Life insurance biz topline to grow from Q3: Bajaj FinServ

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Life insurance biz topline to grow from Q3: Bajaj FinServ

In an interview to CNBC-TV18, Sanjiv Bajaj, managing director of Bajaj FinServ said, the life insurance business has seen very strong profit. “But on the top-line, the industry and we have continued through four-five quarters of declining growth.” From third-fourth quarter, he expects some growth coming on the top-line of life insurance business.

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Excerpts from Reporter's Diary on CNBC-TV18 Watch the full show » ALSO READ See latest News about Bajaj Finserv See previous management interviews See what other Experts & Brokerages are saying about Bajaj Finserv Bajaj Finserv BSE | NSE 30/05/12 Are Mutual Funds betting on Bajaj Finserv? Other Stocks in this news Bajaj Finance |

Bajaj FinServ has declared its second quarter results. The company's net profit was at Rs 158 crore versus Rs 69.4 crore on year-on-year (YoY) basis.

In an interview to CNBC-TV18, Sanjiv Bajaj, managing director of Bajaj FinServ said, the life insurance business has seen very strong profit. "But on the top-line, the industry and we have continued through four-five quarters of declining growth."

From third-fourth quarter, he expects some growth coming on the top-line of life insurance business.

Also read: Bajaj FinServ Q2 net profit up at Rs 158 cr

Below is the edited transcript of his interview. Also watch the accompanying video.

Q: Bajaj Finance , the interest costs have doubled this time around. Can you take us through the reason for that?

A: As you know we have gone through nearly 12 interest rate hikes over the last year and a half or so. As a result, our interest costs have also proportionately gone up. But more important thing is if you see our return assets, we have been able to grow that as well. So, on an average, we are at about 4% RoTA and that's a very healthy number. That also implies we have been able to pass on most of these interest rate hikes to customers and as a result keep our profitability intact.

Q: How is the demand looking, given the current environment, especially in terms of fresh sanctions?

A: It differs from business to business. In our consumer durables and auto finance, demand still continues to be strong. But I do believe post Diwali we will start seeing slowdown.

On the consumer side, there is normally always a lag whether its growth or decline, but there is a lag to significant interest rate shifts.

On our SME businesses, we have ourselves slowed down some of these lines few quarters ago. Given that we are still a very small part of the overall pie, we are still able to grow at healthy double digit return.

We are keeping an eye on loan losses, and quality of the book. But while the overall industry will see some amount of slowdown in coming quarters, on the SME side, we are less affected given our much smaller side to the industry.

Q: The life insurance and general insurance have seen good profitability this time around. How do you see that both those panning out going forward?

A: The life insurance business has seen very strong profit. We have shown our profit growth of 50%. But, on the top-line, the industry and we have continued through four-five quarters of declining growth. I believe we have come to the end of that.

From third-fourth quarter, we should start seeing this decline falling and some growth coming on the top-line as well. Eventually that's important. You need a healthy balance between your top-line growth and the profit.

Now, the slowdown was because of all the regulatory changes that happened last year. The industry and we are pulling out of that right now. You still see strong profit growth there because of our focus on costs. However, since April on our agency channel we have added over 10,000 new active agents. We see them bringing in additional business now in Q3 and Q4.

As far as general insurance is concerned, we have grown very healthily in top-line at 16%. Our top-line is Rs 811 crore of gross premium in this quarter. A prudent selection of the business supported with very strong customer service and claims settlement ability is helping us get the right quality customers.

Our stickiness with customers is higher. And that's why you see a very strong PAT. It has moved up from Rs 35 to Rs 64 crore, it has almost doubled over there. Going forward, we expect this to continue. Our businesses are strong enough to see a reasonably strong growth in top-line supported by strong growth in bottom-line.

On general insurance, my only caution would be the third party motor pool, which has caused a huge cost or a huge loss to the industry last year. There are signs that the end is not yet over. So, we may see some additional cost in the coming quarters. That depends on what the regulator declares. So, we have to wait and watch on this third party pool. That's the real negative.

Otherwise, the rest of the business is very strong. Our combined ratio in general insurance without this pool is 91.5%. Even with the pool, we are below 100%, which means underwriting itself, a pure insurance underwriting is making money. I think that the best in the industry by far.