Want to build Bajaj Finance as a truly national lending business: Sanjiv Bajaj, MD, Bajaj Finserv
Sanjiv Bajaj, managing director, Bajaj Finserv, sees an NBFC licence as more of learner’s driving licence and banking as a permanent one.
What is your mantra of doing business?
I like building businesses focused on excellence through differentiation to the customer. I am born in a group where I have both the opportunity and the responsibility to build our financial services businesses including Bajaj Finserv, Bajaj Finance and Bajaj Allianz with long-term value in mind. Money is not a driver but the result. Else, it would set you on a wrong path. Our management is tasked to identify clear value drivers for each business and focus on delivering the same consistently to our customers. Else, why should someone come to buy insurance or take a loan from Bajaj and not someone else? There are enough other options available. We started EMI-based rural lending in 30 villages on June 1 and in the first month itself we are selling high-end plasma TVs. They get six hours electricity daily but their aspirations are no different. Hence, we need to deliver our best service to all customers to build a truly sustainable business.
Is rural going to be the next focus area?
Bajaj Finance focuses on one or two big ideas every three years. These start as pilot projects and then gain momentum as we learn. The rural initiative started as a conceptual project 18 months ago and was launched in June this year. While, even three years down the line we will only see 5% of our book coming from rural, it is an important business in the long term. We want to build Bajaj Finance as a truly national lending business.
Do you cross sell insurance to Bajaj Finance customers?
We started selling insurance three years ago. We try to understand insurance needs of Bajaj Finance customers and sell them the appropriate products. However, this is naturally not forced and, hence, our penetration is less than 10%. We are a hugely under-insured country and its important to help customers assess their overall household insurance needs. This is the next focus area. Bajaj Finance is the second largest partner for Bajaj Allianz Life Insurance.
How do you look at instances of so-called ‘mis-selling’ by life insurers and banks?
There were three issues. First, some agents sold long-term life products for shorter periods. This is a clear violation and we terminate such people and try to recover the commission paid where possible. The second issue deals with lack of enough product knowledge, both with the seller and the buyer. Here, we get complaints mostly when there are premature withdrawals and customers don’t get the right returns. We spend a great deal of time, effort and money in customer education to explain that life insurance is a long- term product and since our commission payout is upfront in India, the policy builds value only over time. Whether you look at banks, brokers or insurance agents, there are lakhs of individuals dealing with customers and, hence, continuous training is critical. We hope over time customers themselves get more knowledgeable about insurance so that they are fully aware of what they are buying. Finally, the third issue was related to Ulips, many of which were invested in the equity market. Till 2008, customers got handsome returns but thereafter the markets have fallen and remained quite volatile. I believe in the long term, say over 10 years, equities are one of the best asset classes to invest in. However, it’s important to assess customer appetite and risk-ability for such products before selling them.
How do you differentiate yourself?
We focus on products that have a transparent incentive structure linked not only to sales volume but also persistency. Our operations have clear and quantified targets on issues related to quality, policy or loan turn around times, customer service and cost. As we keep improving on these, we build an overall differentiated customer experience.
As of now consumer loans is 40% of the business, SME is 50% and Commercial loans is 10%. For the first 20 years of Bajaj Finance, we only did consumer loans to finance our own motorcycles. Thereafter, we decided to de-risk our business and created the country’s first diversified NBFC. Construction Equipment loans is a part of our Commercial book, which we slowed down, given the current problems facing the infrastructure space. However, we continue to cautiously build our consumer and SME business.
What is your focus on lending to SME? Don’t you face competition from banks?
Traditionally, PSU banks lend to SMEs. Only in the past few years have some private banks started lending to SMEs. The demand-supply gap is huge and there is enough opportunity. We lend to small and medium enterprises with annual revenue between
How was your experience of July 15, when RBI announced measures to suck up liquidity?
For us, our asset-liability matching has been guided by prudence. We are clear we will take credit risk but we will not take liquidity risk. Many NBFCs and some new private banks start playing the arbitrage opportunity between short-term and long-term rates to build treasury profit. When you are making money it feels good but when you are caught at the wrong end, you face a liquidity squeeze. We are well-matched between assets and liabilities. Our sources of funding include both from wholesale markets and from banks. A well-run organisation is like an orchestra, which hums at a particular rhythm; that is why you hear music. If something goes wrong you will hear noise and not music. It is important for all parts of our orchestra to play steadily together so that we produce delightful music for our customers and shareholders.
What was your learning in the early days?
In my early days in Bajaj Auto, our strategy was first to do a few things but do them well. Second, focus on business risk but minimise financial risk. Companies which are in trouble in India and outside have combined taking huge debt with high business risk. They are now finding it difficult to repay when the dollar has moved from 52 to 62 and business growth has disappeared.
NBFCs were expected to operate in small local areas. But the growth in the last 10 years was huge. If you see the top 10 NBFCs including us, we are bigger than many banks. NBFCs have grown in complexity, capability and size in a manner that was perhaps not envisaged by RBI. Now, RBI needs to present what their roadmap for NBFCs will be. NBFCs have played a significant role especially over the past 15 years as India has grown at great speed. They have handled many aspects of local lending better than banks and their current performance is testament to that. However, as they have grown in size and complexity, their regulatory mechanism hasn’t evolved and I would expect changes here in coming years.
What are the challenges of converting into a bank? Is it worth it?
Converting to a bank is a different challenge from an operations, treasury, compliance and reporting point of view. I see an NBFC licence more of learner’s driving licence while banking is the permanent one after you have developed your skills and maturity. One allows you to make more mistakes with an ‘L’ on the outside but people are aware you are learning and they give you space. The second is permanent, with greater responsibility and more authority. The space for banks is three times bigger than NBFCs. For our economy to grow, we need many more banks. You haven’t acquired businesses to grow while other NBFCs have.
Partly because the team is young and they like to build businesses by rolling up their sleeves. Also, our culture and values with which we build businesses is something that should be imbibed by every team member. If we grow at a rate higher than what we can train, we risk changing the culture of the organisation- and this can hurt us in the long term. The same is true for acquisitions where matching cultures is always a challenge. We saw irrational competition. We saw products with high commission, fight for market share and everybody burning a lot of capital. We consciously slowed down and remained lean. Our industry has also seen significant regulatory changes. Our current focus is in clearing new products and training our channel partners to sell them in the right way. I believe we will start seeing steady, good quality growth in the next three to four quarters.
We keep hearing about the gloom. Is it that gloomy?
An economy that was growing at 9%, slowing down to 5% over a short period of three years is significant. This smells of lost opportunity rather than gloom. Our past 10 years of growth has started creating a new India. We need to get this growth back for a prosperous future for future generations and us.