Field wide open for more mergers in insurance biz: Bajaj Finserv

Taking a cue from the potential merger between HDFC Life and Max Life, Bajaj Finserv expects more consolidation in the sector. Life insurance business is just scratching the surface and it provides immense scope for more such mergers and organic growth potential, said Sanjiv Bajaj, Managing Director of Bajaj Finserv.

The executive, however, declined to comment on reports of Bajaj Finserv’s potential buyout of Allianz’s stake in its JVs.  He said both the partners are in talks.

Going ahead, Bajaj Finserv will continue to grow organically and is waiting patiently to build on its life insurance business, Bajaj said. He said that the life insurance sector witnessed a fall in the past few years owing to consumers opting for other instruments such as property. This trend is reversing and the company expects a 10-12 percent growth in this business in FY17.

Bajaj also said he is hopeful of accelerating the momentum in retail business which is growing at 15 percent (YoY).Below is the verbatim transcript of Sanjiv Bajaj's interview with Reema Tendulkar and Nigel D'Souza on CNBC-TV18.Nigel: There has been an announcement of a potential merger between HDFC Life as well as Max Life, are we seeing consolidation in the sector and also are we seeing such opportunities?A: This is the largest deal in the insurance space that has been announced so far. There was one of the deals that HDFC on the non-life side announced a few months ago. It will be interesting to see how this deal moves forward. I think there is a complimentary opportunity that HDFC and Max has but such mergers always create significant challenges in integrating the merger. So my best wishes to them for that.Going ahead, there could be opportunities for merger that come up or companies to buyout other companies, consolidation in this industry but we must keep in mind that this industry is still scratching just the surface of the opportunity in insurance in India.Hence there is more than enough organic growth that is available. It takes time to build businesses organically but very often it is far less complicated and it is cheaper to do that as well. So I think you will see both methods of growing. You may see consolidation where it makes sense particularly but you will also see organic growth.As far as we are concerned, we have been growing organically over the last 15 years our two companies are amongst the top insurance companied respectively in India in the private sector and that is our current plan as to grow organically.Reema: The big news today is the fact that reports are suggesting that Bajaj will be interested in buying 26 percent stake held by Allianz in the joint venture in a deal valued at Rs 10,000 crore. How do you see the future of this partnership between you and Allianz?A: Both partners are in discussion. Beyond that we don’t comment on speculative news.Nigel: Growth is expected to come in to the insurance business post the regulatory challenges that are done away with on product changes, what kind of growth can we see for both the insurance companies?A: On the general insurance side, we must break up the retail business from the corporate business because the corporate business volumes and business between the private and public sector swings depending on discounting.I would say on the retail business we have been growing at around 15 percent year-on-year (Y-o-Y), there may be one-two slower or faster years, I clearly see that level of growth and I see the opportunity for that to accelerate over the next few years as we have new channels including these two channels that are developing as well as new set of products.As far as the corporate business is concerned, this ends up being volatile. We are looking at building sticky relationships and as we keep building those, they will determine the growth on the corporate side of the business. As far as the life insurance business is concerned, we have seen very little growth and even a fall in the volume over the last three-four years as an industry and for ourselves as well.That is changing now and the reason for the fall was the financial meltdown, the move for savings towards real assets like property and gold rather than financial instruments but these things are reversing since last year and as the industry has started growing, we have seen a small amount of growth and over the next year or two, for 10-12 percent, if not a higher growth in the life insurance business, is also very much possible.Reema: Back to talking about business, you have a very strong solvency ratio of 793 percent, how long will this capital suffice?A: There is a significant amount of capital that is sitting in over there both partners have been very clear about the requirement to build a strong and stable business before they start drawing the dividend and given as I said the slowdown that we saw in the life business over the last few years, we are waiting patiently as we help rebuild the business.As I said over the next year or two as we start to seeing signs -- we are already starting to see early signs of improvement on the agency channel for example but I would wait for a few more quarters before we declare any early victory over there but as we start seeing some amount of stability coming in with our new strategy, we can see that is getting executed well. That is when we will take a call on the capital.Nigel: You have launched various new products, loans etc and also you have made various tie-ups with Flipkart, Amazon etc, what kind of growth and profit potential do we see in these products as well as in these segments?A: With our EMI card initiative, we believe we are revolutionising consumer product purchasing and daily products purchasing, whether it is groceries, garments, small value items. So far to do that you either paid cash or you used your credit card, not too many people have a credit card, now the ability to do it through simple transparent loans we think completely revolutionises this industry and provides a huge opportunity to a lot of people to realise their purchasing requirements and improve their life styles by this tool being available.We believe that the opportunity is so large that any number you put is achievable given the fact that the consumer business now grows over 30 percent Y-o-Y, you will see a further fillip to that growth number.Reema: Your loans against property book has declined as you have reduced your book, do you think direct sourcing of the book rather than going via the agent how do you intend to fill that gap in your portfolio and will it impact your net interest margins (NIMs) and assets under management (AUM) growth, because your loans against property (LAP) was in long duration portfolio and it gave you higher yields?A: Our LAP portfolio basically went through slow growth for two reasons. This is basically loans that we are giving to SME customers and we saw some amount of slowdown and a chance of higher risk there last year. That is one of the reasons why we slowed down incremental exposure. The second and which was the big reason was that we moved away from intermediaries to predominantly a direct channel and in doing so, clearly we lost the business to intermediaries through this period and that is when the volumes went down. The volumes are picking up again now. So our focus has not moved away from the LAP business. The focus is very much there but we want this to be a relationship which benefits our customers. It is a sticky relationship for the company and not one that is driven entirely by intermediaries.We believe there must be a principle to principle relationship between customers and ourselves and that is the reason for the change of the strategy. We expect by another two quarters or so for this business to be back to the kind of volumes that we were doing earlier and hence over the next year or two it should make no difference to our average return and our AUM as in the past. So it is only a period of about 4-6 quarters where the change in strategy has led to the low volume and a little bit in some regions specifically given the external slowdown that we saw in some of those segments and geographies.Nigel: Which are the product segments where you see huge potential for scaling up? Also can the finance business sustain that AUM growth rate of about 30 percent or thereabouts and what would be the levers for AUM growth?A: We focus on how we want to build the business at this growth rate of about 20-25 percent. That is what we have talked about quarter after quarter. We have in the last couple of years accelerated and gone ahead of that, we have beaten those forecasts so far but we think 20-25 percent is a stable growth rate that we can manage with high quality because that is important as well and this becomes a predominant focus.As far as products are concerned, we as part of our annual budgeting balance between those products which can give us a lot of AUM like mortgages but relatively our lower ROE compared to consumer products wherein they are for shorter tenures where their ability to add to AUM is lower but on the other hand they are very profitable products. The balance is to get the overall growth of 20-25 percent.