Insurance biz to grow 10-12%; won't list it: Sanjiv Bajaj

Below is the transcript of Sanjiv Bajaj’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Latha: What does the Insurance Bill mean to you, if 49 percent were allowed do things change between you an Allianz?A: When we are talking about the Insurance Bill, firstly everybody just talks about the 26 percent to 49 percent which we know is a big change. However, there are 200 other amendments, changes, additions to this bill across a number of areas, from distribution, product design, how to manage investments because we have to remember the earlier act was a 1938 Act. The world is completely different now. So, for the growth of this industry and to ensure that the regulator gets enough flexibility in how they regulate this industry, the bill is very important. Coming to the main point which is the 26 percent to 49 percent; we hope this does go ahead. We think our joint venture (JV) partner Allianz will want to take their stake up. They have played a very strong, equal productive role with us in building our two companies and it only makes sense; after 14-15 years this industry was opened to the private sector.But the question is does it change anything? No, the company is run fairly independently. Both Allianz and Bajaj play a role in strategy, in governance, in managing risk. However, the day-to-day operations are run by two very able management teams. So, nothing changes there on the ground even after this.Sonia: Are you hearing anything from the government on whether this bill will get pass through or not because the latest we hear is that the Shiv Sena and various other parties may derail the government’s plan to pass this bill. However, have you been in any interaction with the government on this particular deal?A: The situation has now evolved in such a way over the last seven to eight years regarding this bill, so like Gandhiji’s three monkeys I keep my eyes, ears and mouth shut on this. When it happens it will happen.  However, on a more serious note we all read the papers so I am also hearing and reading in the papers that the opposition may play tough. I think that is only negotiation. Most people, the Left may not be supportive of the bill but the Congress is. Congress as you see has stayed silent. They have spent seven years in pushing this bill. So, they may push and pull a little bit but they will eventually spot it and if it doesn’t get passed in the current session I am hopeful that happens in the next one.Latha: It is to your advantage if it doesn’t get passed in 2016, isn’t it? If it were passed before 2016 what will be the price at which Allianz will buy your stake; the nominal price plus fair return and that was 16 percent or something like that? A: There was a whole formula but it was based on what is the role of the land. Reserve Bank of India (RBI) has very clearly said over the last three years through their notifications which they have kept updating every year as well that any transaction that happens between domestic and foreign promoters has to happen at fair market value or equivalent of that. So, the 2016 is not relevant in our case.

So, the later it happens, if the business does well we would get more money, the company would get more money or vice-versa. So, that is relating to how business would do. 2016 is no longer an issue as far as I understand.Latha: What is the market value you are expecting for your business and if this bill were passed in this session or the next how soon will you list your insurance business? A: Two different issues, if this bill were to pass, Allianz has an option to take their stake up. In our case, both our companies are very adequately capitalised by profits that the business has generated and ploughed back into the business. So, in all probability the stake sale would happen from Bajaj to Allianz. As far as an IPO is concerned, currently because the business is adequately capitalised plus neither promoter as such needs the money so we don’t see ourselves going and listing this company at least in the coming years. Latha: So no likely date or year of listing that you can give us assuming the bill is passed?A: No, because there is no intention to list and there is no benefit currently to either of us to list, there is no benefit to the company. People do talk about listing when you need additional capital in the company and the promoters either can’t or don’t want to put that money in; that is not our situation right now. The last four years neither of our insurance companies has needed any significant capital. Look at our solvency margins we are over 200 percent in the non-life company and something like 800 percent in the life company versus a 150 percent requirement. So, there is no need for us to that and neither shareholders see the need to dilute its stake at this point of time. So, will it happen at some point in the future? Maybe but nothing in the immediate future.

_PAGEBREAK_Latha: Insurance premium fund growth, annual growth and if you can forecast it for a couple of years? A: If I could forecast then the last four years would not have happened the way I would have liked to forecast it. The worst is over for the life insurance industry, we have gone through significant change in regulations, we have gone through an economic slowdown, slowly as the economy grows we are seeing more money coming back for the retail consumers pocket into financial products in insurance which has gone towards property, which had gone gold. ‘So I would expect from a few years of negative growth and we haven seen volatility over that whether in the industry or in our volumes. By 2015-2016 one starts seeing steady growth again. Life Insurance I believe if normal GDP growth rate is going to be 15 percent rate, plus, minus a percentage points, life insurance should track a 10-12 percent or so for the next few years. We just hope that there aren’t any very sudden changes on regulation because large companies like us that handle over 100,0000 agents to train and retain them then becomes a challenge. So, we need stability I would say in regulation which we have now. So, I would say a 10-12 percent growth rate from next year is long as there no other nasty surprises.

Sonia: What about the new NBFC regulations that were released, how does it impact a company like yours?A: For us the operating NBFC is Bajaj Finance and we have no material impact. We are already aligned with almost all if not all the regulations. What the regulations essentially are doing is for the larger NBFCs, RBI is recognising finally that such NBFCs a play a very significant role in financing our economy. However, at the same time they follow or endure a very light set of regulations. So, they have tried to strengthen and tighten them, bring them closer to banks. In our case, as we have gone about building Bajaj Finance over the last eight years, very consciously we have taken best practices whether from NBFC regulations or from banks. So, as a result whether it is our provisioning, whether it is our capital adequacy we are the same as banks in fact in some of our lines we are even tighter. So, we welcome these regulations and we already are aligned to them.Latha: Would you be tempted to apply for a payment bank or a small bank, any of the other licenses that RBI is poised to invite shortly? A: We are already bigger than most small and mid-sized banks. So, there is a big bank licence then we will look for that. Latha: So, universal bank only, you won’t be interested in anything else? A: It doesn’t make sense. As per the current regulations, small banks max loan size is Rs 25 lakh. We do loans from Rs 25000 to Rs 100 crore. So, we are not going to change our business model to fit into a possible structure that has been put out. Payment banks can’t give loans; doesn’t make sense to me.Latha: You don’t want to be business correspondents (BCs) to anybody either? A: We could do that if it makes sense. However we are not going to comprise on our strategy to fit into a particular regulation. I do believe in the next year or so you will see universal bank new regulations coming out and we will evaluate ourselves at that time. Sonia: You told us the worst is over for the life insurance business but can you just give us an indication of what the second half of the year will look like because in the quarter gone by your new business premiums did quite a bit in the life insurance business? A: Loooking at the last three or four years after the change in ULIP regulations - people said ULIPs are dead, there is so much of miselling, there is only negative news about that. The reality was that some amount of miselling does happen but as the stock markets crashed a lot of people ended up losing money with the ULIPs. It would have been equally true if they would have been invested in mutual funds. The odd thing is that life insurance needs to be seen as a long-term product. So, when we look at how our funds have performed in the last four years people that would have held on to their ULIP policies through these four years would have made money now. However, unfortunately many of them got scared, they were wrongly advised, they read the wrong papers and they sold off their policies. Now, we can see in the last few months and that is why you talked about growth in the last quarter is because ULIPs are coming back and at the back of the new product design across products, the new products are very customer pro-friendly, they have much lower commissions. Looking at second half of this year I would expect to see some positive growth at least.