Life biz likely to see further contraction: Bajaj Finserv

Bajaj Finserv reported flat growth for January-March quarter. On a consolidated basis, gross revenues for the company came in at Rs 5,116 crore, whereas consolidated profit after tax (PAT) for Q4 is Rs 912 crore – both fairly flat, says Sanjiv Bajaj, MD, Bajaj Finserv.

Talking to CNBC-TV18, he says, the big growth numbers came from Bajaj Finance and Bajaj Allianz General Insurance, whereas Bajaj Allianz Life Insurance has seen a drop as the industry has contracted because of the number of new product regulations in the recent past.

With regards to banking licence, he says that the company is awaiting for clarifications from Reserve Bank of India (RBI), based on which they take a call.

Here is the edited transcript of his interview with CNBC-TV18

Q: Could you just take us through how the performance has been of Bajaj Finserv on a consolidated basis this quarter?

A: On the consolidated basis, if one looks at gross revenues for Finserv, that is up to Rs 5,116 crore, whereas our consolidated profit after tax (PAT) for Q4 is Rs 912 crore – both numbers are fairly flat at about 2.5 -3 percent up on a consolidated basis. If one breaks these up, the big growth numbers come really from Bajaj Finance and Bajaj Allianz General Insurance, whereas Bajaj Allianz Life insurance has seen a drop as the industry has contracted because of the number of new product regulations in the recent past. 

As far as Bajaj Finance is concerned, for Q4 we have seen our total income go up 35 percent to Rs 843 crore, whereas our PAT is up 52 percent to Rs 164 crore. So, very strong numbers there.

Similarly for the general insurance business, our gross premium is up 25 percent to Rs 1,197 crore. Last year PAT was a loss of Rs 39 crore for the quarter that moves up to Rs 62 crore profit after tax for the quarter.

Our life business has been subdued. Our total premiums are down from Rs 2,744 to Rs 2,581 crore, about 5-6 percent down but the good thing is that our new business premium is up about 5.5 percent to Rs 1184 crore.

Our new business is starting to grow, which means the difference between the two is that the renewal premium has fallen. If one looks at the shareholders profit after tax for the quarter is down about 8-9 percent to Rs 1022 crore. That is why the consolidated Finserv number is only marginally up because the life business has contracted little bit on the bottom-line while the other two businesses have shown very strong growth.

Q: With regards to the life insurance business, what exactly would the guidance then be in terms of a pick up going forward, especially on the bottom-line?

A: I believe for FY 13-14, the life insurance business is going to go through further contraction. If one looks at the industry for FY 12-13, contracted on new business, we were one of the few that grew.

But a host of new regulations have been introduced in February earlier this year in the life insurance business and the result of that is that we have to reduce our numbers when it comes to agents, to the number of people that we are working on to improve productivity and quality.

We don’t give out guidance on our numbers but I believe the life business will see some contraction in this effort to get higher productivity and quality out – so FY 13-14 will see smaller numbers before we start growing hopefully in the next year.

Q: It seems like you might have made a loss of Rs 17 crore this quarter?

A: The standalone numbers of Finserv firstly is just the income we earn on the fixed income securities and the windpower income.  We have taken an impairment of Rs 27 crore in the Q4.

On our investment in our wealth management business, which is Bajaj Financial Solutions when we started this business three years ago at that time the income drivers for the industry mainly mutual fund commissions, insurance commissions were significantly higher than the changes that the industry has gone through in the last couple of years and as a result the management thought it prudent to take this impairment. So, the result of that is a exceptional one-time hit due to which these standalone Q4 BFS numbers have shown a loss.

Q: Just coming down to the Bajaj Finance numbers it has been quite strong growth for you all this quarter as well – just take us through a couple of key parameters such as the net interest margins (NIM) this quarter as well as exactly how the asset quality did because that seems to be pretty stable. Do you expect the stability in the net no- performing assets (NPA) to continue going forward as well?

A: NIM is significantly up. We are up to Rs 517 crore from Rs 389 crore. If one looks at our net loss numbers including provisions we are somewhere around 0.2 percent.

We have said in the last year or two that as our book creates a better mix between the consumer business which is high profit but also highly volatile given the low ticket size and the large volumes we do nearly two and half million consumer loans a year. On the other hand, one has the commercial business and the SME business which end up being lower margin but more stable longer tenure book.

We think the balance net loss number should be around 50 bps or so. We have been in a benign competitive environment the last few years and since we are still small it allows us to pick and chose good quality business. While we are not seeing any immediate worry for net loss numbers to go up above the 20 bps which is where we are but we think long-term of 50 bps is a little more balanced number. Finally, another number which I look at is capital adequacy.

We raised capital in Bajaj Finance earlier in 2012-13 about Rs 740 crore and our capital adequacy including tier II is over 22 percent, which we think is very healthy and will keep us going for the next couple of years based on the growth that we have projected for the business.

Q: With regards to banking licence – in terms of application is that something you all have already considered or where would you stand in terms of a banking license?

A: We are waiting for Reserve Bank of India (RBI) clarifications to come on whole bunch of questions that the industry has asked for and based on that we take a call . We are very closely looking at the application and studying it and once we know what clarifications are from RBI we will take a final decision.