Bajaj Finance Ltd

NSE:BAJFINANCE

Earnings Call Transcript 2022-Q4

[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 are made publicly available. By participating in this event, you consent to such recording, distribution and publication. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] I now hand the conference over to Mr. Subramanian Iyer from Morgan Stanley. Thank you, and over to you, sir.

[Subramanian Iyer, 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, executive]

Thank you, Subbu. 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 Investor section of -- I mean, the deck that we upload on our website in the Investors section. I'll quickly jump in the interest of time to Panel 4, essentially headline -- heading of that is Quarter Gone By. Overall, I would say, last quarter, we had said it was a good quarter, and I was hoping that we'll have a better quarter than the good quarter, and that's what we had saved excellent for. So an excellent quarter for the company, I would say, Q4 that went by, both portfolio quality and profitability. So we're quite satisfied with the quarter that's 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 omnipresence 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 for -- from a business standpoint. We are quite excited about the FY '23 prospects. If you took a level 2 view on the key metrics, the core AUM grew to INR 192,000 crores, 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 INR 2,420 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 2 quarters of the ROE has been on 22.4,22.5%.

Net NPA, we are back to pre-COVID levels. The margin is 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 grown 26%. OpEx to NIM has come in at 34.6%. Full year PAT growth has been 59% at INR 7,028 crores, full year ROE, 17.5% and net NPAs at 68 basis points. Some more color to the financials that...

Over to panel 5, I'll only cover the high points. Point number 3 is relevant 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 start 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 INR 13,200-odd crores against INR 10,400-odd crores. We acquired 2.2 million customers. Overall, the customer franchise stood at INR 57.57 million, that's a 19% growth. Now -- 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 of -- So franchise grew 19%, but cross-sell franchise with 32% (sic) [ 22% ], bodes well for the new acquisition that we've been putting on board in the last 7-8 quarters. We remain comfortable acquiring, 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 are rather focused on to margin than to focus on balance sheet growth. If I have to trade off between the two, clearly, we would choose margin. Margin, we continue to protect. On an aggregate basis, it reflected in AUM growth, which was 26%, and NIM growth actually came in at 30%.

So we continue to protect margin in Q4 that went by as well.

Cost of funds continue to help, came in at 6.7%. Liquidity buffer is now -- we've been working hard to dial it down. As of April 30th, it would have dialed -- it would have dialed down to this number because -- the Q4 number is little artificially suppressed by INR 3,000-odd crores. It was -- because of the last tranche of IPO financing that we did, which was quarter crossing. So it would have looked like INR 13,000 crores in absence of that number, but it would have dialed down to some INR 10,000 crores as we -- 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 a -- from what was legacy of COVID over the last 2 years.

On over to panel 6, deposits grew, crossed INR 30,000 crores at INR 30,800 crores. Consolidated mix at 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've so far talked about geo-expansion and app platform -- and what we're going to share with you today in next few slides is we're investing very deep in building a web platform as well for the last 8-9 months. Given the deep investments in all these 3 areas, which we think are clearly needed for what we think is a full-fledged Omnipresence present financial services.

We think OpEx to NIM will remain elevated for FY '23 as well. It is really one of the views that we have, and I thought it's important we articulate that. Our loan loss and provisions came in at INR 702 crores. On a run rate basis, they were at INR 602 crores. We took a INR 100 crore charge on one large B2B commercial account, which went into NPA across the banking system. So was the case with us as well. So we took an additional charge in that account of -- it's INR 383 crore account, we've now provided INR 200 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 INR 702 crores has a onetimer of INR 100 crores. So it probably gives us a run rate of 145 to 150 basis points as we get into FY '23. On a quarterly basis, this metric is now better than pre-COVID levels at this point in time.

We continue to carry management overlay. We've not; diluted overlay. We have management overlay the INR 1,052 crores ending Q3, it's coming at INR 1,060 crores. So we continue to look for the watchout 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 6 months are fine, then we will slowly start to work towards releasing a 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've talked about it, came in at 160 an 68 basis points. They're better than pre-COVID.

Stage 2, on an absolute basis, came down by INR 1,300 crores, INR 1,500 crores between Q3 and Q4. So even on an absolute basis, the numbers, leaving aside the percentages, came down. Stage 3 came down -- remained flat. This is mainly on account of this 383 crore accounts that actually slipped in. So adjusted for that, it came down by INR 380-odd, 400-odd crores. So despite such a large account flowing in, the overall stage 3 assets remain flat.

Portfolio composition across Stage 1, Stage 2, Stage 3 at a mixed level is now better than pre-COVID.

Very quickly, just from a management assurance standpoint, I am on panel number 17, portfolio quality, 10 portfolios in our management assessment are green and 1 is yellow, which is still 2-wheelers and 3-wheelers, but it's moved from red to yellow, remain so for the next 4, 5 months should be somewhere in green, we are hoping by end of second quarter.

Consolidated profit, I already talked about, grew 80%. Capital adequacy remains 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 INR 39,000-odd crores, and we still did not dilute capital adequacy, have announced -- have recommended a dividend of INR 20 per equity share, which is 1,000% dividend. This will amount to -- the dividend policy of the company says that we can distribute dividend between 15% and 25%. And this number comes to, subject to shareholders' approval, 19.7%.

[Unknown Executive]

19.2%.

[Rajeev Jain, executive]

Sorry 19.2%. 19.1%.

Point #22. RBI has allowed a deferment -- we have chosen -- we've already transitioned. So we've 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%. The -- mainly caused by OpEx. In the last 2 quarters, we have taken a position to significantly accelerate investments in growing distribution. So it's a transient OpEx phase. We've also infused INR 2,500 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 -- On 7th of April BFL infused INR 2,500 crores of capital in BHFL. BHFL, gross NPA and 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 credible performance on credit costs given the [indiscernible] -- as I said, delivered 11% growth to INR 198 crores for the quarter. And capital adequacy came in at 19.72% but would have moved up further to close to 30 or 27-odd-percent as a result of the infusion that we've actually done.

With our financial securities, we continue to systematically and gradually continue to build the company, focus on 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 at a design level. Margin trade financing, which we think is the future of the business, the balance sheet grew to INR 720 crores, and we think will be an important dimension to build a large broking business from our perspective. Profit came in at INR 9 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 of FY '23. Now let me just cover next 5 minutes on Panel #10 on omnipresence strategy. You would notice that we have essentially transitioned from using the word business transformation to articulating it as the omnipresence strategy. That's really how has our audited accounts get release and the MD&A and information infrastructure appears. This is the frame of omnipresence strategy that we intend to or to continue to work on over a period of the next 3 to 5 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 am on Panel, from geography and digital app platforms; these are the 2 pillars so far of the omnipresence strategy to also include creating a digital web platform. So these are the 3 pillars. We also think in the future, there will be a social and virtual. Eventually, there may be 5 pillars. But so far, we were working on building until September '20 on building 2 pillars, which were geography and digital app platform. As digital app platform takes a life of its own, we decided that it is time to invest in -- investing in the third pillar, which is the digital web platform.

Fundamentally, between the app platform and digital web platform, the digital platform will get delivered in 2 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 we want to be a digital enterprise, we are very clear that we got to play in both these cases equally large, equally strong and equally strategic. And that's really how we've taken a decision to build a web platform, which will fundamentally provide a platform-agnostic experience.

So you can stop in app and go to web and you start from there and we can go to web, stop from there and start from app. At a design level, that's really where we are. In the last 8-9 months, we've been investing in building the domain talent and technology to build a large digital web 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 layer between web and app to, what I would say, 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 app platform for ease of navigation and customer experience. So it looks 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 app platform, we would have delivered Phase 2, which I articulated in the last quarter. So we would have, I would say, across all these 3 areas, by March 23, we would have completed our transformation journey that we fundamentally embarked on in August 2020. It would have been long 2.5 years of running 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 2 things that are going concern, dimensions of our or -- going concern pieces of our omnipresence strategy. One being geography, we added 81 new locations. We continue to invest in UP, Bihar and in Northeastern states as we work on omnipresence geographic infrastructure.

Next panel, which is Panel 11. The insurance marketplace went live in March 22. It's a large build, large capability across 9 insurance companies across 8 insurance products, 345 pocket insurance products, 4 motor insurance products and 9 health insurance products allows customers to compare review, buy policies, service section includes policy documents, claim 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, offering various mutual fund and fixed deposit options to customers, allows customers to explore, invest, seamless onboarding for mutual fund investors, easy online KYC process and so on, calculators and portfolio view. These are 2 large marketplaces that have been work-in-progress for the last -- or that has been in the ramp 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-fledged plans to, like we talked about our platform, grow them both in terms of size and depth as we execute through the year in FY '23.

The rewards 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. -- will deliver much higher conversion rates, which is its purpose. It offers -- 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 INR 3.6 million in Q4 due to seasonality, normally B2B point of sale remains our largest new customer gatherer. So -- so due to seasonality, you see that number drop from 3.6% to 2.6%. But -- so in Q1, you will see that number go up. In Q2, you'll see it go down. In Q3, you will see it go up and Q4, you'll see it go down. Overall, we believe in 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 33 million to 35 million users should be -- net users should be on that platform given that we are in 19 million use active users at this point in time. And if we add between INR 14 million and INR 16 million, we should have between INR 33 million to INR 35 million net active users on the platform by -- as we exit March '23.

We had -- I had talked about it and we put it in public domain for investors to understand that we would do -- we have 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 in 3 sprints, we will deliver 62 new features and components as part of the design as we deliver Phase 3. The timelines 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 app platform infrastructure, both for [ NPB and for EDV ] customers.

I'll just take 2 more minutes, and then we are -- then I'm done. Just on some statistical data in terms of how the 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 marketplace that we have, so the flagship marketplace is B2B marketplace, followed by, as I talked about insurance marketplace, followed by investment marketplace.

Eventually, our goal is that as these 3 marketplaces become large and for consumers to compare, review, purchase products, I think, should be generating INR 200 million, INR 300 million each in a year as we build them out. I think that's really what the thought process is; 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 the grounds-up EMI store infrastructure, which should be going live sometime by June 23. And the reason I'm making the point to give you a texture on when I say OpEx to NIM will remain elevated because we continue to invest, investing for the future, investing for engaging customers, investing for mobilizing and creating, hopefully exceptional properties for consumers to do business with us.

In the digital app platform, delivered INR 1,800 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 below 400,000 people paid using, those who have defaulted paid using the app 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, high transacting products beginning to be relevant from an app platform standpoint is coming in. 18 engagement partners we added on that platform. And totally now, we have 48 odd engagement partners.

Payments. We've talked about it in the last 1 year. Now numbers have started to come in. First of all, the QR Based P2M acquiring business went live. It's our first acquiring business going into production. The distribution expansion of that -- of the QR-based P2M is now underway. So we'll build that out. We have aggressive plans for that in the -- in FY '23. We are continuing to significantly accelerate our investments in building a full-service payments business. Nitish Asthana, who has joined us as the President payments. He came on board in 1st of March, he's driving the entire initiative of building a full-service payments business. He has 15 to 18-year 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 3- to 5-year horizon.

We are setting aside reasonable amount of money. We are very clear we will do full-service payments business across P2B, EDC terminals, the payment gateway business, we'll do it either on our own or through strategic partnerships. As I said, we've set aside deep investments both in CapEx and in OpEx to grow the payments business as we journey through FY '23.

Just the last point on this, 1.7 million wallets were added against 2.5 million. As I said, this again is a little seasonal, overall 6.5 million customers in wallet. The rewards management system will significantly accelerate rewards wallet journey. As I said, whether in terms of rewards, in terms of coins, or in terms of cashback, all our engagement with our clients will now go through rewards management.

It will create significant transparency, significant -- and 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. So -- and we are very clear. We would like to engage more with clients rather than have noise from a customer standpoint.

We added -- 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 billion 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, ringfencing, harnessing, mining, whether our customer franchise or our customer or our distribution engine is really where the focus is of the payments business, and we'll build that out. That's really in the quarter. I have spoken longer than I normally do, but there were lots of things to cover. We can move over to Q&A.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions]

The first question is from the line of Kunal Shah from ICICI Securities.

[Kunal Shah, analyst]

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 the cost if we have to see, okay, compared to that of the debt platform. So will this involve more of a cost compared to that of app? And vis-a-vis that, what would be the benefits which we expect to accrue -- so that's the first question.

Second, in terms of the master directions 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 yellow -- so what could be the reason for the rise and how do you see that going forward?

[Rajeev Jain, executive]

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 50,000 million customer franchise, we think web is as critical to the frame. App serves its own, as I said, purpose, its engagement levels are better. So it's not a trade-off or it's not either/or we've got to do both. Now that's a day at a [ 30,000 feet ] level, I'll request Anurag or Rakesh to probably further expand on this, either...

[Unknown Executive]

Yes. So it's not a new strategy for us, a web platform. We are basically today over the investments over the last 10 years, 20 million people come on to our web platform today, out of it huge investments in SEO already done 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, okay, as a follow through, okay, of the app, okay, which we have already launched. What we want to do, as Rajeev has already highlighted, to deliver a similar customer experience, consistent okay, so that he 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 and 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, okay? And that's the multiplier benefit of being on the web. And that's the reason we were just thinking of building over web platform.

[Kunal Shah, analyst]

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

[Rajeev Jain, executive]

If you -- and just to the last point, Kunal, on that point one, that technically, -- it was run by a 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 will have 3,504 more branches. So that's really how I see the business to be. That the largest branch is that -- it can become web tomorrow. I mean because as we said, the reach you don't have to log 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 an integrated experience, seamless experience to customers, as Rakesh said, and it's our omnipresence. Yes, it would complete our omnipresence strategy. So clearly, that's level 1. Credit cards, it's a large -- it's a master circular that's come in. 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. I don't have a point of view on good or bad, positive or negative, it is as directed by RBI, we got to all follow whatever it states.

Point #3, consumer durable. We have captured their bottom. The large B2B account is sitting there, Kunal. And if you go to that panel, you will... 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%. It's - I told the team to asterisk it. They have not asterisked it probably. So that's all, nothing else.

Yes. So just the last point, CD business, remains at ever best performance in terms of -- through the door and through -- not here in the portfolio section investment.

[Operator]

[Operator Instructions]

The next question is from the line of Abhishek Murarka from HSBC.

[Abhishek Murarka, analyst]

First of all, congratulations for the year, I think great performance given the challenges. I have 2 questions. The first is on SME. I believe a couple of quarters back you had called out some pricing pressure. And I just wanted to get an update, how is it now? A lot of [ flat ] 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, that could be yield 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 all the investments that are in the pipeline? So yes, those are my questions.

[Rajeev Jain, executive]

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 [indiscernible] -- 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 remained consistently and you can do channel check with dealers with DSS to know that very clearly. So it's one more season where we're seeing a 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 they realize that the 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 1,500 locations. So it gives us the ability to diversify one, maintain margin profile, but needs significant skill. So it's -- you hurry up too quickly in this business, you get hurt. You do 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, it's one of the biggest skills we've created over the last 15 years in terms of distinctiveness and differentiation.

NIMs overall at a product mix is defined by 2, 3 things. Overall pricing -- number one, as I said, we want to -- don't want to dilute pricing, because we don't know if there will be more waves. Point number two, product mix is a driver of NIMs, cost of funds is a 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, product mix, you should estimate that the product mix would continue to remain steady, largely with 1 or 2 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'll go by the year as the year plays along. For now, we are comfortably placed. I would say for the next 2 - I could say, 3 quarters, and we'll play along from there.

I think that covers up 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 ratio 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 stance 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 -- so that your understanding of that is not different from mine and from somebody else, it should remain within this corridor of -- on a quarter odd basis, it may go up. So it will remain between 34.5% and 35.5%, it is really how we see FY '23 to play out.

Should start to go down. But as I'm saying right now Abhishek, earlier as well, we are 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 compromise in any given manner.

So a higher OpEx to NIM should not in any way be construed as that 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 the rightful movement to invest that if the ROE is not getting compromised, if growth momentum is strong, that's the moment to invest rather than investing if you're going through a bad time. So we are looking forward to FY '23 and given how the metrics are looking, are choosing to invest without compromising on -- as I said, ROA-ROE in any given manner.

[Abhishek Murarka, analyst]

So that, Rajeev was very comprehensive. Just squeezing in one very quick question...

[Operator]

Mr. Murarka, so sorry to interrupt, but for any follow-up, may we request you to rejoin the queue, please.

The next question is from the line of Apurva Deshmukh from CRISIL Limited.

[Apurva Deshmukh, analyst]

My first question is, I would like to understand what would be the percentage of consumer durable and personal loan individually in your stand-alone AUM of Bajaj Finance? And what is your market share in these 2 segments among the NBFC?

[Rajeev Jain, executive]

Apurva, so if you go to panel 47 of the balance sheet, you would fundamentally see that of the balance sheet, INR 15,000 crores of the INR 146,000 crores of stand-alone balance sheet is in -- so add to INR 15,000, INR 14,977 and INR 4,129.

Now this is -- that's close to INR 20,000 crores in terms of balance sheet of the consumer durable financing. It, of course, has many other businesses sitting there in that. There is consumer electronics, there's furniture, there is e-comm financing and so on and so forth. On an aggregate basis, it is 10% of the balance sheet. .

[Apurva Deshmukh, analyst]

Okay. And similarly about personal loan individually?

[Rajeev Jain, executive]

Personal loans, you should just staying with the same panel. You should look at the consumer B2C business. And the rural B2C business. If you see 37 and 15, that's INR 53 million, you should knock off from that, let's say, INR 2,000-odd crores -- of INR 2,200-odd crores of gold loans to, it would be INR 50,000-odd crores, plus minus.

[Operator]

The next question is from the line of Nischint Chawathe from Kotak Securities. .

[Nischint Chawathe, analyst]

Am I audible?

[Rajeev Jain, executive]

Yes, Nischint.

[Nischint Chawathe, analyst]

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

[Rajeev Jain, executive]

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 a discretionary play. If you're doing well as a company and you want to engage more, you would accelerate; if we are not meeting our goals, then you will decelerate. For any company, it remains a discretionary number. We have a plan for the year. As I have said, we would put all our rewards, which we did even earlier through various means is now going to go through a rewards management system. For last year, I don't have a number on in hand would be -- and last 2 years have been soft because we were given the kind of charge-offs that we are taking from a loan loss in provision standpoint. But I would say if we take 2018, '19 -- - '19,'20 sorry -- '19,'20 that number would have been around INR 300-odd crores, maybe a little more.

[Nischint Chawathe, analyst]

Would that kind of change significantly...?

[Rajeev Jain, executive]

I think the number is not correct. So maybe Sandeep can correct the number.

[Sandeep Jain, executive]

So now the number was in the range of INR 180 crores to INR 200 crores. Correct the numbers.

[Rajeev Jain, executive]

INR 200 crores was the number, yes.

[Nischint Chawathe, analyst]

And would you just scale up with volume for the future years? Or should the percentage go up given the fact that [indiscernible] into a more competitive business?

[Rajeev Jain, executive]

So 2 parts to this Nischint. So this was prior to payments. This was to stimulate our customers to do more business with us, okay? The payment point that I made earlier is over and above. So it's in addition. So let's say, just on a customer franchise basis, if a number of INR 200 goes to 300, let's say, for hypothetical sake, it will be INR 300 crores, that would go through the rewards management frame. And in addition, whatever we've given to the payments as view -- will be additional. And 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 -- on customer franchise origination and management of P&L. It's discretionary.

[Nischint Chawathe, analyst]

Sure. 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 [indiscernible]?

[Rajeev Jain, executive]

That company is on arms length basis. It's got nothing to do with us. They work with us and they have 2 roles that they play. They do -- they build marketplaces for us. They have built the marketplace on an arms 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, analyst]

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

[Rajeev Jain, executive]

Sorry. So they run, like any digital distributor would run, they run an algo or an engine, which determines there based on the segmentation of the customer, they may prop up, prop us up, prop somebody else up or prop up a new age lender. It 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, analyst]

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

[Rajeev Jain, executive]

The technology partner, yes. What is also happening is that we held it back, we were to go live on 15th of April, we've held it back because we are in season, from first of July onwards. Yes. We are creating a new brand called Bajaj Mall and from first of July, even these 2 assets will become completely distinct from each other. So actually, it's ready to go into production. We have held it back because you're in season time. .

[Operator]

The next question is from the line of Sameer Bhise from JM Financial.

[Sameer Bhise, analyst]

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 app. Would that also entail creation of two parallel branding mechanisms there?

[Rajeev Jain, executive]

So -- okay. So 2 parts, as I said earlier, Sameer, that our focus of the payments business if we ever wanted to make it viable, is to essentially focus on a franchise, okay? -- franchise being defined as customer franchise for payments and their wallet, -- and acquiring franchise or our B2B frame. That's really the -- and these are the 2 pillars on which it will stand. The third franchise being to on-roll or onboard millions of merchants. If fundamentally companies have dedicated staff here because we're sitting in those marketplaces with people in the stores, and they have intermittent times when they -- during the day when they're busy and rest they are not, they would -- we have something called mobile salespeople or mobile sales staff who do that as well. These are the 3 pillars fundamentally on which we are looking at building a payments business.

We are building this business -- so that's -- these are the 3 pillars. View is a 3- to 5-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 3 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 as a long-term view, and that's a mandate to him, and that's the mandate we have taken that. It's a long view.

Markets, essentially is, as I said earlier, to Nischint, it's independent. And run their own life, we run our own. The -- and so there's nothing else to comment on that. I think I've answered this question 2-3 times in the last 3, 4 quarters, and nothing has changed other than, as Rakesh said, we are launching Bajaj Mall on 1st of July. So that will create further differentiation and distinction in the -- from a distinctiveness standpoint.

[Operator]

The next question is from the line of Kuntal Shah from Oaklane Capital.

[Kuntal Shah, analyst]

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

[Rajeev Jain, executive]

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, 9 million new customers. If we stay with the same run rate, we'll hopefully have 90 million to 100 million customers in the next 4 to 5 years. That's a very, very large franchise. Our activity rates, activation rates, 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 first part, but there's never say never. Maybe who knows 5 years down the line, we think it's something to do, but at least not in the next 5 years, Kuntal. So that's one part. Two, as I said earlier, we are studying the credit card guidelines, what it means, we'll seek some clarifications, and then we'll determine next steps.

[Operator]

The next question is from the line of Parag Jariwala from White Oak India.

[Parag Jariwala, analyst]

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 anywhere? Because overall, there is a general belief now in the market that over a period, RBI wants larger NBFC to convert into a bank. Any thoughts on that line? Have we tried to prepone or go fast towards bank conversion, that's my question here?

[Rajeev Jain, executive]

No, it's a specific question -- it's a tropical question. So there'll be -- if ever this was to happen, there'll be 3 stakeholders involved in this conversation. I only represent one, which is management, our management view. The second will be shareholders, not in that order necessarily. The 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 a payments and financial services business. We are satisfied with the strategic frame that we have created and don't have a view as management at least from a next 3-year standpoint on -- on bank. So as management, let me make my stand clear. On whatever I understand from shareholders, I think [ Sandeep ] 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 a very uncluttered manner and very clearly is that we are focused on building a -- from a financial services business to a payments and financial services business with hopefully 100 million franchise in the next 5 years. And companies are built for long periods. In the long term, given our ambition, could we be one? Probably, yes. Long term is long term. I mean, so we'll play along. It's not on the horizon for next 2 to 3 years.

[Parag Jariwala, analyst]

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

[Rajeev Jain, executive]

So RBI has made its stand clear in the public domain the new scale-based regulation and has very clearly articulated that you -- if you're upper layer company, upper tier company, you have a bank like regulation, you deem it appropriate to be like bank like regulation and be a non-bank. It'd be a guess. At this point in time, we are reading it exactly the way it is. And if I take that, those regulations our stand to remain an non-bank for the next 2 to 3 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've always been very clear that arbitrage does not create business models, at least long-term business model. Over the last 15 years, we'll 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 it go to 150, 120, 90, you never saw any impact. You saw us transition to DPD, never saw any impact on us. Because we believe color of money is green, 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.

[Operator]

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

[Abhijit Tibrewal, analyst]

Just 2 very simple questions. Rajeev, I think you used to say that you had about a 70% market share in the subvention pool. I mean what would be your best estimate now of the subvention pool? Has it gone past pre-COVID levels? And where has this 70% number moved?

[Rajeev Jain, executive]

Yes. So it remains -- I mean, we track it every month. It remains between 68% and 70% for the consumer electronics business. It remained between 57% to 59% in the digital business. These are 2 large categories. And in the digital space, this number used to be 51% and 52%. So it's obviously moved up. In the CD space, it remained steady between 68% and 70%. I think that's the -- 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 the space.

[Abhijit Tibrewal, analyst]

And just one more question from my end -- Rajeev. I mean I think in one of your slides, you have articulated that in the last quarter, you had identified some 17 features and components as part of your Phase 2 and which now kind of grown 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 [ B ], I mean, a couple of times during the call, you suggested that you're building the payments business with a slightly longer 3- to 5-year kind of a view. So do you think, I mean, for the next 2 years, I mean, this payments business is not going to be accretive to your bottom line?

[Rajeev Jain, executive]

It'll never be accretive, I mean and Nitish may not fully agree, given 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 when we invested in the business or decided to venture into the business knowing fully well that. Someday it can surprise us and build out, make the math work, but it looks quite hard to make up at least in the medium term. There's no concept of long term, it looks hard to make up in the medium term. So here purely the goal is to create significantly higher engagement -- that's the purpose, both on [indiscernible] -- 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 3 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, 3 large marketplaces, entire bouquet of retail financial services products, payment options and 100 engagement partners. That's a very large ecosystem. We used all this to engage clients. That's really the purpose [indiscernible] tools 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 are in the middle of what I would call our long-range planning process. By the time we completed the planning process. From project, the app platform is now transitioned to a business. The company ran metrics on how many customer downloads it had yesterday. It's a whole host of HEART metrics that Kurush Irani had talked about 2, 3 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 are in the middle of a planning process. By the time we completed the planning process and just in the interest of transparency, I though we'll outline that what the final feature output would actually look like. And over the next 8 months, the idea is to just deliver them in 3 sprints. And we're learning as we -- as we build it out. So you will see significant changes appear or enhancements appear in as Phase 2 starts to go live. We are -- Phase 2 -- end of Phase 2 would mean we are satisfied with what we thought if you were a new customer, he or she would be able to get by-products and so on and so forth. I think that's really where -- what we are seeking from a satisfaction [ stands off ].

I think that's really the -- I just want to make one last point. I think it's an important point, which I should have mentioned earlier. I've had 2, 3 questions that I have got asked on credit cards. We work on credit card with 2 leading partners being RBL Bank and DBS. We have a 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 4-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 are 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 have made it while responding to one of the points on credit card, but I think I'll make the point. I think that brings us to the end, Subbu.

[Operator]

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

[Subramanian Iyer, 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 comments before we disconnect. .

[Rajeev Jain, executive]

Thank you, and good night. .

[Operator]

Thank you. Ladies and gentlemen, on behalf of Morgan Stanley, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.