Shares of Bajaj Finance Ltd hit a record high of ₹1,025.70 on Monday, marking a 14% gain since the announcement of changes to the goods and services tax (GST) 3 September. In fact, trading volumes surged to nearly 3x the monthly average on the first day after the GST rate cut, prompting stock exchanges to seek clarification from the company.
If lower GST on consumer durables is indeed going to spur spending, then Bajaj Finance is a beneficiary as nearly half of its standalone lending book is consumer loans. Within that, nearly 70% of the loans are business-to-consumer (B2C). GST for air conditioners, televisions and dishwashers has been cut to 18% from 28%, potentially boosting demand.
Bajaj did well in the June quarter (Q1FY26), with standalone consumer loan book rising 26% year-on-year to ₹1.55 trillion. Here, consumer loans span four categories i.e. urban B2C loans, urban sales finance, rural B2C loans, and rural sales finance. The growth rate could accelerate as GST rate cut is the third trigger boosting demand for consumer durables following recent interest rate cuts by the Reserve Bank of India (RBI) and income tax rate cuts announced in the Union Budget for FY26.
But can demand for more consumer durable loans boost Bajaj’s overall standalone loan growth rate?
The answer depends on the company’s strategy for its two-wheeler, three-wheeler, and MSME portfolios. Bajaj is keen to reduce the growth rates in these two segments as it has seen credit costs—bad debts and provisions— staying elevated relative to other segments. Two-wheelers/three-wheelers book had fallen 20% year-on-year in Q1FY26, but is less significant now as it is just 5% of the standalone loan book.
MSME lending, which contributes 16% of the standalone book, grew 29% in Q1 FY26. Still, the management has guided for a single-digit growth rate in FY26, indicating a sharp slowdown in the rest of the year. MSME loans are unsecured, and signs of strain are emerging.
Bajaj Finance tracks 17 key industries within MSME, and business is shrinking for nearly 75% of them due to economic slowdown and weak credit growth. So, while the consumer loan growth prospects have improved, overall FY26 loan book growth could still be at Q1FY26 levels with MSME book’s growth curtailment.
The other implication of the MSME loan book stress is the rise in overall credit cost. This was one factor why Bajaj reported credit cost at 2.02% in Q1FY26, above its full-year guidance of 1.85-1.95%. The management hopes that a better H2FY26 can help it meet full-year guidance.
On the brighter side, there could be an upside surprise in terms of higher than estimated net interest margin (NIM) improvement. The management has guided for 10 basis points year-on-year NIM growth for FY26, but growth could be higher if RBI does more repo rate cuts.
Lower interest rates benefit NBFCs such as Bajaj Finance as their cost of borrowing drops, boosting profitability. Separately, lower interest rates also boost demand for loans as customers get attracted by lower interest rates.
Still, investors have to take the tough call on whether the stock’s rich valuation leaves further room for large near-term upsides. Bajaj Finance is likely to have a stellar return on average assets (RoAA) of 4.2% for FY27 as per Bloomberg consensus estimate—one of the highest within NBFCs having a large balance sheet size. But the stock also trades at a price-to-book value multiple of 4.6x for FY27, which may already be factoring in the strong RoAA.
