This is the fifth year of your Company''s operations; its fifth annual
report; and my fifth letter to you.
FY2012 has been a very difficult year for the Indian economy. After
clocking 8.6% GDP growth in FY2011, the nation seems to have slumped.
Growth has fallen steadily in the first three quarters to 6.1% in
October-December 2011. In all likelihood, we will achieve a growth rate
of 6.5% to 7.0% in FY2012 - a far cry from 8.6% of the previous year,
and further removed from the 9% plus growth that we witnessed over
three consecutive years in FY2006, FY2007 and FY2008.
It is not only the slowdown in growth, but also the sclerotic pace at
which decisions are being taken in New Delhi and in some state
capitals, if these are being taken at all. After the 2G imbroglio, it
would seem as if no major decision is being taken - because the
political and personal risks of attracting publicised censure from the
judiciary, the Comptroller and Auditor General''s office, the Central
Bureau of Investigation and the Central Vigilance Commission far
outweigh those of inaction.
Add to this political uncertainties in the centre and in the states;
high interest rates that have been only partially addressed by a 50
basis point cut in recent times; declining inflows of foreign direct
and institutional investments; a burgeoning fiscal deficit, that is
perhaps set to rise further; a widening current account deficit and a
weakening rupee; worsening investment climate; and the fears of rising
inflation. All these make for very difficult times.
Indeed, in my previous letter to you, when I wrote, FY2012 may be a
difficult year for the economy - one that could be beset with high
inflation and rising interest rates, little did I realise that things
could be as bad as they currently are.
In such an environment, the good news that exist relate to your
Company. Bajaj Finserv has done reasonably well. Let me touch upon its
three major businesses: lending, life insurance and general insurance.
Bajaj Finance Limited (BFL)
As in the previous year, BFL has performed very well. I am proud of how
this company has done despite overall economic adversity. Here are some
facts for FY2012:
- Total income was up 54% to Rs. 2,172 crore
- Profit before tax was up 63% to Rs. 602 crore
- Profit after tax was up 64% to Rs. 406 crore
- Deployment of funds was up 67% to Rs. 15,797 crore
- Assets under management was up 73% to Rs. 13,107 crore
- Receivables under financing was up 69% to Rs. 12,283 crore
- Loan losses and provisions were down 25% to Rs. 154 crore
- Capital adequacy as on 31 March 2012 stood at 17.5% - well above the
I expect BFL to do even better in the years ahead.
Bajaj Allianz Life Insurance Company Limited (BALIC)
The negative effects of the regulations introduced by the Insurance
Regulatory and Development Authority (IRDA) in September 2010 seem to
have played out. The life insurance sector finally showed a positive
growth rate of 2.7% in second half of FY2012, compared to (-)21.4%
growth in the first half of the fiscal year, and (-)9.7 % in the second
half of FY2011.
Even so, BALIC''s gross premium written for FY2012 was 22% lower at Rs.
7,484 crore. Renewal premium reduced by 22% to Rs. 4,766 crore. And new
business premium was 22% lower at Rs. 2,718 crore. The good news, if it
is to be called such, is that the rate of de-growth is shrinking with
each successive quarter, and that the new business premium for Q4 of
FY2012 was more or less the same as a year ago.
Despite these difficulties, BALIC posted a shareholders'' profit ofRs.
1,311 crore in FY2012. Of this, your Company''s share stood at Rs. 970
crore. The figures for FY2011 were Rs. 1,057 crore and Rs. 782 crore,
respectively. Accumulated profits as on 31 March 2012 were Rs. 2,350
crore, versus Rs. 1,039 crore as on 31 March 2011; and shareholders'' net
worth was Rs. 3,561 crore, compared to Rs. 2,249 crore a year earlier.
Moreover, BALIC issued 1.05 million new policies in FY2012 and, on this
score, ranked second among the private life insurers.
Bajaj Allianz General Insurance Company Limited (BAGIC)
BAGIC is the second largest general insurance company in India in the
private sector. The industry has been adversely affected since FY2011
due to the increasing provisioning required for motor pool losses. I am
happy to note that even after absorbing this enhanced provisioning,
BAGIC has maintained its solvency ratio at 156% for the year ended 31
March 2012 - which is not only above the temporarily relaxed limit of
130% but also above the normal regulatory requirement of 150%.
In terms of gross direct premium written in India, the general
insurance industry posted a growth of 23.3% for FY2012. BAGIC grew at
14.9% to record a premium ofRs. 3,338 crore, and accounted for a market
share of 6.3%. The company''s net earned premium for FY2012 (excluding
the motor third party pool) grew by 13.7% to Rs. 2,196 crore. During the
year, BAGIC sold 5.9 million policies, 7.8% less than the previous
Notwithstanding headwinds, BAGIC recorded an underwriting profit ofRs. 86
crore in FY2012, before considering the share of losses from the motor
third party pool; in the previous year, the figure was Rs. 27 crore.
After netting out the share of losses from the motor third party pool,
the underwriting loss was Rs. 178 crore in FY2012 as compared to a loss
of Rs. 219 crore in FY2011.
Profit before tax after motor pool losses for FY2012 was Rs. 194 crore,
compared to Rs. 62 crore a year earlier. Profit after tax was Rs. 124
crore, versus Rs. 43 crore in FY2011.
As outlined earlier in this letter, I am deeply concerned about how
FY2013 will play out for the nation as well as your Company. Almost
everyone in the know believes that the portents are grim. The headwinds
can get even stronger. Your Company will have to do better to remain
where it is today - and much better to move ahead.
These are challenging times that will differentiate long-term winners
from others. I am convinced that Bajaj Finserv has winners, be they in
BFL, BAGIC, BALIC or elsewhere. Therefore, I urge upon every employee
of Bajaj Finserv and its subsidiaries to work even harder in FY2013,
and prove that we have what it takes to overcome difficulties, however
arduous these may be.
We shall do well. Because we believe in our destiny. And that of our
With warm regards,