Bajaj Finance is promising to grow its loan book by a quarter and deliver a 20% return on equity in 2025-26. That’s an ambitious target in any environment. In the current one—marked by surplus liquidity, margin compression, and rising competitive intensity—it borders on bold. Whether it can meet these goals without tripping over its own scale is the question investors are now asking.

Already, the stock is showing signs of stress. Shares fell 5% after the March-quarter earnings, not because the numbers were poor, but because the narrative now has more moving parts—and less room for error.

Margins remain under pressure. The company expects a modest 10–15 basis point drop in cost of funds this year, as the Reserve Bank of India begins cutting rates and bank borrowings get repriced. But that alone won’t restore net interest margins, which have been weighed down by unproductive capital raised through its ₹89 billion qualified institutional placement and a partial stake sale in Bajaj Housing Finance.

That capital overhang is set to grow. Bajaj must reduce its stake in the housing finance unit to 75% over the next two years, triggering another round of liquidity release. Until these funds are deployed, returns on equity and margins will remain constrained.

The company is also phasing out its co-branded credit card business, which will hit fee income. New revenue streams may take time to scale. In rural lending, the outlook has stabilised—but as Bajaj deepens its push into underpenetrated markets, underwriting risks could re-emerge in unfamiliar ways.

Against this backdrop, the company still ended 2024-25 with strong numbers. Net profit rose 17% on year to ₹44.80 billion in the March quarter, despite a 78% surge in provisions. That jump was due to a ₹3.59 billion one-off hit from refreshing the Expected Credit Loss model—a move that improved buffers on performing loans rather than responding to fresh stress.

Pre-provision operating profit rose 24% to ₹79.67 billion. Gross and net NPA ratios were steady at 0.96% and 0.44%, and AUM jumped 26% to ₹4.17 trillion, led by broad-based loan growth and disciplined cost control.

To contain future credit costs, Bajaj is pulling out of its captive two-wheeler and three-wheeler financing segment—a small book that had contributed outsized risk. The company is also sharpening its focus on low-leverage borrowers, hoping to keep credit costs in the 1.85–1.95% range.

But strong history does not guarantee seamless execution. At over 4.6 times projected 2026-27 book value, Bajaj Finance is still priced as though every new initiative will go off without a hitch. It no longer has the benefit of low expectations.

What happens next will hinge not just on top-line growth or regulatory shifts, but on how fast the company can deploy its excess capital, scale new income streams, and maintain underwriting discipline across more complex geographies. The numbers are impressive, but the future is what the market’s now pricing—and it’s flagging some doubts.