From Aggressive Lender to Cautious Giant: Bajaj Finance’s New Phase
Blog by Aliceblue News Desk
23 October 2026
13 minutes
Bajaj Finance has spent years building one of India’s largest non-banking financial businesses through consumer loans, EMIs, personal finance, SME lending and a wide distribution network. Its rapid expansion made it one of the best-known names in Indian financial services and a major constituent of the Nifty 50 companies list.
But Bajaj Finance’s new phase looks different. The company is still expanding quickly, yet management is becoming more cautious about leverage, credit risk, interest rates and future regulations. Instead of waiting for problems to appear, it is raising capital, setting aside additional provisions and changing lending products before risks become larger.
This shift matters because Bajaj Finance is no longer a relatively small lender that can easily absorb mistakes. With assets under management running into several lakh crore rupees, even small changes in borrowing costs, bad loans or regulations can have a major impact.
Why Is Bajaj Finance Becoming More Cautious?
Bajaj Finance built much of its growth by expanding faster than traditional banks in areas such as consumer finance, personal loans and small-business lending.
That growth continues.
Its assets under management have reached around ₹5.85 lakh crore, while approximately ₹37,680 crore was added in a single quarter. The company also has around 12.9 crore customers, while profit grew roughly 29% to around ₹6,400 crore.
Management expects AUM growth of about 26–27%, compared with its longer-term normal range of roughly 23–25%.
The difference is how that growth is being managed.
Bajaj Finance is now:
- Reducing its preferred leverage level.
- Raising equity before regulatory capital becomes a problem.
- Moving towards more secured lending.
- Building additional provisions against future credit stress.
- Adjusting products before proposed regulations take effect.
- Becoming more selective about high-risk borrowers.
These moves suggest that risk management is becoming as important as loan growth.
How Bajaj Finance Is Finding New Growth
Bajaj Finance’s growth model is also changing.
For many years, physical expansion was an important source of growth. The company entered new cities, towns and markets and kept adding distribution points.
That is becoming less important.
Its number of physical locations has declined over the past two years, while existing customers are playing a bigger role in new lending.
Around 68% of new loans now come from existing customers, compared with approximately 58% in FY25.
Growth is also increasingly coming from areas such as:
- Gold loans
- Home loans
- Loans against securities
- Microfinance
- Cross-selling to existing customers
This has an important effect on the company’s risk profile.
Secured loans are generally safer because the borrower provides collateral. But they usually generate lower interest rates than unsecured personal and business loans.
That creates a trade-off: Bajaj Finance can reduce credit risk, but its lending margins may also become thinner.
Why Rising Interest Rates Matter for Bajaj Finance
Interest rates are particularly important for NBFCs.
Traditional banks can fund a large part of their lending through savings and current account deposits, commonly known as CASA deposits. These can provide relatively low-cost funding.
An NBFC such as Bajaj Finance relies more heavily on borrowed money.
Its funding comes from sources such as:
- Bonds
- Bank loans
- Fixed deposits
- Commercial paper
- Overseas borrowings
When interest rates rise, these sources eventually become more expensive.
Investors trying to understand this relationship can also read Alice Blue’s guide to the RBI Monetary Policy June 2026, which explains how changes in monetary policy can affect borrowing costs and financial markets.
Interestingly, Bajaj Finance’s cost of funds recently fell to around 7.31%.
But that does not mean its margins are protected.
The problem is happening on the other side of the equation.
Why Bajaj Finance's Lending Margins Are Under Pressure
A lender essentially earns money from the difference between what it earns on loans and what it pays to raise money.
This difference is often measured through metrics such as net interest margin.
Bajaj Finance is increasingly growing in secured products such as:
- Housing finance
- Gold loans
- Loans against shares
These loans usually carry lower risk because there is an asset backing the borrowing.
However, safer loans also generally charge lower interest rates.
At the same time, some of Bajaj Finance’s higher-yield businesses have slowed. Small-business loans have grown slowly, some older lending portfolios are running down, and the company is avoiding highly indebted borrowers.
As a result, yields on its loan portfolio have fallen faster than its cost of funds.
This shows why faster AUM growth does not automatically mean higher profitability.
The composition of that AUM matters just as much.
Bajaj Finance Gold Loans Show the Shift Towards Caution
Gold lending is a useful example of how Bajaj Finance’s strategy is changing.
Its gold loan business more than doubled over the past year and has become one of its fastest-growing large businesses.
Gold loans are generally secured because borrowers pledge jewellery as collateral.
Several listed NBFCs operate heavily in this area, and investors interested in the segment can also explore Alice Blue’s coverage of gold-linked stocks.
However, changes in RBI rules affected how lenders could structure gold loans.
Many gold loans use a bullet repayment structure, where the principal and interest are repaid together at the end of the loan period.
Under the changed rules, the loan-to-value calculation for bullet loans has to consider the amount the customer will eventually owe, including interest.
How the Gold Loan Rule Changed Borrowing Amounts
Consider a simple example.
Suppose jewellery is worth:
₹1,00,000
Assume the applicable loan-to-value limit is:
85%
If the borrower takes a 12-month loan carrying 12% annual interest, the lender must leave room within that 85% limit for the interest that accumulates over the year.
The borrower may therefore receive only around ₹76,000 upfront.
But with a three-month loan, far less interest accumulates before repayment.
That means the lender can provide a larger initial loan against the same gold.
This encouraged lenders to offer shorter-tenure gold loans.
However, shorter tenures created another problem.
Borrowers had to visit or interact with the lender more frequently to repay interest and renew the loan.
Some customers did not do so on time.
That pushed more than ₹1,000 crore of Bajaj Finance’s gold loan portfolio into Stage 2.
What Does Stage 2 Mean in Lending?
Stage 2 does not necessarily mean that a loan has already become a non-performing asset.
It generally indicates that credit risk has increased significantly or that payments are becoming overdue, depending on the accounting and classification rules applicable to the loan.
It acts as an early warning.
Instead of continuing to push short-tenure gold loans purely to maximise growth, Bajaj Finance stopped offering three-month loans and returned to longer nine-to-twelve-month structures.
Longer loans may reduce how much customers can borrow against the same gold and potentially slow growth.
But they may also reduce operational stress and improve repayment behaviour.
That is a good example of the company’s changing priorities: accept slightly slower growth to protect asset quality.
Regulatory Risk Is Becoming More Important
Bajaj Finance is also preparing for regulatory changes that have not yet fully taken effect.
Two areas are particularly important:
- Revolving credit
- Insurance distribution
Revolving Credit Rules
Revolving credit allows borrowers to receive an approved credit limit, use part of it, repay the amount and borrow again.
Bajaj Finance’s Flexi loan products operate using a similar idea.
The RBI has proposed restricting revolving credit for many NBFCs and moving them towards more traditional term loans.
If stricter rules are introduced, they could affect an important part of Bajaj Finance’s lending model.
Instead of waiting for final rules, the company has already been working on alternative term-loan products.
That reduces the risk of suddenly having to redesign a large part of the portfolio after regulation changes.
Insurance Commissions Could Affect Fee Income
Insurance distribution is another important business.
Financial companies often earn commissions by distributing insurance and other third-party financial products to their customers.
For Bajaj Finance, fees form a meaningful part of overall profitability.
If regulators place stricter caps on insurance commissions or restrict lenders from bundling insurance with loans, that source of income could come under pressure.
This explains why investors evaluating financial stocks should consider more than loan growth.
Regulation, funding costs and other revenue streams can all affect profitability.
Investors interested in broader financial-sector exposure can also read about small-cap investment banking stocks to understand how different financial businesses generate revenue.
Credit Stress Has Shifted Rather Than Disappeared
Some of Bajaj Finance’s earlier problem areas are improving.
Gross NPAs in urban and rural personal loans have declined.
But this does not mean credit risk has disappeared.
Instead, stress has moved to other parts of the portfolio.
The biggest concern is small-business lending.
Bajaj Finance’s MSME loan book grew only around 3%, while gross NPAs increased from approximately 2.5% to 3%.
A slower-growing loan book can mechanically make the NPA ratio look worse because the denominator is not expanding quickly.
But bad MSME loans also increased in absolute rupee terms.
That suggests older loans are actually deteriorating, not merely looking worse because of slower growth.
Why Rural Lending Is Another Risk
Rural lending is sensitive to weather, agricultural income and local economic activity.
A poor monsoon can affect farmers first.
But the impact does not stop there.
Lower farm income can gradually affect:
- Agricultural labourers
- Rural retailers
- Small traders
- Transport businesses
- Local service providers
- Self-employed borrowers
The effect may take months before appearing in loan repayment data.
Bajaj Finance has therefore started reducing some lending exposure in drought-affected districts rather than waiting for defaults to rise.
The company has also created an additional ₹337 crore macro overlay.
What Is a Macro Overlay?
A lender normally estimates expected credit losses using models based partly on historical data.
But models have limitations.
They may not fully capture unusual risks such as:
- Severe drought
- Sharp oil-price increases
- Sudden inflation
- Economic disruptions
A macro overlay is an additional provision created using management judgement to account for risks that may not yet be visible in actual default numbers.
Think of it as an extra financial cushion.
Bajaj Finance’s decision to create one suggests that management is trying to recognise possible future stress before it reaches the NPA stage.
Why Is Bajaj Finance Raising ₹17,500 Crore?
Perhaps the clearest sign of the company’s changing approach is its plan to raise up to ₹17,500 crore in fresh equity.
Normally, a lender raises equity because it needs more capital to support expansion or because its capital position is getting close to regulatory limits.
But Bajaj Finance already has a capital adequacy ratio of approximately 20.3%, comfortably above the regulatory requirement.
So why raise money?
The answer appears to be precaution rather than necessity.
The company wants a larger capital buffer before risk increases.
Bajaj Finance Is Lowering Its Own Leverage Limit
Leverage measures how much borrowed money a business uses compared with its own equity.
An NBFC naturally relies heavily on borrowing because lending is its core business.
However, excessive leverage can increase risk. In previous years, Bajaj Finance was comfortable allowing leverage to rise above six times before raising capital.
Today, it appears to prefer a range closer to 5–5.5 times. That is a meaningful change in philosophy.
The company is effectively telling itself:
Just because regulations allow us to carry more risk does not mean we need to.
For investors analysing financial stocks, leverage, capital adequacy and asset quality are therefore important alongside revenue and profit growth.
Alice Blue’s guide to banking sector mutual funds also explains why interest rates, regulations, asset quality and economic cycles influence financial-sector investments.
Bajaj Finance: Aggressive Growth vs Cautious Growth
The shift can be summarised simply.
Earlier Growth Model | Emerging Growth Model |
Faster physical expansion | More growth from existing customers |
Greater focus on high-yield lending | Larger share of secured lending |
Higher tolerance for leverage | Lower internal leverage ceiling |
Growth first | Growth with stronger buffers |
React after stress appears | Prepare before stress appears |
Higher-yield products | Safer but lower-yield products |
Capital raised when required | Capital raised before it becomes necessary |
Bajaj Finance has not suddenly become conservative.
It still expects strong loan growth.
The difference is that management is trying to build protection around that growth.
What Should Investors Watch in Bajaj Finance?
Investors analysing Bajaj Finance may want to monitor several areas.
1. AUM Growth
AUM growth remains important, but investors should also examine which loan categories are driving it.
2. Net Interest Margin
Growing secured lending may improve asset quality while putting pressure on margins.
3. Cost of Funds
Higher policy rates can eventually increase borrowing costs for NBFCs.
4. MSME NPAs
Small-business lending remains an area where credit stress needs monitoring.
5. Gold Loan Asset Quality
Stage 2 loans should be watched to see whether borrowers return to regular repayment.
6. Capital Adequacy
The proposed equity raise should increase the company’s financial cushion.
7. Regulatory Changes
Rules around revolving credit and insurance distribution could affect both lending growth and fee income.
Advantages of Bajaj Finance's More Cautious Strategy
A more conservative approach can offer several benefits.
Stronger Balance Sheet
Additional equity reduces dependence on borrowing.
Lower Credit Risk
A shift towards secured lending can reduce losses during defaults.
Greater Regulatory Readiness
Preparing products before rules change reduces disruption.
Better Protection During Economic Stress
Higher provisions and liquidity give the company more room to handle unexpected shocks.
Long-Term Growth Flexibility
A stronger capital base can allow Bajaj Finance to continue lending even during periods when competitors become more cautious.
Risks Bajaj Finance Still Faces
The strategy does not remove risk completely.
Important risks include:
- Higher interest rates
- Lower net interest margins
- MSME loan stress
- Rural credit deterioration
- Regulatory restrictions
- Lower insurance commissions
- Slower growth in high-yield loans
- Market volatility
Because financial companies use significant leverage, even relatively small changes in credit losses or borrowing costs can affect profitability.
Conclusion
Bajaj Finance is entering a different stage of its growth story.
It still has one of India’s largest customer bases, strong AUM growth and a diversified lending business. But its size now changes how management has to think about risk.
Raising ₹17,500 crore before capital becomes scarce, reducing preferred leverage, building a ₹337 crore macro overlay, shifting towards secured loans and redesigning products ahead of regulation all point in the same direction.
Bajaj Finance has not stopped pursuing growth.
It is simply trying to make that growth harder to derail.
For investors, the key question may no longer be only how fast Bajaj Finance can grow.
It may be whether the company can maintain that growth while protecting margins, keeping bad loans under control and adapting to a stricter regulatory environment.
That is what defines Bajaj Finance’s new phase: the aggressive lender is still there, but it is increasingly behaving like a cautious financial giant.
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Blog by Aliceblue News Desk
