Bajaj Finance Ltd

NSE:BAJFINANCE

Earnings Call Transcript 2023-Q3

[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 the 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 are made publicly available. By participating 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, analyst]

Thank you, Charlie. Hello, everyone. This is Subramanian Iyer from Morgan Stanley. Thank you very much for joining us for the Bajaj Finance Earnings Fiscal 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 the floor for Q&A. With that, over to you, Rajeev.

[Rajeev Jain, executive]

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 Investor 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 #4, overall good quarter. I would say, across all financial and portfolio metrics, albeit marginally lower AUM growth. On track overall to deliver INR 52,000 crores, INR 53,000 crores of core AUM growth in FY '23, that leaves only one quarter left.

So far, the growth has been around INR 39,000-odd crores of core AUM growth. Q3 clearly witnessed highest ever loans 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 has started to now go live in sprints. On track, both on app and web to fully go digital by March '23.

Some quick stats. AUM grew 27% to 2 lakh -- just a tad below INR 231,000 crores. Opex to NII now came in at 34.7%. And I'll talk about it as we -- 2 panels later. PAT came in just a tad below INR 3,000 crores at INR 2,973 crores, year-on-year growth of 40%. ROE at 24 -- 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 #5, core AUM growth was INR 12,476 crores, slightly shorter mainly due to -- in the mortgages side of the business due to intense pricing pressures. So predominantly, the growth was slower on account of slower mortgage disbursements, and I'll cover that when we talk BHFL.

AUM, 27%, we talked about, new loans came in at $7.84 million. Last year, same time, we have booked 7.5 -- 7.44 million. B2B disbursements were INR 16,026 crores on a year-on-year basis, up 6%. October was pretty good for B2B for Europe consumer discretionary. November, December, the demand slowed down significantly. So far, January, first 27 days -- 26 days of the month is looking much better.

In terms of new customer addition, we added -- first time we crossed 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 will broadly end anywhere between 68.5 to 69 million customer franchise ending March. Location, clearly, we are present in -- out of 140-odd crore population, we're currently present in 110-odd crores coverage. We added 29 locations. We'd forecasted we'll grow -- we'll probably add 400 locations. It looks like we'll probably add 250, 300 only in the current year.

Competitive intensity, I have talked about this point for last 3, 4 quarters, remains highly elevated. Everybody seems to want to do retail. Between growth and margin, margin takes precedence. 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 remain flat. It didn't dilute, so that's the principal point 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, because it creates a better sustainability of business from a long-term standpoint. Our liquidity buffer was strong at -- just a tad below INR 13,000 crores. Given the overall strong ALM management, as you can see, the pass-through even in cost of funds is very gradual. Quarter 2 to 3 was 23%. Before that, it was another 20-odd basis points. In the first 9 months of the year, the total increase is 45 basis points.

So given that we run a longer -- 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.

Deposits book slowed in the last quarter versus the first 2 quarters. We clearly to give a lot more aggressive stand. In the first 2 quarters, it was the right thing to do, but we had 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 balance sheet grew by INR 3,562 crores. Overall now, it's 21% of the balance sheet. On a stand-alone basis, I think it's 28% of the balance sheet. And we are very clear on a consol basis. It will be 25% of balance sheet sometime in the medium term. NIM grew 24%. Actually -- actual growth was 28%. Last year, in Q3, IPO financing was at the peak and the company earned during that period INR 203 crores of IPO financing, which, of course, has been discontinued from April 1 basis due to regulation. So adjusted on a core basis, the NIM growth is 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 a similar kind of product mix, we should start to see some level of operating leverage emerge. It will 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'll -- it will be lower than the current year. We're 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 INR 841 crores, 1.4% to 1.5% of average assets. We continue to hold INR 1000 crores of management overlay for uncertainties at this point in time. GNPA and NNPA were lowest. When I say lowest, I think we're lower than that only when we were INR 13,000 crores of balance sheet in 2013. Sorry. And it was 6 months [indiscernible] classification. So clearly, lowest, lowest ever that we've been in the last 16 years and as Sandeep is saying, classification is different, came in at 114 and 41 basis points. Stage 2 down.

Stage 3 margin layout and as you can see, balance sheet is build out -- building out at -- it's up by INR 80-odd crores. All portfolios are green, including the AF portfolio now. Product mix was steady across all different 9 verticals that we published across B2B, B2C and so on and so forth. Consolidated profit after tax we talked about. Capital adequacy remained pretty strong. Tier 1 capital was at 23.3%. Employee headcount stood at 40,708. We added, I think, 1,500 -- 1,400 -- 1,300 employees in between Q2 and Q3 across the 3 companies.

You're aware, we disclosed it to The Street, point #23, that we've taken a 41.5% stake in Snapwork Technologies to strengthen our technology road map. BHFL where, as I said earlier, the quarter was a little slower. Approvals grew 14% at -- to INR 14,514 crores. Disbursements were INR 7,429 crores as against INR 7,000 crores, just a tad below INR 8,000 crores in Q3 last year. It was in the quarter a de-growth. But overall, the AUM is still up 33% on a 9-month basis to INR 66,000 crores.

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 remained pretty strong. They are well capitalized.

Borrowing mix was steady. Opex to NII came in at 24.5%. There's improvement because NIM has expanded. Loan losses were down, 50% Y-o-Y. BHFL also holds the management overlay of INR 242-odd crores. We are clearly the lowest risk business in India in terms of mortgages. The gross NPA is at 23 basis points and 10 basis points, net NPA. So by far, as far that scale, it's not amongst the lowest risk 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 INR 135 crores.

So BFSL added 77,000. So pretty -- other than disbursements, which was slow and as a result, even growth was slow. I would say, quarter for BHFL is 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, we've got branches in now. It added 6 locations in Q3 alone. It will end the year with 30-odd locations at 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 the asset should be a lot more solid and strong as we exit Q4 or the current fiscal to significantly grow the BFSL as a business in the next fiscal. NPA book, which is our core proposition we bring to the table, continues to grow and profit came in at INR 3 crores. Last year, they also had a similar benefit, like we had IPO financing benefit on account of IPO allocation. They had an INR 7 crore onetime profit sitting in there. Their headcount is 532 people. So that is shaping the quarter in substance in terms of financials and growth metrics.

Omnipresence, very quickly. I just jumped right in just in interest of time to, as I said, we'll fully go live across the web and app by March '23. So I'll not cover point -- Page#10 and 11, but just cover the metrics that we published. So locations will be a little short. We'll probably do 300-odd locations in the current year between 400, 450. That's why we see yellow there. Otherwise, on downloads, net installs, in-app program, we are looking super green, top 5 in financial domain in Play Store. We are right there in top 5. 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 raised of all service requests that customer makes, 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%. What it accounts is the only one which is yellow. Otherwise, UPI handles, Bill pay transactions, we are fully green. 18 million rewards we issued in the quarter. QR, deployment 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 merchant QRs and because the entire functionality and the infrastructure went live in November, we tested that in December.

Currently, we are adding anywhere between 7,500 to 8,000 merchant QRs on a daily basis. So we expect to start becoming visible as at-the-point-of-sale universally in the next fiscal. So what we have done to the app this year. From nowhere, we've become top 5 in terms of downloads and monthly downloads now are on an average -- yes, 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 -- panel -- let's go to panel -- yes, these are all green, as you can see there. Customer franchise metrics. This is a panel that we published in the 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. That's the acquired and cost to strategy. And this is -- so we remain confident that it -- that despite growing franchise, we don't foresee that our AUM per customer, PAT per customer will get compromised in any manner. This -- from now on, fourth quarter -- with the third quarter results, we'll 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 a maturity standpoint to start to publish that to investors as well. So what you see is a very quick bridge 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 Long Range Strategy? It's an annual 5-year rolling strategy plan with an execution plan of 12 to 24 months.

We look at the macro as part of the rolling 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 bottoms-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 about 13 years.

So we thought we'll start to -- given the maturity of the company, time has come for us to start to update that to investors as well. Very quickly, it's weaved around a 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 you have built 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 in financial service company. Have 100 million consumers. We'll end this year with 70 million consumers, as I said earlier. 3% of payment GMV, 3% to 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 be an omnipresent financial 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 consumer, small business, commercial and rural consumers in India across all consumer platforms. So last, we build business in a 10-year view. We have very clear financial services that are built with a 10-year view and deliver through cycle -- through the cycle, 19% to 21% shareholder returns. We have done that. Adjusted for COVID, done that successfully for the last 12, 13 years, and we intend to continue to do that. We think because 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 5 in every respective product that we're in. That's the ambition at the design level and profit share to be on the top most -- 20 most profitable companies in India and 5 to 6 most profitable financial service companies in India on a sustainable basis is really the frame.

That's the construct. Now if you take that construct and say what does that convert into strategy from a rolling standpoint. It 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, your right to forecast. Our forecast is in the -- total credit will go from INR 149 lakh crores to INR 237 lakh crores and grew by 12.5% CAGR over the next 5-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 foresee that not to change. When we look at it, we find that -- and we do know that for a while, that we are not there in 28% of retail credit categories at a fundament level, which is Auto, CVs, and Agri, which is what you see penciled in here at 16%, 8%, and 4% if we take FY '23 estimates. So that's really where we see the market headed, where we see the forecast from a retail mix standpoint. From a megatrend standpoint, what we see in this panel, panel 21, 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 over time. So clearly, we see in India stack account aggregator to be one of the big game changing moments for retail financial services where you see. On platforms, we see 500 million Indians are on social platforms.

We think it's a big game changer. We think rewards is a big frame when we look at leading companies which are in retail business and so on. We think pre-owned given where prices of new products have gone to, at a design level from digital products to motorcycles, to cars, is thematically a very big change as we move from here. And in technology, AR has become consumerized, it has become real. Vernacular and Voice is really how the rural consumer is engaging with any of the companies who are -- who are deeper into India.

So these are the 15 megatrends that we've identified and we'll provide update on this at the end of every third quarter on an annual basis. If you take all these three, the strategic construct -- any retail business organized as products, geography, platforms, horizontal. 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 5 players in each product line. On geography, we are already in 4,000 -- 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 all 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. Continue to -- as we grow larger in size, continue to diversify 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 5-year view. And we will build this out as we deliver. What that means from an execution standpoint is we will launch, you see, if I don't have to go through it, it's mentioned in 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 as a nonbank 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+, which is so-called Finance+. In January, we already rolled out, launched new autos. I think auto mortgages is the lowest risk category, makes less money, but we've invested in the last 4 years in building out used cars, we are among the now top 4, 5 monthly originators of used cars, we think on the back of that. And given that of the total outstandings in India of auto loans, 33% sits on our current franchise of 17 million. And the experience that we're having with 2-wheeler open architecture, we launched the business in June. We're already now originating 8,000 to 9,000. Open architecture 2-wheeler loans gives us significant confidence that we can build out a business in the new [ PV ] loans as well.

MFI, given how deep you've gone into India, is a business that we launched in a phased manner in Q4 and tractor in Q1. In the -- on the commercial side, the emerging corporate business in Q3, B2B on QR and EDC in Q4 and so on and so forth. So that's really the 8 megatrends out of 15 that I showed you, we will do in FY '24 and balance 7 in FY '25. So that's the sum and substance, gist of it. We'll start to provide what that means on a rolling basis is that at least our forecast is that 4.5 years from now, we'll have 110 million to 120 million consumer franchise. We'll have a cross-sell franchise of 65 million to 70 million.

India payments GMV versus our 3% ambition would be between 1% and 1.25%. Share of total credit would be between 2.5% to 2.75%. You can see the numbers there. They are 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's really what we'll share with you. As I said, [indiscernible] 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% to 20%, and 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 was slower for the quarter, the mix from -- sorry, actually, AUM, disbursements were slower. Mortgages on AUM basis went up actually from 32% to 33%. Last point, and part of it is a point that it's 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 up. And the contribution of B2B as a balance sheet business will keep going down.

It's possible sitting here next year, the 9% number which looked like 10% last year, same time, they 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, and this contribution is 14%, 15%, we 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 14,700 odd crores. In Q3, it's grown only INR 12,700 crores. So a seasonality effect in the balance sheet mix has largely gone away. It's an important point I thought I'll anchor.

Rest, I think we are fine on portfolio metrics. Happy to take questions between me and some of my senior colleagues.

[Operator]

[Operator Instructions] Our first question comes from Piran Engineer of CLSA.

[Piran Engineer, analyst]

And congrats on a good set of numbers. Just a couple of questions. First, see, 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 fintechs that are out there?

[Rajeev Jain, executive]

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 company as well. We've hired 650-odd engineers as freshers. Last year, we hired 300. The year before we hired 150. So clearly, we do foresee that next year we will be hiring 1,000-odd people. And that gets decided in June because we go to campuses in August from engineering colleges standpoint. So we as BFL have hired just freshers 650 already, yes.

[Piran Engineer, analyst]

Okay. Okay. That makes sense. Secondly, just not related to the quarter, but when I look at the -- I'm just 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 INR 25 crores, INR 30 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?

[Unknown Executive]

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, et cetera. All these products carry different commission structures and they do contribute significantly in terms of overall financial outcome. So it's what is the reply.

[Rajeev Jain, executive]

And we are open architecture?

[Unknown Executive]

We are open architecture. We will not do [indiscernible] 27 insurance companies. [indiscernible] 9 already. We can do tie up with 18 more insurance companies.

[Piran Engineer, analyst]

But would you be willing to share broadly what sort of fee income you will earn annually from insurance cross-sells, like overall out of all your tie-ups?

[Rajeev Jain, executive]

Piran, as I said, they do contribute materially 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, analyst]

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

[Rajeev Jain, executive]

Manish is answering, yes.

[Manish Jain, executive]

Yes. So as a governance principle, we do not cross sell DBS co-brand to an RBL and vice versa. However, if the customer has closed his card on either side 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 card is still alive. That's the governance principle that we apply.

[Operator]

Our next question comes from Ashish Sharma of ENAM Asset Management.

[Ashish Sharma, analyst]

Rajeev, a fabulous update on LRS. Just one question on LRS. So as for the strategy, we would want to do everything organic or is inorganic also part of this whole long-range plan?

[Rajeev Jain, executive]

All organic.

[Ashish Sharma, analyst]

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 rates. 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?

[Rajeev Jain, executive]

So when looking at the -- in the ALCO, I was looking at RBI data, I'm not mistaken, which is published, if I take a 9-month data that shows the housing loan, including broad sector loans growth is only 9% -- 8.89% if I'm not mistaken. I think that's really what I saw the number to be -- if my memory corrects me -- memory is correct. So clearly, 9-month view, looks like a 9% odd kind of number at this point in times in terms of addition. Rest, Atul can add on.

[Atul Jain, executive]

So competitive intensity and that also is fueled by a lot of rate increase. As of now, on the primary sales, because the market has 2 part, primary and secondary, which is a balance transfer on the primary. On the primary side, in the demand, we have not seen any significant downturn of the rates catching up. On the secondary side, given the rate increases happening at a regular size, there is a bit of a compression. So not on the primary side, but in the secondary side, there is a compression.

[Rajeev Jain, executive]

As we said, we will choose our bets 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 and quarter there really doesn't bother us, but I don't want to lose margin. Whatever little is there in the home loan business, any which way.

[Ashish Sharma, analyst]

Just lastly, on this performance of operating costs being lower than the revenue, I mean, you expect that, that we can sustain now given that we've already done our investments and we now, I think, just want some color on that, Rajeev.

[Rajeev Jain, executive]

Yes, yes. 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. So as we build out, we'll provide an outlook by -- for next year by Q4, Ashish.

But we're clearly seeing operating leverage emerge. That is super clear. Where will it anchor? I think by end of Q4, we'll provide guidance on that as well for next fiscal.

[Operator]

Our next question comes from Abhishek Murarka of HSBC.

[Abhishek Murarka, analyst]

My first question is on this long-range strategy. Conversion to a bank is not part of it, how are you thinking about that as part of a long range? Because if you get to 100 million, 110 million customers, you would already be among the largest of that. So how are you thinking about the conversion to a bank?

[Rajeev Jain, executive]

Yes. 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 that's -- as uncluttered 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 nonbank, just about there. At today's level, I'm talking 4.5 years forward. 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 -- and if you continue to manage the business as well as you've done over the last 10 years, does not create any kind of reason for us to be a bank. So these numbers don't assume a bank. And we don't plan to...

[Abhishek Murarka, analyst]

Got it. Got it. Sure, sure. And the second one is, again, on your long-range plan, you said you'll do LAP or LAP in both BFL, BHFL and roughly modeled on 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, executive]

No, 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 as per bureau data. And when I say market share, I talked about, I'm talking on a run, we only look at verifiable source. We are interested either it's RBI data, which says this is -- but that's an aggregate credit data. If I -- otherwise in product lines, the only data that we're relying on is bureau data. Credit bureau says how many loans are booked as consumer durable loan over trend line on the long-term sustainable basis. If I take, first, 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're all small businesses or professionals. When we look at the MSME sector in India, that market is INR 23.5 lakh crores. The business loan market of that is only 4%. If we want to dominate and we want to be leading player in MSME space, we came to a conclusion that just BHFL doing that will not be sufficient.

And that business of ours is a lot more B2B. We are very, very strong from a deep geography. Distribution is very, very strong. We have sustainably -- there are only 2 players in India who have done business loans for the last 15 years, never shutting it and we are 1 of those. We give 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, in fact he is the 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 against any price -- at a price on a market basis, adjusted to emerging market price differently from Tier 2 markets, price difference from Tier 1 market. We offer business on in 2,000 cities in India. Yes, plus a level of product differentiation in terms of that.

[Abhishek Murarka, analyst]

Perfect. Yes. And just a 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 have been pretty strong. So how do you think about this? Is it that you are doing something yourselves or through the app and therefore, you're getting some operating leverage? Or how should we think about this?

[Unknown Executive]

So Abhishek, we are in [indiscernible] based accounting. So the origination cost doesn't sit in OpEx, right? So that get amortized along with the income. So what you see, a large portion of that is recovery commission. As the portfolio quality continues to improve, the recovery commission has come down actually. So that's the reason.

[Operator]

[Operator Instructions] Our next question comes from Harshvardhan Agrawal of IDFC Mutual Fund.

[Harshvardhan Agrawal, analyst]

Sir, can you please tell us what are the rate hikes that you've taken across products apart from home loans if you have taken that and what's the broad quantum of that?

[Rajeev Jain, executive]

Quantum would be -- so as you can see, as we said that so far, we managed to neutralize the impact of increasing cost of funds and increasing -- and having ceased in a staggered manner, pricing as well. So in the fixed trade businesses, you would have probably so far passed through 50, 60 -- depending on business-to-business, 50, 60, 70 basis points.

I mean that's how -- I mean it will differ from business to business, differ on our level of competitiveness in the business, differs on our moat in the business. So quantum will be hard to...

[Unknown Executive]

So the variable price business would have got completely repriced in line with market risk? The fixed rate businesses would see incremental repricing, which is, as Rajeev said, 50 to 70 basis points depending on business to business. The impact of it will become visible over period of time.

[Harshvardhan Agrawal, analyst]

And sir, another question is, what percentage of our book would be BFL compliant today?

[Rajeev Jain, executive]

BFL compliant, we don't track. In BHFL, we track. Also, I mean, as I said, anyway thought is not to be a bank as I told Abhishek early. So there's no need to track. But if I've tracked it, it would probably be anywhere between -- my sense is across on a consolidated basis, 14% to 16%. I mean if we track this. Last, we did this exercise in '20. We've not done this exercise since then. We do track it and some of our ALCO processes in BHFL, but not in BFL.

[Harshvardhan Agrawal, analyst]

And sir, one last question is about be -- 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, executive]

So look -- So two, three things. You could ask the same question even for autos. So that we are on 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're looking at is we are very, very deep. We are now in, as I said, INR 110-odd crores penetration. There's still INR 30 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'll start with -- our plan is to start with two stages. I must flag one thing. None of these are going to grow overnight. As I said, we build businesses with a 5- to 7-year view. So it will be staggered frame. As I said, we've launched 2-wheeler in June. We're only in two states in India. We launched only -- when I launched 2-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 will 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 profitable standpoint or from a balance sheet standpoint. So I think it's important I flag that. We launched MFI in UP and Tamilnadu. We are looking at two states and over a period of 4 years build out in 10 states in India. Tractors, we -- okay, when we look at even tractors, we find there are 600,000 of customers who have a current active tractor loan, just to give you a texture. So same thing that applies for [ CV ], applies for tractor as well.

So MFI, I must also flag as RBI came out of the new requirements in September, which became effective October. And when we looked 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 started 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 3 existing customers and deep knowledge of the geography from MFI standpoint.

[Operator]

Our next question comes from Kuntal Shah of Oaklane Capital.

[Kuntal Shah, analyst]

Rajeev and team, thanks for this update on LRS and credibility of building this distribution ecosystem. My questions are two, what is the status of credit card approval by RBI for us and NBFC in general? Where do you think stand and what time lines you expect for us to begin that business? And secondly, this quarter saw addition of only 27 locations. And for 27, also you're guiding only 600-odd additions. So are we slowing down on geographical reach or how do we read this? These are my two questions.

[Rajeev Jain, executive]

So credit card we have applied, Kuntal, we are waiting. We are hopeful is all I can say. And we'll go by whatever RBI would do. They would do it for the industry in general, I would like to believe. So for the nonbank pack and based on credentials is the response on credit card, Kuntal. In terms of geography, the economics must work, principle number 1. I don't have to be present in all 140 crores of population in India. The economics must work. As I said, 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, resilient part of opportunity from a 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 5-year horizon, we'll probably now land up opening only 445 odd locations. Let me give you a specific number. Of that 400, we 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/rural business, as you know, today, we'll have an eventual net addition from here, next 5-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 idea. So that should give us INR 123 crores, INR 124 odd crores coverage at a redesigned level. The bigger frame, Kuntal, from the next 5 years for us, from a strategic standpoint on LRS, as I said earlier, earlier, it used to be [Foreign Language]. Now it is [Foreign Language]. I think that's the -- when we look at it, let me give a texture.

That -- only 3% of our locations have 80% plus of our products. We know that. So -- but those products give us experience, they give us a brand, they give us understanding of the market. They give 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 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 Language].

[Operator]

Next question comes from Nischint Chawathe of Kotak.

[Nischint Chawathe, analyst]

Again, Rajeev, there came a point about going to the below prime segments of the market. You've already focused on the prime segments and the mass affluent class. Now I understand that you by now have a reach across the country, across every 30 kilometers on the highway. But still, this is a very different market, one with a very different mindset. Most of the companies who are being successful out here are sort of hyper local companies who have mocked into region 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're kind of trying to do it on an experimental stage? Or would you kind of been the completely different mini enterprise within Bajaj [indiscernible] businesses like other NBFC?

[Rajeev Jain, executive]

It's a good point. It's a very good point. As the company grows larger, in one of the frames of the company, and we've done that, Nischint, good, you made this point. We're coming to a conclusion as we grow larger, we need to create -- few of the businesses have to be paradised out. So in a way, actually, we now have -- with more micro finance, we'll have 3 paradised units in the company. The two existing paradise units in the company are actually payments business, the technology, operations, business development. HR fits as a paradise unit adjusted for risk payments, has some very little risk on the [indiscernible]. Otherwise, adjusted for risk sits as a paradise unit.

We have done the same thing. And then, good, you raised 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 have actually upgraded our gold loan branches from 179. Full year estimate was 225, it's at 375. By FY'24, we signed off -- FY'24, we'll have 650 stand-alone gold loan branches. So we've actually even paradised. We came to a conclusion that we need to paradise gold loan as well. So you now paradised it out adjusted for risk, as I said. Otherwise, operations, cash, sales, administration, HR of that unit has been paradised out.

MFI will also be paradised 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, Nischint, when I look at the industry, I still find very poor/relatively poor technology adoption. And if one has to scale these businesses, they must be run on -- they must have significantly deeper technology adoption. It's what -- my observer point of view is as a practicing manager that you may change 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 will be paradised out.

[Nischint Chawathe, analyst]

So -- and just one smaller one is you mentioned that the festive demand was sort of -- [indiscernible] demand was sort of weak for the first few months. And despite that, you have, I think, a record number of client addition. Typically, you would have the B2B customers sort of driving the plant additions. So how do we reconcile these 2 parts?

[Rajeev Jain, executive]

So two things, as I said. So clearly, deeper geography continues to add NTB customers. That's point number one. So you showed -- 61%, 62% of the customers continue to be existing. 38%, 39% of the customers on a sustained basis, any -- because the numbers between 65-35, so continues to be digitally -- I mean, continues to be NTB. That has not changed. Plus if you go to the panel 30 and you see the customers acquired digitally EMI card, acquired digitally are already in our tracking near 6.5 lakh a quarter.

That number, of course, in Q1 was as you can see there 522,000, 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 $8 fee and went, got fully underwritten, fully digital, I spend less than INR 100 across all kinds of marketing infrastructure and 60% of them paid a 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, 55% of the B2B loans are now digital products, means mainly phones. Laptops, et cetera, also are digital products, but take phones. Month-on-month, if you take October -- September, October, November, December, if you take the IDC shipment data, it continues to trend downward. Now that's the real data. I mean, the shipments in India on a -- sorry, annualized 7% de-growth. And last quarter, we made 12%, 13%. So I think -- but it will recover. I think it is also coming on a high base. '21, '22 children are all online, everybody was online.

India could not buy as many laptops as it would have liked. Life had to go on, so people bought more phones. So there will be some degree of year-on-year averaging that also one has to take into account before one takes a 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, January is looking better.

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

[Operator]

Our next question comes from Krishnan ASV of HDFC Securities.

[Krishnan ASV, analyst]

This is more a governance query or an observation, if we need. Now clearly, you have been setting an example in all the right ways, on so many potential parameters. So it's a little unusual when you see the level of open speculation on the likely transition around KMPs 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 feedback if you may?

[Rajeev Jain, executive]

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

[Krishnan ASV, analyst]

In case there is a likely transition within BFL that you seem to be aware of at a board level, et cetera, I think it was ideally something that you should bring out in the public domain instead of letting -- I mean we have pockets of speculation open up, I guess. So that's just an observation. I didn't want to...

[Rajeev Jain, executive]

As and when we do, we will present 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, analyst]

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

[Rajeev Jain, executive]

[indiscernible] Krishnan? Obviously, as I said, it's [indiscernible], even in the businesses that we're in, somebody could argue that is gold loan a mass business or a mass-affluent business? The way we run the businesses, our average ticket size is 3x of that of what a nonbank 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. If you take the 2-wheeler financing business that we've launched in open architecture, we are doing at this point in time more Honda than we're 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 to.

So that's the philosophical response to the answer. May there be such opportunities, MFI, and business to go live only in Q3. So we will -- as we get deeper into it, we are already in January, we will take a view there. Otherwise, for PV, the industry still has transitioned to mass -- super mass affluent rather, if you see the structure of the industry, the mass cars are now selling only affluent and super affluent cars are selling. So gold loan, I gave you example, 2-wheeler I gave you example. So we look for wallets rather than look for balance sheet.

[Operator]

The final question we have time for today comes from Dhaval Gada of DSP.

[Dhaval Gada, analyst]

Congrats on good set of numbers, Rajeev. So just want you sort of pressing more from a clarification or understanding perspective. So from the LRS slide, it sort of implies about INR 6.3 lakh crores of AUM by FY '27 and about INR 26,000 crores of profit, which sort of implies 26% to 27% AUM growth and 23%, 24% profit growth. The question is basically, given a 3-year sort of target of doubling the AUM, which sort of again implies 26%, 27% AUM growth. And you have a long-term guidance on [indiscernible], which again implies similar outcomes. So normally, in most companies, we see that as a growing size, in many companies, the growth starts tapering off or size sort of comes into picture. In our case, actually, we seem to be in a zone 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 [indiscernible] is it the product assumes that, that is driving it? And what exactly is the reason for this fairly long period of compounding at a similar pace of growth?

[Rajeev Jain, executive]

And 10% of 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 [indiscernible] of conversation. And two, unique platforms, that's really where the investments in -- existing in the last 2.5 years in app and web platform and in the next 2 years in a social and rewards platform. Between products and platforms and consumers you 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've built out over the last 3 years, and a $70 million franchise with a 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. Yes.

So that I think remains tremendous opportunity to do it too quickly. It's a problem -- to do slowly is a problem, just a day cruising altitude, growth-oriented, so that we are all on same page. Don't see this to be a challenge. And remind you, I'm not making a new point. In July, we made the point in AGM that we will get to INR 4 lakh crores. So I'm not -- that was [indiscernible]. And in that, 1 year has gone. We will add this year, I've said already INR 53,000 crores of balance sheet. June to March, INR 50,000 crores to INR 53,000 crores, between INR 64,000 to 67,000 crores and INR 75,000 to INR 80,000 crores, some of the numbers. As I keep telling people, it took us 15 years to get to INR 2 lakh crores, and it will take only 18 years for us to get to INR 4 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.

[Operator]

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

[Rajeev Jain, executive]

Thank you. Have a good weekend. Thank you for your patience.

[Operator]

On behalf of Morgan Stanley, that concludes today's conference call. Thank you for joining. You may now disconnect your lines.