Sanjiv Bajaj, CMD, Bajaj Finserv believes businesses no longer need to play by traditional rules. Instead, they should digitise and innovate. He even argues for the strengths of digital currency. The session was moderated by Resident Editor, Mumbai, Sandeep Singh.
Sandeep Singh: Your father would speak truth to power. What gave him the courage to stand out considering so much was at stake?
My father had a great life that we can only be envious of and aspire to. But it was a life driven by simplicity, by being outspoken, honest and driven. He was very caring of the people he knew, irrespective of whether they were family, friends, his driver or his staff; he did what he could to help each one. He used to be associated with the Bombay Club but what he was trying to say back then was to make the market competitive. He was the original proponent of Make in India and that today is a national call.
His father and my grandfather, Kamal Nayan Bajaj, was a Congressman and had already been a three-time Member of the Lok Sabha when he opposed Indira Gandhi’s bank nationalisation. He was the chairman across most of our companies then and my father, who was the eldest in the next generation, had joined the business. My grandfather offered to step down as chairman to shield the companies from the politics of retribution. But my father asked him to continue, saying he was standing for the right cause and that we would bear the consequences should we run into a problem. There were no consequences. The Government was also mature.
I think fearlessness was in his genes. My great grandparents spent years in a British jail, giving up whatever money they had made for the freedom struggle. My great grandfather Jamnalal Bajaj was the Congress treasurer till he passed away in 1942. My father grew up in that environment, knowing nothing different. You will find more such honest snippets in his no-holds barred biography by Dr Gita Piramal. Even the day he passed away, I told him we had got an advance copy of the book. He wasn’t bothered because his life was never about himself.
Sandeep Singh: Would you like to carry his legacy of speaking for the industry?
I would definitely hope to do that. Our styles are different. My father was used to standing up and shouting from the podium. I have a more collaborative approach. Everybody wants a solution to a problem. It doesn’t work if you’re only going to be critical. A balanced approach is to address the wrongs, give the right suggestions, be proactive. If that is in national interest, then people understand that.
Sandeep Singh: An ongoing war has resulted in lower economic growth rates. While the RBI is looking to support growth, how do you see this crisis impacting India’s GDP?
Post-pandemic, we are in a continued period of significant uncertainty. This war has created an additional layer of uncertainty. Let’s hope that a truce is closer rather than not. It is terrible that we have to invoke our most barbaric selves to resolve issues in the 21st century instead of being progressive. As far as the pandemic is concerned, we have been driven by the right moves from our government, be it in vaccine coverage or increase in capacities across hospitals. But as humans, we get complacent when the threat recedes. I would urge the Government to accelerate booster vaccines. It is proven that they not only help the vaccinated, they help those that are not by reducing the pool of people that the virus can multiply in. I think if these two crises are in control, India is poised for a steady growth going forward. We’ve started to see that in the last couple of quarters. So even as rates start tightening up, we know our central bank is focussing both on inflation and growth. Currencies now are a third factor because they become an issue only when they spike.
There is a significant medium and long-term opportunity. Over the last 20 years, our per capita income has more than doubled, our infrastructure is top notch. From being a developing country, we are becoming a developed country with a large educated population, which means a very large domestic consumption base. This is where Make in India, with the ease of doing business and lower costs, can make us competitive, increase volumes, create jobs. We have a few 100 million people who will need jobs in 10 years. They will spend money and this will fuel the economy.
Vaidyanathan Iyer: This sounds optimistic but the Indian economy has been slowing down from a growth rate of 8 to 10% since 2012. Whatever the reforms, the private sector hasn’t invested enough in the economy. What could have been done in the last 10 years and what needs to be done now?
The future is only built by optimists. So, it’s better to be optimistic, get a few things wrong than be a pessimist. Over the last decade, we recovered from the world’s worst financial crisis. Countries like ours don’t have the financial wherewithal to spend themselves out of a crisis the way the more developed countries do. Within this limitation, the Government must be credited for spending big on hard infrastructure. That’s what is supporting the current growth rates of five to six per cent. We are far ahead of the West in digitisation, which started in 2008. The Government is working on a set of open-market digital protocols to take health to the next level. Be it the cash flow-based technology platform for SMEs or the GST platform access for online lending, all will have a positive impact. On the other hand, we have seen the structural changes in GST. It could be more efficient but at least it has started and will get more efficient hereon.
The Government’s Covid-time measures, like cutting corporate tax to 25% and tax breaks for new businesses are making us competitive globally. The Government has done its fair share. The private sector will invest in capacity when it sees demand rising enough to exhaust existing capacity. It is driven by the demand it sees on the ground. Unfortunately, a significant external factor has held us back. And now, war. Consumers save every time there is uncertainty.
George Mathew: What needs to be done to boost consumption? Have the government and the private sector done enough to improve investments and consumer spending?
Consumer demand will come when the consumer is secure about the future. The second factor is consumer savings. The third is product availability and the last is capacity. I believe that certain sectors, if you look at commodities for example, have already started building new capacities from last year. As supply chain disruptions reduce, we can produce goods within. If we build our capabilities, then we won’t be in the same kind of situation again in the future. We have the wherewithal to become a strong manufacturing base in Asia to support ourselves.
Anant Goenka: Do you think that the Government has done a good job with regard to the Ukraine war so far? What position should Indian industry be taking vis-a-vis Russia?
Our Government is in a challenging position. But led by the Prime Minister, the international relationships that we have built over the past seven years have helped us create trust on both sides in this war. How do we use that? Not only for our national interest but more importantly, to find a solution. I think this is an opportunity. But I’m not a politician. I won’t be surprised if discussions are not already happening.
Anant Goenka: Among most industries around the world, there is a lot of consolidation happening with the largest player just getting larger and larger, eating up the smaller player. Is the concentration of power in the Indian economy a concern or is it just the way of capitalism?
Typically, large successful companies end up controlling capital, assets and land. They have an ability to negotiate, own large machinery or larger plants and command cheaper distribution networks. Large brands can monopolise the entire sales distribution network. But the digital world is dramatically changing this equation. You can be an Airbnb without owning a single hotel room. You can be an Ola without owning a single car. You no longer need to play by the traditional rules of the last 200 years, or ever since the Industrial Age, at least in many sectors. For some sectors like steel, the old rules still work, because that capacity makes a difference.
But look at banking. It is basically about providing a safe haven for people to park their money and then selling them services in the bargain. However, the decentralisation in financial services, at least on the asset side, because that’s what regulators have currently allowed, has changed this scenario. If you want a home loan, you can go to 10 different lenders, be it NBFCs, home loan companies or banks. You don’t have to go to your own bank unless it offers a better rate. The same applies to the insurance sector. The digital world is breaking chains of old monopolies and driving competition because consumers are getting more choices. And these are easy to access, they are there on your phone. So, I actually see the days of companies depending on their size for success becoming less and less. If at all, size can be a disadvantage because it hinders innovation and risk-taking.
Pranav Mukul: Whenever we speak about fintech, we say that the data-led credit is safer or more risk-averse. From the NBFC perspective, how do you read this boom? Does it pose risks as much as the collateralised-debt ecosystem?
What you’re seeing is a meeting or a competition between two worlds in financial services. You’re seeing the incumbents, banks and NBFCs, which have a very strong understanding of customers and a very strong underwriting, risk-management and debt-collection capability. If you look at lending institutions, these are heavily leveraged businesses, which means the equity capital can get wiped out with a 10% bad debt. Hence, understanding risk-underwriting and managing collections at competitive costs are very important.
On the other side are fintech companies. I call them more tech-fins because they are just tech-driven. They have built very good, intuitive ways of accessing the customer, using customer data and knowing what kind of loans to give out. But most of them, without sounding unkind, are nothing but glorified digital distribution companies right now. They acquire the loan and they sell down to traditional banks and NBFCs. Most of them don’t have an NBFC licence. One of the true fintechs is Bajaj Finance, because we bring in the strengths of a finance business and provide, through digital channels, end-to-end sales and service experience across a variety of products. Not just loans, but insurance, mutual funds and fixed deposit products. We have over 55 million customers who are active, we have their data and full KYC, without which you cannot graduate to the next level of higher-ticket loans and products. We’re fully credit-tested and credit-stamped to sell multiple products. Today, we have over 2,000 variables per customer that we have collected over a period of time. Our algorithms run through those different products. We marry data from credit bureaus of other third-party sources, using customer consent, and use customer data where relevant to make better choices. This to me is what the fintech world has to evolve to.
Sunny Verma: The Government has proposed selling two banks and privatising IDBI. Would you be open to looking at such opportunities?
We look at all opportunities. For us getting a few more years of growth or getting access to a few more branches are not important enough. If we get a set of complementary businesses, then it becomes interesting to look at it. What’s also very important is culture. We’ve built a culture that has focussed on significant innovation for better customer value. We’ve built excellence with scale, high level of employee empowerment with considered reward mechanisms, accountability and long-term viability. We’ve looked at a few acquisition opportunities in the last few years but we don’t see a similar culture in most companies. We don’t want a bigger size to dilute our culture because that’s what has brought Bajaj Finance from a Rs 1,500-crore book to a Rs 2-lakh crore book. If I were to look at our insurance companies, they have gone from Rs 100 crore of gross premium to now over Rs 12,000 crore.
We need to take financial services deeper into India, find innovative ways to do that and develop innovative business models. For that you need more competition. Sadly, public sector banks don’t offer that. Privatisation will have initial hiccups but it is the right step forward.
Sunny Verma: Customers consider banks as safe havens. But we have seen retail depositors and investors in the financial markets face nasty experiences, be it in DHFL, PMC bank or Lakshmi Vilas bank. Is the regulatory system enough to protect them?
First, depositors are insured up to a particular value of their deposit. Beyond that, it is their risk. But banks have to build trust. In any business, the management, shareholders and regulators have to play their role properly. Investors, especially institutional investors that drive today’s companies and valuations, have to play an equally responsible role and invest for the long term. We must incentivise management and investors for long-term rewards. Second, from an investor point of view, promoters, who put their money where their mouth is, are much better than a company without a promoter. Otherwise, every investor can step in, buy a share, step out when he wants. Managements have free rein to do what they want. But if you have a promoter with significant wealth invested long-term, you are secure. I don’t know why it has taken the RBI so many years to allow a promoter to hold 26%. Ideally it should be 30 to 40%. One of the reasons the global crisis happened in 2008 was because CEOs of financial services companies were driven by short-term gains and wrote all those derivative instruments that blew themselves up.
Third is the regulator. The RBI is a very good regulator. Yet the central bank, which inspects all NBFCs and banks, takes some time to identify fraudulent management. In such a case, the regulator’s quick and strong action becomes important. This sends a message down the line that if you make a mistake, we will go after you. My suggestion to all financial services regulators is to focus more on the bigger risks and not get into micro-management. Some regulators are bringing in people from the industry and are encouraging their own people to take up external roles for a certain period of time. This way, you bring the best of both worlds within the regulatory environment.
Sandeep Singh: What is your take on the recent SEBI decision making the separation of roles between chairman and MD at listed companies voluntary instead of mandatory?
The regulator wants to decide whether the chairman or MD should be related, whether there should be one person or two, what the independent directors should do, how much should be paid to the CEO and what performance parameters of the CEO should be included in their KPA. Then they might as well run the company. You have to let boards run the business. Most large operating companies have separated the role of the chairman and the MD, including in the Bajaj group. In the two insurance companies of Bajaj Finance, I’m already a non-executive chairman. We have full-time MDs. But in the holding company, Bajaj Finserv, I’m chairman and MD, because my holding company doesn’t do any operations. We supervise underlying companies. If I have to divide the role there, I will only get to be chairman. But what is that responsibility except ticking the boxes?
Investors are not stupid. They will choose companies that are competitive and well-run. Most businesses in India, even other parts of the world, are promoter-owned businesses. Does that mean professionally-run companies are bad? Of course not. A chairman and an MD being related is not a bad thing.
George Mathew: The US Federal Reserve increased the interest rates after a long time. Do you think RBI should follow suit in view of the inflation level going ove six per cent?
As far as the interest rate hike in India is concerned, it’s more a question of “when” rather than “if.” We can’t afford runaway inflation but our growth currently is more limited because of supply chain constraints. These are challenging times, so whatever step you take is going to look sub-optimal.
Pranav Mukul: What is your view on cryptocurrency and the viability of a decentralised finance ecosystem during uncertainty?
Today, banks have a big advantage, especially over NBFCs, because they hold physical money. If they’re not going to hold it, their competitive edge disappears. They have to own their own liquidity then. That’s where the sovereign digital currency becomes relevant.
As individuals, we trust our central bank on valuation of our currency. Many of us may not understand how a blockchain decentralised ledger system works. But as that information becomes clearer and clearer, if it can establish trust, that makes a big difference. Normally something has value if it has an underlying cash flow and can be traded, be it your property or gold. Crypto currencies also have their limits. That’s why you have crypto mining. I think 60 or 70% of your Bitcoin is already mined. There’s a finite value. Crypto currency might have started on the dark web but now many governments are using it. Understand that currency is a very strong method of keeping power as a country. But look at the disadvantages. In the war right now, both Russian and Ukrainian currencies are hit. Yet they could have used Bitcoin or Ethereum. So, there is merit in an independent currency. We must learn how to use, monitor and regulate it.
Sandeep Singh: The industry has got several enablers from the Government over the last couple of years be it lower tax rates, Productivity-Linked Incentives (PLIs) or support during COVID. How do you see the benefits trickling down to the real economy?
It will start with consumer demand. The Government has proactively looked at improving the ease and cost of doing business in India but a lot more has to be done. A whole bunch of laws have been decriminalised. You have to create confidence in the industry and treat it like an equal partner in wealth creation. I would say no action should be taken retrospectively, unless it is somehow hurting the country’s national security. Instead, create visibility, a glide path where you want to go. The industry understands that and can align with it.