One of the 25 applicants for a new banking licence was Bajaj Finance, non-banking finance arm of Bajaj Finserv.
Last year the central bank gave ‘in-principle’ approval to two applicants, IDFC Limited and Bandhan Financial Services, while Bajaj Finance was not chosen.
Sanjiv Bajaj (below left), managing director of Bajaj Finserv, tells Neelasri Barman about the focus areas of the company. Excerpts:
You were one of the applicants for a new banking licence. Since you were not chosen, what next?
For our kind of business, a small bank licence is not relevant.
Our long-term interest continues to be in a universal bank licence.
However, there is no urgency.
We will wait for the universal bank licence guidelines and then decide. In the short term, as a non-banking financial company (NBFC), we are adequately taken care of.
We are not looking for any tie-ups for payment banks either.
What are the new initiatives planned for 2015?
In Bajaj Finance our focus will be to expand geographically and strengthen our digital presence.
In case of our life insurance business, the focus will be to strengthen our agency channel and improve operational efficiencies.
The digital theme will be common across our businesses.
How was the festive season?
In the first six months of this financial year, Bajaj Finance delivered a growth of 41 per cent year on year, in assets under management (AUM), while the general insurance business has clocked a growth of almost 18 per cent in premiums in the same time period.
Life insurance as a sector has been going through a slowdown. In our case, after falling in topline in life insurance last fiscal, this year we are hoping to hold premiums steady.
In festive season what really mattered was consumer durable financing which grew over 40 per cent.
But barring the festive season things are still muted.
As economic growth picks up in 2015, these businesses should grow further.
Even our small medium enterprise (SME) financing business has been growing impressively.
In insurance products have you seen investors shifting from pure debt to pure equity products in a big way?
This is more relevant for Ulip (unit linked insurance plan) products in the life insurance business.
If we compare over last three years, Ulips accounted for 15 per cent of total sales.
This year the growth in Ulips has been over 25 per cent year on year as most customers are choosing equity schemes.
This is due to the overall positive sentiment in the economy.
Besides that, it has also to do with how the product designs have completely changed over the last few years and have become much more attractive for consumers.
Your rural portfolio in Bajaj Finance continues to be a very small portion out of your total portfolio. Do you see it expanding in percentage terms?
Our rural portfolio is rapidly expanding every year.
We started our rural business just two years ago and we have covered a large number of villages and towns in Gujarat and Maharashtra.
This year we plan to take up an additional state.
Year-on-year this portfolio is expected to grow steadily. We are following a low-cost technology-led model which enables us to lend at reasonable rates and make it a profitable business from early on.
As an NBFC, we don’t have an obligation to do rural business, but we see this both as a responsibility and as an opportunity.
In case of our general and life insurance business we have a strong rural presence.
The rural portfolio will grow faster, but given that we have just started, it will take time for it to be a significant percentage of our total portfolio.
Over the years we would like it to be close to 10 per cent of our total portfolio.
Do you plan to build your consumer finance portfolio somewhere close to SME portfolio which is the largest?
If you look at the number of loans given annually, consumer finance is much higher than the SME.
But because on an average, consumer finance loans are of very short tenure (on an average 18 months compared with 5-6 years for SME loans) the result of which is that consumer finance AUM runs off much faster.
The consumer finance business is growing much faster than the SME business.
This year even banks did not clock high growth in retail lending while you have recorded over 40 per cent year on year growth in first six months of the fiscal. What were the drivers for growth in your case?
This was because of multiple drivers.
Our strong value proposition for customers in terms of 0 per cent EMI on consumer durable loans combined with differentiated offerings and quick loans disbursements across our wide portfolio of products.
In addition we have also built a strong partner ecosystem to enable better and faster reach to customers.
All of this has been a result of our constant endeavour to build positive customer impacting capabilities across our product portfolio
The mortgage business of yours was in consolidation phase. When do you plan to expand?
We have added 12-13 per cent AUM in mortgage businesses in the first half of this year versus previous fiscal year end.
The whole economy was slowing down so we too slowed down our growth. We expect the growth rate to accelerate as the economy picks up in the coming quarters.
We are across 47 locations and in bigger locations the ticket size of loans are around Rs 2.5 crore and in small locations it is closer to Rs 1 crore.
Your net NPAs have risen but at the same time the provisioning has been decreasing. Why is that so?
Given our low net NPA of 0.2%-0.3% over last 12 quarters, a minor increase in net NPA can happen given our multiple lending business lines which also includes high ticket businesses like infra, construction equipment and mortgages.
There has been systemic stress in construction equipment financing and infrastructure financing sector which in turn has led to a marginal increase in net NPA.
However, these portfolios together constitute less than Rs 850 crore (Rs 8.50 billion) and about 3.0% of our book.
We had exited these businesses and the portfolios remain in remedial mode.
At the same time the performance of the rest of the lending portfolio has continued to improve leading to reduction in provisioning cost.
What impact will the new norms on provisioning for standard assets and NPA classification have on your business?
These norms will not have any impact on us. Our provision for standard assets is already at 0.4 per cent.
