, cannot do our business tomorrow, our commitment to these partnerships from growth and commitment remains very strongly rooted.

I thought I’ll just make that point. I should’ve made it while responding to one of the points on credit card, but I thought I’ll make the point.

I think that brings us to the end, Subu.

Operator

Thank you so much. I now hand the conference over to Mr. Subramanian Iyer for closing comments. Over to you, sir.

Subramanian Iyer — Morgan Stanley — Analyst

Thanks a lot, Rajeev, Sandeep and the Bajaj Finance Team for giving us the opportunity to host you. Thanks everyone else for joining. This concludes the call for today. Over to you, Stephen.

Operator

Thank you. Members of the management, any closing comment before we disconnect?

Rajeev Jain — Managing Director

No. Thank you and good night.

Operator

[Operator Closing Remarks]