Bajaj Finance Turns on on FinAI, Slows MSME Lending in Q1FY26

Bajaj Finance has officially entered the execution phase of its FinAI (Financial Artificial Intelligence) transformation strategy, with artificial intelligence capabilities now live across the organisation. In its Q1FY26 (first quarter of financial year 2026) earnings call, the company said it was embedding AI across revenue, cost, customer engagement, and underwriting workflows.

This marks a shift from the previous quarter, when FinAI was still a forward-looking plan. The company is also slowing disbursements in MSME (Micro, Small, and Medium Enterprises) and auto loans due to rising stress, investing in cybersecurity infrastructure, and positioning its app as a long-term ecosystem rather than a quick super app rollout.

FinAI is now live across Bajaj Finance

In the last quarter, Bajaj Finance had outlined a roadmap to deploy 100 AI applications across business functions. This quarter, the company confirmed that deployment had begun.

“I think FY ’26 will be a defining year for FinAI transformation strategy that we outlined in the December or January quarter to the shareholders. And FinAI capabilities, I can just tell you, have started to go live across the company; both below the iceberg and soon on the digital assets as well, you’ll start to see it,” said Rajeev Jain, Vice Chairman and Managing Director.

The company also confirmed it is building AI capabilities for its subsidiaries. “We are working with the respective companies, and we are elevating the standards. It has helped elevate BFSL (Bajaj Finance Securities Limited), as they didn’t have this infrastructure of this scale. With BALIC (Bajaj Allianz Life Insurance Company) over the last nine months, we’ve done the same thing. So we are working company by company,” said Jain.

Long-term digital strategy and super app vision of Bajaj Finance

The Managing Director further emphasised that the company’s super app vision is not a branding exercise but the result of years of infrastructure-building.

“Our app, to that extent, will be the—is the super app, if I may say so, because it will have ending this year, 90 million customers. It has a distribution infrastructure,” he said. “We never use the word super app, but my ambition, or our ambition as a firm in 2020, was always that. But I always told people, you don’t make a super app; you become a super app. I think there is a distinct difference.”

He added that the app has recently added government services and is already integrated with ONDC (Open Network for Digital Commerce). “Government services have just gone live. You can access a whole host of government services, I think, ending July. We will become a Super App one day if we stay at it.”

Jain also referenced the company’s earlier inspiration from Alibaba and Alipay’s government service integration. He noted that Bajaj Finance is now enabling access to government services within the app and handling around 30,000 ONDC-based transactions per month.

Customer experience and product strategy are being reworked accordingly. “If you’re on Apple now, if you go to the share market on the app, you are seeing a very tightly integrated market. And in the next 3 months, it would have completely—you would be able to see a portfolio on a static basis in the app.”

AI-led growth and product innovation

Bajaj Finance expects to reach 120 million customers by the end of FY26. A big part of this growth will come from how it’s using AI to improve lending, including making loan approvals available directly through its app.

Previously, some loans like consumer durable (CD) loans could not be approved on the app because the app’s risk engine was separate from what was used in physical stores. This led to a very low approval rate through the app.

“So, whether it is, just let me give you a texture on this as to one is strategic partnerships. Second is, you could not take a CD (consumer durable) loan approval on the app. You could always say that earlier; the approval used to be 5% because the risk engine used to be distinct from that of what runs at the store,” Jain said.

Now, after 18 months of building and integration, the app can approve these loans more effectively. Jain said this opens up new possibilities, especially for customers who may not want an Insta EMI card but still want to buy a phone or appliance on EMI.

“We’ve taken 18 months to build that out, when it struck us that this can be a large engine and not everybody wants to buy an Insta EMI card. Some people may just want to take a phone loan for a phone, and so on and so forth,” Jain noted.

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Partnerships, funding, and cost control in Bajaj Finance

The company continues to pursue strategic partnerships and cost discipline.

“We are working on strategic partnerships and so on and so forth. There’s a lot of dry powder that is still being built to ensure that we can generate this momentum,” said Jain.

He added, “We are now heading into a phase where we are trying to optimise and bring in the best cost of funds, including proactive deposit pricing and managing the liability mix.”

Managing stress and asset quality

On asset quality, Jain said the focus was on early intervention. “We are focusing on early MOB (Month on Book), reducing vintage, and improving the behaviour of the portfolio to manage stress.”

Jain also noted that the company had offered restructuring to borrowers worth Rs 219 crore in Q1FY26.

Cautious lending in MSME and auto finance

Bajaj Finance is slowing growth in the MSME and auto finance segments to manage risk.

Jain opined, “MSME business has shown some strains… Both these businesses will grow a lot more slowly in the current year, starting second quarter.”

He further added, “It will also wind down its captive loan book. “The captive book has given us a lot of trouble or continues to give us trouble. It will wind down to virtually 3,500 to 4,000 by March ’26.”

Jain noted that pruning in other segments had already begun earlier in the year. “Since January, we have been pruning in most businesses, the action that we would have wanted to do, except in MSME, which is still a work in progress.”

Financial snapshot

Bajaj Finance reported a 22% year-on-year increase in net profit and a 22% rise in Net Interest Margin in Q1FY26. The company’s Assets Under Management stood at Rs 4.4 lakh crore, growing approximately 25% year-on-year. The cost of funds came in at 7.79%, with full-year guidance in the range of 7.60% to 7.65%. Gross Non-Performing Assets (NPAs) were at 1.03%, while net NPAs stood at 0.50%. During the quarter, the company added 4.7 million customers and booked 13.5 million new loans.

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