Bajaj Finance Q2 FY27: Growth at Scale, A Conservative Provisioning Stance, and a Clear Pivot in Gold Loans

Bajaj Finance reported a strong Q2 FY27, with management describing the quarter as “excellent” across assets under management growth, profitability, credit costs, and return ratios. The scale of the franchise continues to stand out. Assets under management rose 26.5% year on year to INR 5,84,624 crore, implying a net assets under management addition of close to INR 38,000 crore in the quarter.

Profitability kept pace with growth. Profit before tax for Q2 FY27 came in at INR 8,537 crore, while profit after tax was INR 6,367 crore, both up 29% year on year. Management also highlighted that it created an additional macroeconomic overlay provision of INR 337 crore during the quarter. Excluding this overlay, it indicated that profit growth would have been higher, underscoring the company’s preference to build additional resilience even during a period of relatively benign credit conditions.

The operating metrics remained strong. Bajaj Finance booked just under 13.5 million new loans in Q2 and added 4.5 million new customers, taking the customer franchise to just under 129 million customers. Return on assets for the quarter was 4.6% and return on equity was 20.6%. Operating expenses to total income improved to 33%, and net non-performing assets were reported at 42 basis points.

A broad-based assets under management expansion, with gold loans gaining share

Management repeatedly stressed that growth was “secular” across product lines, rather than concentrated in a single pocket. Urban consumer finance grew 43% year on year and rural consumer finance grew 63%. Microfinance grew 54% on a low base, while commercial vehicle and tractor finance rose 89% again on a low base. Loan against securities grew 42%.

One notable laggard was the micro, small and medium enterprise book, which grew only 3%. Management attributed the deterioration in reported non-performing assets in micro, small and medium enterprise lending largely to arithmetic, because growth has been flat, leading the denominator effect to show up in non-performing asset ratios. It also emphasised that early-vintage performance has been improving since changes were made to origination practices starting July of the prior year.

Gold loans were a key area of investment and expansion. The gold loan portfolio is now about 4.1% of the balance sheet, and management said the book was a little above INR 24,000 crore as of Q2 FY27. The company added 320 gold loan branches during the quarter. The total network is now 2,022 branches, and management reiterated a plan to end FY27 with close to 2,800 standalone gold loan branches. Importantly, it positioned gold loans as a profit builder rather than an assets under management builder, signalling that growth will not be pursued at the expense of customer outcomes and sustainable credit quality.

Financial snapshot from management commentary

Credit costs, provisioning overlays, and the resilience philosophy

Credit performance and provisioning was a major theme of the call. Loan losses to average assets under finance improved to 1.56% from 1.88% a year ago. However, management chose to recognise a macroeconomic overlay provision of INR 337 crore during Q2. Excluding this overlay, it stated that loan losses and provisions would have declined 12% year on year and loan losses to average assets under finance would look closer to 1.32%.

The overlay discussion was notable for its clarity. Management framed overlays as “over and above” the expected credit loss model and said they are intended to build resilience rather than reflect visible, near-term stress. It highlighted the challenges of embedding all macro factors into quantitative models, citing examples such as El Nino conditions and oil prices around USD 100 to 110, and the possible cascading impact on inflation, interest rates, and the customer’s cash flows.

Management quantified that the management overlay stock created was INR 512 crore, including INR 185 crore taken in the prior quarter and INR 327 crore taken in the current quarter. It also referenced loss-given-default flooring introduced earlier, which it estimated could imply an additional buffer between INR 350 crore and INR 500 crore embedded within stage-based provisions.

On the stage movement, the company said Stage 2 and Stage 3 assets increased by INR 1,601 crore in Q2. A significant portion of this increase was explained by gold loans, where Stage 2 rose by INR 1,047 crore due to the launch of short-tenure schemes after new Reserve Bank of India guidelines.

Gold loans: a product design correction to reduce accidental delinquencies

Gold loans were also the quarter’s most important operational learning. Management explained that short-tenure schemes required customers to come to the branch every three months for full interest payment and loan rollover, which became cumbersome. In practice, some customers slipped into delinquency accidentally. Once delinquent, the customer would need to pay principal plus interest to regularise, which is not always the right customer outcome.

Bajaj Finance has responded by stopping short-tenor schemes since August and moving toward longer tenure schemes, such as 9 to 12 months, while offering customers the option of monthly or quarterly interest payments. It also stated that it does not expect a credit cost impact from this short-tenure stage movement, and that a portion of the incremental Stage 2 already resolved back to Stage 1 in the quarter.

This stance is also consistent with management’s broader philosophy that auctions are not a preferred metric of success in gold loans. It suggested that pushing customers into delinquency and then relying on auctions is not customer-friendly and not the ideal way to run the business.

Growth and profitability outlook: guidance nudged up, margins watched closely

On forward outlook, management guided that it expects to deliver about 26% to 27% assets under management growth for FY27. It reiterated its medium-term growth guidance of 20% to 25% annually, with the acknowledgement that the growth rate can vary year to year.

Operational targets were also restated. The company said it is well on track to deliver 60 million to 62 million new loans in FY27 and aims to add 18 million to 20 million customers to the franchise.

Margins were discussed in the context of a rising rate environment. Management said cost of funds declined sequentially by 9 basis points to 7.31% in Q2, but net interest margin moderated by around 10 to 12 basis points from Q1 to Q2. For the first half, net interest margin was about 5 basis points lower than March levels. Management indicated that it is baking in the possibility of further rate hikes and expects marginal net interest margin moderation, but believes the overall profitability and return profile can be managed through operating leverage and credit costs.

The company also said it executed significant interest rate hedging in the last quarter, helping reduce the effective cost of funds at Bajaj Finance and Bajaj Housing Finance.

Capital raise and regulatory readiness

A key corporate action discussed was the Board-approved capital raise, subject to shareholder approvals. Bajaj Finance plans to raise INR 11,700 crore through a qualified institutional placement, and Bajaj Finserv plans to subscribe to preferential warrants of INR 5,800 crore. Management said the decision is primarily driven by the India growth story and the growth ambitions of the company and its subsidiaries, while maintaining the sustainability of medium-term return on assets and return on equity objectives.

On regulatory topics, management addressed two areas that investors are tracking. First, it said it is assessing the evolving insurance distribution regulations, which remain at the discussion paper stage, and it is building scenarios to protect fee income and margin profile once final regulations emerge.

Second, on the Reserve Bank of India’s draft framework on revolving loans, management said if a complete ban is implemented, there could be a transient impact on assets under management and a marginal compression in net interest margin and profitability. It also disclosed that it is launching alternative term-loan variants from 1 November that do not allow withdrawals but include attractive features to help customers transition.

What to watch from here

Q2 FY27 reinforces Bajaj Finance’s ability to grow at scale while maintaining strong reported asset quality and high return ratios. The company is also signalling an increasingly conservative posture through overlays and loss-given-default floors, which may reduce earnings volatility when macro conditions turn.

At the same time, the quarter highlighted that product design matters as much as distribution. The gold loan Stage 2 movement was described as a learning from short-tenure schemes, and the company has already course-corrected. The next two quarters should clarify whether this redesign stabilises stage metrics while preserving profitable growth.

For investors, the key takeaways are straightforward. The company has guided to higher FY27 assets under management growth, is investing aggressively in gold loan distribution and enterprise artificial intelligence, and is preparing for regulatory shifts in revolving credit and insurance distribution. The performance numbers are strong, but the more durable signal is management’s emphasis on resilience, and its willingness to change product structures quickly when customer outcomes and portfolio behaviour indicate unintended risk.