General insurance penetration and density are among the lowest as compared to China, Russia, Thailand and Brazil and life insurance is still the only long-term savings option available to urban and rural consumers.
Notwithstanding a customer base of 100 million, Sanjiv Bajaj, MD, Bajaj Finserv, thinks his company has merely scratched the surface. The company is now betting big on demand growth and greater financial inclusion, Bajaj tells Shobhana Subramanian. Excerpts:
You have built a fabulous franchise, what is the strategy from here on? Will it be more of an expansion or could we see some big diversification?
The Bajaj Finserv franchise encompasses three businesses — Bajaj Finserv in lending and Bajaj Allianz General and Bajaj Allianz Life Insurance. Through these we have touched more than a 100 million customers and our goal is to offer a seamless platform for customers to buy and own financial products covering asset acquisition, lifestyle financing, asset protection, savings, healthcare spends and retirement planning.
As India’s GDP and per capita income grow, we will see more consumers needing financial products and services and in that sense, we can say we have only scratched the surface. As a company are directly linked to consumer demand (micro rather than macro) and we see that demand growing steadily over the next few years. General insurance penetration and density are among the lowest as compared to China, Russia, Thailand and Brazil and life insurance is still the only long-term savings option available to urban and rural consumers. Therefore, we continue to serve our existing customers with more customised offerings focusing on ease of buying and owning, and transparency in dealing. In this process, we will see greater use of digital and related technologies, experiment with newer business models and so on. The underlying theme is differentiation towards improved customer value.
Among group companies, Bajaj Finance has a customer franchise of over 30 million (as of December 31, 2018). Bajaj Finance’s focus is to do more business with existing customers through use of analytics. We added close to 6.5 million new customers in the first nine months of FY19 and our cross-sell franchise stands at 20 million. This will be a key driver towards sustainable and profitable growth.
Bajaj Finance has sailed through the liquidity crisis. But do you miss a banking licence?
It is less about the licence framework and more about how efficiently the business is run. The company during the peak of the NBFC liquidity crisis in Q3 added almost Rs 10,000 crore of assets under management. We remain comfortable being an NBFC, both from an asset and liability perspective and are quite excited about our medium-term prospects.
Will the current strategy for liabilities continue or will there be any changes?
Bajaj Finance has a strong diversified liabilities strategy in place. This helped us ride out the last liquidity event smoothly. With BFL’s growing focus on public deposits to diversify our treasury borrowings, we expect it to grow to ~22-23% of our total borrowings in the next 2-3 years. Retail deposits, within public deposits are a sharper focus area and with tenors close to 3 years, it’s an accumulating book. Currently, retail and corporate command equal share in our deposit book but we expect retail to grow to 60%+ share in next 2-3 years.
Housing finance is a highly competitive space, how will Bajaj grow market share?
Housing finance is a low margin but very large business. We have separated our housing finance business into a new company with an independent management team just about a year back to give it specific focus. We understand this space well and we have a clear strategy in place. Leveraging the existing customer franchise of Bajaj Finance will help us reach millions of customers. Our cost of funds are in line or better than competition. This enables us to price in line with the industry while adding innovative propositions for customers. We aim to deliver industry leading performance for this business over next 2-3 years.
In general, how do you improve profitability, through better productivity or through other measures?
Profitability in financial services is not the result of one variable but of multiple drivers, of which productivity is one important element. All these need to be managed dynamically and consistently to earn a reasonable economic profit. In Bajaj Finance, risk management is the most important pillar of profitability — strong selection, right segmentation, robust risk management and depth of analytics all play a key role in keeping NPAs under control. In addition, our cost to income ratio has been trending down as a result of improved productivity.
In general insurance business, nearly two-thirds of the cost is from claims and therefore, strong selection through robust underwriting is the most important lever of profitability. Bajaj Allianz General Insurance Company has a reputation of being a high-quality underwriter with a formidable record of consistent underwriting profits. Apart from strong underwriting and risk management, product and channel mix are equally critical in controlling acquisition costs while productivity is critical in controlling management expenses. You must remember this is a business where price of corporate insurance has crashed by more than 90% since the tariff was removed 12 years ago — yet we are one of the few delivering consistent underwriting profit.
The life insurance business is a long-term business — the first year always gives a loss in the conventional P&L due to high upfront costs — therefore one has to see how to keep customers longer in the system through smart persistency management.
Is it a conscious decision to slow down the life insurance business?
We haven’t slowed down the life insurance business. In fact, if you look at the industry data to January 2019, we have grown our individual rated premium by 15% year-till-date (YTD) against the industry growth of just 9%. New business (NB) growth YTD for Bajaj Allianz Life Insurance was 9.5% vs industry 5.3% (as on January, 2019). Gross written premium (GWP) growth YTD for Bajaj Allianz Life Insurance was 15% (as on January 2019).
Industry growth has been lacklustre this year, especially for companies which have a high share of unit-linked business which is tied to market movements. Over the last 24 months we have consciously driven towards a balanced product mix with about 40% of our retail business coming from traditional guaranteed and risk products — this puts us in a better position when equity markets fall.
Where do you see the EMI card franchise which is now at 16.5 million?
BFL’s EMI card is a unique, successful product that is helping millions of Indians achieve their consumption dreams. We are a country where most banks don’t understand consumer risk and hence have a small credit card base. Since RBI doesn’t permit us to launch our own credit card, we have created this instant loan card. Innovation towards greater financial inclusion is an important need in India and a core part of our strategy. EMI card transactions for FY19 so far have contributed 62% to our total loans.