Mumbai: Sanjiv Bajaj, the young scion entrusted with the Bajaj group’s financial services business, Bajaj Finserv Ltd, was expected to have a smoother ride than his brother Rajiv, who heads the automobile business. When the group split into three entities early in fiscal 2009, Bajaj Auto Ltd was already facing stiff competition from Hero Honda Motors Ltd, the country’s largest two-wheeler maker, and Honda Motorcycle and Scooter India. Pvt. Ltd. Life and general insurance as well as the group’s consumer finance business went to the finance arm, but the sector soon hit a speed bump. Sanjiv isn’t perturbed. “This is a great time to look at new businesses,” he says. The firm plans to explore the construction finance and credit card distribution businesses over the next six months. Edited excerpts:
Unperturbed: Bajaj says this slowdown has not affected his firm from a size and opportunity point of view.
Have the current slowdown and global concerns about non-banking finance companies (NBFCs) slowed growth at Bajaj Finserv?
We have a few mantras to tackle the slowdown. First is to focus on growing profitable business lines. An opportunity like this allows you to pick and choose. For instance, in our general life insurance business we focused mainly on retail businesses—motor car and health. We are building on that.
What are the other mantras?
We believe it is a great time to find new businesses. After two to three years when India comes out of the slowdown, we will be the first to go on the upswing.
We are fortunate that while we were looking at new businesses, we took our own time to take a decision to enter these segments—asset management, financial products and financial advisory business. A lot of people have sunk a lot of money in new businesses. We can learn from others’ mistakes.
What are these new businesses?
Construction finance and credit card distribution are two new line of businesses that we will explore in the next six months.
These are still at an exploratory stage. This year we did insurance, insurance distribution and loans against property. Now, we are evaluating new lines of businesses.
And your proposed asset management business?
We are getting offers. But unless we don’t get the right price, we will not do (float) it. Right now, we are in discussion with Sebi (Securities and Exchange Board of India) for detail licensing. It will take at least 9-12 months. By that time, India will come out of the current slowdown.
Would you set up a bank if the Reserve Bank of India opens the option for corporate houses?
Yes, we would look at it. Very clearly.
But Bajaj Finserv still has a conservative approach.
It helps you focus on the right things. We virtually have no debt and lots of cash. Many of our friends and analysts say it’s an enviable position to be in. Two to three years ago they used to say, ‘What are you doing with so much cash. Use it and raise more debt.’
Do you regret bypassing many opportunities in the past to grow faster?
There were opportunities to buy asset management or distribution businesses. But they came at crazy values. Luckily, we said no. Look at the high profile deals and the trouble they’ve got in. It’s not that we are smarter. But our simple conservative culture helped us avoid these deals.
We need to be aggressive with new ideas, be innovative. When everybody focused on corporates, we concentrated on retail and built our network. But we constantly review our strategies.
Could you elaborate?
Our primary business was two-wheeler financing. And then our consumer durable financing business piggy-backed on that. We changed our strategy of focusing only on two-wheeler financing.
Earlier, we had expanded to 170 locations where our primary business was two-wheeler financing. Most of our outlets were not viable. We realized that and cut our offices and manpower and today we have operations in only 50 locations. We made the branch network correct for the businesses.
NBFCs are either lending money or raising deposits. But companies are now conserving cash and individuals postponing purchases.
The worst thing to do is to lend to someone who doesn’t need it or take money from someone who doesn’t want to give it you.
We have good growth. In consumer finance, our gross revenue for fiscal year 2007-08 was Rs503 crore. Whereas this year alone, we have crossed Rs423 crore in nine months.
Last year, we made a profit of Rs20 crore for the whole year. For the first nine months of fiscal year 2008-09, we reported a profit of Rs19 crore.
True, we are still very small. So, the slowdown does not affect us from a size and opportunity point of view. But still, we are very careful with our credit criteria.
What’s your delinquency ratio?
It is different across different businesses. Between 2005 and 2007, when there was irrational exuberance in the market, our delinquency on loan went up.
But it would be in the region of 5-6%. In the past 15-18 months, the bad debts are within the projected estimates.
Are banks shying from giving finances?
We raised equity capital a year and half back and our total networth is in excess of Rs1,000 crore. So our capital adequacy is in excess of 40% even now. The normal capital adequacy ratio for NBFCs is 15%. You can build a strong internal asset return with 40% capital adequacy.
We didn’t have a problem with liquidity but we did go ahead and sign up with banks to extend our credit limits. We are not able use that because of the slowdown. We are conservative, yet we are able to grow at 30-40% quarter-on-quarter.
We also looked at other sources. We issued non-convertible debentures attached with warrants and raised Rs60 crore.
We are diversifying the sources of funds so we are not restricted to banks. But banks have been extremely supportive.
Not all companies can go to the stock market to raise money.
We are now raising one-year paper at 9% and we are negotiating for lower. For the LIC (Life Insurance Corp. of India Ltd) loan we took in September, when the liquidity crisis was at its peak, the interest rate was 11.25% for a three-year loan. Our current cash credit limit, which is normally high, is 10.25%.
Having a long history and being part of Bajaj group, there is credibility. When other companies do not have that, they have to raise (funds) at higher costs.
How do you plan to raise cash?
We have already raised (money) for our consumer business for the next three years. As far as life insurance is concerned, in the past nine months, we have not raised capital.
Considering our capital adequacy ratio, we do not need capital for the next six to seven months.
Money is not a problem. We are conserving it for the sake of conserving it. The line of businesses we have looked at do not require capital in an aggressive way.
Is Bajaj Auto Finance still dependant on Bajaj Auto?
Used to be. Two years back, when you see our books, 80% of the business was from Bajaj Auto and 20% was non-Bajaj, including consumer loans. This year, more than 50% is from non-Bajaj. Now we are doing personal loans and other consumer loans.
Following the demerger, there was no branding exercise.
Firstly, there is no division. There was only a division of management responsibilities. The ownership is the same. However, we do realize that when new businesses come up, there would be opportunities to create a brand.
We are already working with a brand expert on certain ideas to have a brand identification without diluting the group’s brand.
When do you see your insurance business reaching break-even?
In life insurance, we are close to break even. But general insurance is a cause for concern.
General insurance grows to a particular size. After that, it’s more a regular business. Currently, what we are seeing is that we have grown faster at 19%, when the industry was growing at 10% due to the slowdown. But new businesses such as retail will be slow since people are not buying as many cars.
Are you looking at insurance products to cover for terrorism?
We are seeing two things: one is for terrorism cover after the Mumbai incident (the terror attacks of 26 November) and the other is a directors’ liability cover after the Satyam incident (after chairman B. Ramalinga Raju of Satyam Computer Services Ltd admitted to falsifying profits for several years).
Do you plan to ‘rationalize’ your workforce?
Including both insurance companies together, we have 30,000 (employees). In the past eight-nine months, we have rationalized our staff by 4,000-5,000. In the consumer finance side, we have already cut 500 (out of 1,500).
Do you think combining the aggression of ICICI and the conservativeness of HDFC Bank would make for the right mix?
I would say: make a few smart, bold choices, and execute them honestly. Whether you call aggression or conservativeness, I don’t know. When I say “few” that is conservation. But when I say “bold” that would mean big investment and aggression. Execution is also important.
The perception is you two brothers don’t talk to each other. But there is a strong link between manufacturing and finance, where you can take advice from each other.
There is nothing to clarify. We are two brothers. We are doing two different roles. There are many things we agree on and many things we disagree about. That is only natural. Each of us has got a clear business opportunity to grow. We must leverage each others’ strength and the group’s strength to do that.