Mumbai-based Bajaj Finance, India’s largest non-banking financial company (NBFC) by market capitalization, is in the process of raising up to Rs 10,000 crore through a restricted share sale to strengthen its capital position. This move comes in response to the entry of Reliance Industries’ Jio Financial into the retail lending sector. Bajaj Finance’s plan involves equity divestment to institutional investors and its holding company, Bajaj Finserv.
Despite maintaining a comfortable capital adequacy ratio of 23%, well above the Reserve Bank of India’s mandated 10% for upper-layer NBFCs, which are crucial to India’s financial system, Bajaj Finance is taking this strategic step. The capital-raising plan includes the issuance of shares worth Rs 8,800 crore to institutional investors through a qualified institutional placement (QIP) and an allocation of shares worth Rs 1,200 crore to its promoter company, Bajaj Finserv.
Approval for this capital infusion proposal will be sought from the company’s shareholders during an upcoming extraordinary general meeting. Analysts suggest that Bajaj Finance is positioning itself for future growth and to effectively compete against the impending competition, particularly from Jio Financial.
Shewta Daptardar, an analyst at Elara Capital, remarked, “India is evidently experiencing a robust retail lending cycle, as indicated by Bajaj Finance’s pre-results figures. While they currently possess sufficient capital, they are arming themselves for heightened competition in the future, especially from Jio. This capital infusion may also prove valuable if the company decides to pursue acquisitions down the road.”
Jio Financial Services, a financial subsidiary of India’s largest conglomerate, Reliance Industries, made its debut on the local stock market in August. While specific details about Jio’s financial services offerings are still emerging, it is widely anticipated to enter the consumer finance sector, a domain traditionally dominated by Bajaj Finance.
Jio has already announced a partnership with investment giant BlackRock to establish an asset management company, an area in which Bajaj Finance is a relatively recent entrant.
Sanjiv Bajaj, Chairman of Bajaj Finserv, emphasized in a recent event that the Indian market has ample room for more NBFCs. He stated, “Even though we are currently present in 4,000 cities with assets totaling nearly Rs 3 lakh crore, we still hold less than 2% of India’s credit market… We have limited knowledge of Jio’s plans, making it challenging to comment on their entry into financial services. They possess a substantial customer base with remarkable technological and digital capabilities. We are already serving some customers through their stores, albeit on a smaller scale for us.”
To underscore its position, Bajaj Finance boasts a customer base of 76.56 million as of September 2023, with a 26% increase in new loans. Pre-earnings data released by the company this week revealed that assets under management (AUM) expanded by a third, reaching Rs 2.90 lakh crore as of September 30, compared to Rs 2.18 lakh crore a year earlier. The company also reported a liquidity surplus of Rs 11,400 crore as of September, along with deposits totaling Rs 54,800 crore.