Despite the Tatas pulling out of the race to get a bank licence, Bajaj Finance has no intention of following suit. Sanjiv Bajaj, MD, Bajaj Finserv even brushes aside rumours of Bajaj Auto being worried about the impact on its exclusivity deal if Bajaj Finance were to get a banking lisence. Bajaj Finance, infact, continues to have strategic deals with Baja Auto.
Also Read: PSU banks may have to sell rivals’ insurance products
He says the slowdown in the economy has had an impact on the financing business. But a stable government at the Centre can give an immediate fillip to the consumer mood, he adds.
In the life insurance business, he sees growth in 2014 to be better than 2013. He says the life insurance business is seeing changes due to product regulation. The group’s general insurance business has grown at 15 percent this year, which is healthy given the existing environment.
Below is the verbatim transcript of Sanjiv Bajaj's interview on CNBC-TV18
Q: Since we last spoke there have been some developments. Tatas have pulled out of bank license. Are you also contemplating pulling out or would you stay put?
A: We are still very much in the running. Our application is there with Reserve Bank of India (RBI) and we have no intention of pulling out.
Q: There were some reports with regards to bank licenses indicating that Bajaj Auto was worried that maybe there could be some amount of an impact on the exclusive deal that they have with Bajaj Finance. The restructuring process I am sure is underway at this point in time, but are there any hiccups that you all are facing on the same?
A: There are no hiccups over there. It is very common with auto manufacturers around the world to have either a captive financing relationship or a preferred relationship depending on country by country, either with your own entity if it were allowed or then with an external entity and if you see again in India, the US, Japan it is also a fairly common model.
To that extent Bajaj Finance as we all know started off as a captive auto financier for Bajaj Auto and over the last 6-7 years has converted itself into a diversified financing company wherein one vertical still continues to have a strategic relationship with Bajaj Auto. This works even today on a completely arm's length basis. So buying credit, credit policies, what margins, how to manage loss ratios, this is all done independently but the two companies engaged in a lot of customer related information, strategic areas where the financing company supports the auto business, the auto business on the other hand allows access in its dealerships to the auto finance vertical, thereby giving them first choice of customers. So it is a very positive win-win situation. My understanding is that Bajaj Auto in a similar way has a preferred relationship with a couple of other banks as well, because given the size of their business they have to do overall what is right in their interest.
In the same way for Bajaj Finance we believe it was very important to have a long-term strategy to build a diversified lending business, so that we are not exposed to external events in any one single line of business. This has helped Bajaj Finance significantly over the last 6-7 years. Our own belief looking at the guidelines is that going forward to have such a strategic relationship as long as it is arm's length is not an issue and on this premise is what we have gone ahead and applied as well.
Q: How exactly the life insurance business panning out at this point in time? It was a bit sluggish in the previous quarter and if you can also touch upon the general insurance business.
A: Starting with the life insurance business, in the last three years the life insurance business has undergone three significant situations, one was the new product guidelines in Unit Linked Insurance Plans (ULIP) in September 2010, then was a period of hyper competition in the two years thereafter and from February this year the new product guidelines on the remaining products which become effective now, part of them became effective from August 1 and the rest of them will become effective from January 1.
So the industry business model has evolved significantly. As far as Bajaj Allianz is concerned when we saw the hyper competition three years ago, we decided that in the interest of long-term sustainability and building a solid business it did not make sense to throw capital at irrational competitions by market share and so between September 2010 and September 2012 we actually stepped back, cut down on business and looked at focusing more on building a solid foundation. Last year on the other hand when everybody else was cutting down and the industry on new business fell last year by nearly 8-10 percent, we grew 10 percent. So we chose when to grow, when not to. This year again has seen a lot of changes because of the change in product regulations. Some of them on group products as I mentioned earlier came out from August 1, the rest will come out from January 1. What this has necessitated is a complete review of our business model of distribution and selling.
A typical model right from LIC days was where you have hundreds of thousands of part-time agents and if you actually think of it as a funnel for agents, the full-time ones start going down the funnel and become your long-term agents whereas the part-time ones keep changing. Given the new product structure this funnel has certainly become very narrow. It is too expensive to manage 2-3 lakh agents in this period and hence I believe the smarter way to look at agency is smaller group of more productive, more active agents and hence a smaller team in the company to manage those so that you focus on building quality, because an agent who earlier sold 2-3 policies a month earned Rs 15,000-20,000, he will now trail on Rs 5,000 doing that, so it is not viable for him anymore.
What we have to do is to get the agents focused on the right customer segments, focused on different ticket sizes for a policy and then focused on productivity. Doing this with 150,000 agents which is what the group we work with is impossible. So we have already started narrowing down agents to a more active group and then over the years we will build it up again, because long-term as long as you get the right productivity mix, as long as you get the right customer segmentation and focus I believe a large agency force is very positive to a life insurance company.
There is a second set of guidelines to do around bancassurance and how banks are supposed to now deal with selling insurance. Here there are a set of guidelines from Insurance Regulatory and Development Authority (IRDA), there are set of guidelines from RBI, Finance Ministry has a view on this, so I think this is still very much work in progress. As far as overall business is concerned I am hopeful that keeping in mind some growth in the economy in 2013-14 beyond where we are right now we will start seeing positive growth in new business for the life insurance industry. For ourselves even in this year our new business is just about the same as last year. It is a little higher, but we hope to see it stronger in the next year. So that is the life insurance business.
General insurance business ends up being more stable, partly because it is an annual business, annually you are renewing a whole bunch of different types of products. Here again we have so far grown at 15 percent this year which is very healthy in the existing environment, more importantly, we have grown very strong metrics on good and efficient customer service, high levels of transparency in the way we managed claims and also doing all this at a reasonable profit level. In general insurance you can sometimes get bogged down by very high claims and hence how you distribute risks across different product lines becomes very important. We have consciously stayed majorly as a retail general insurance company. So 70-75 percent of our business is retail. 20-25 percent is corporate. We do selectively corporate business. This helps us manage our risk far better than if we were predominantly corporate.
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