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Banking plans give a boost to Bajaj Finance's aspirations

Though Bajaj Finance failed to get a banking licence, the process of applying for it has given the company a fresh five-year road map for growth

Rajeev jain, MD & Sanjiv Bajaj, Vice-Chairman, Bajaj Finance

Rajeev jain, MD & Sanjiv Bajaj, Vice-Chairman, Bajaj Finance

Shivani Shinde Nadhe Pune
Bajaj Finance may have failed to get a banking licence in the first round last year, but Sanjiv Bajaj, its vice-chairman, believes that the process of applying for the licence did have a positive rub-off: it made the company a 'non-banking bank'.

Thus, the preparation helped it bulk-up its balance sheet, expand its rural and SME presence, strengthen its back-end operations and exploit opportunities to cross-sell products.

"We realised that there were interesting opportunities that we had not looked at. For instance, the rural business plan came from this exercise, along with the cross-selling opportunity," says Bajaj. "The robustness in our back-end operations improved because we benchmarked existing systems with those that a bank would need. It gave us a fresh five-year road map for business, which we are implementing now."
 

Bajaj Finance Managing Director Rajeev Jain adds the quest made the company follow stringent financial norms and governance standards. For instance, it started to maintain liquid investments in the range of 5-7 per cent of the average loan book - much like banks and less like NBFCs.

The company has not given up its hope of becoming a bank. Jain says whenever the Reserve Bank of India invites applications for new licences, Bajaj Finance would be interested.

Even then, Bajaj has aggressive growth plans. Thus, he wants to take his balance sheet to Rs 100,000 crore over the next five years, up from Rs 37,500 crore now. A large chunk of this growth will come from the SME and rural businesses with a clear mandate to increase opportunities to cross sell.

For Bajaj Finance, both the businesses have been growing at a fast clip. For instance, assets under management for the rural sector grew to Rs 522 crore in the quarter ended June 30, from Rs 76 crore in the year-ago quarter. However, in these segments, Bajaj Finance is bound to face competition from not just banks (including the new small finance banks) but also large NBFCs like Reliance Capital, Edelweiss Capital and L&T Finance.

Reliance Capital, another bank aspirant, has a huge SME focus. The company claims that 95 per cent of its customers are self-employed or SMEs. For L&T Finance, rural lending formed 24 per cent of its loan book, while the share of SME lending stood at 12 per cent.

Jain is not deterred by competition. "We grew 35 per cent last year. Our CAGR for seven year is around 40-45 per cent. This is all organic growth." He further adds, "Every one of the asset class will keep growing by 20- 25 per cent for a foreseeable period, whether it's consumer business, small business, commercial business or the rolling business, subject to disciplined risk management."

On the growth track
This confidence stems from the fact that over the last seven to eight years, Bajaj Finance has diversified at a fast pace. In 2008, 85-90 per cent of its portfolio consisted of automobile finance. Today, it is down to just 8-9 per cent. From a mere two-product player, Bajaj Finance has diversified into 33 products such as loan against property, home loans, personal loans, business loans, loan against securities, commercial lending and, SME lending, amongst others.

Bajaj Finance, however, has been selective about the segments it takes part in. Take, for instance, Bajaj Finance's foray into the gold finance segment. Several NBFCs that were bullish on gold finance and expanded fast burnt their fingers, as gold process dropped. Bajaj Finance took a more cautious approach. Its smaller presence in the gold loan segment was the key reason it did not feel the pain of falling gold prices.

"We do gold loan in rural markets. We are now testing gold loan in 10 urban markets in South India where it is popular. We are present in 175 branches," says Jain. "We think gold loan is a large asset class for banking industry, especially for financial inclusion and SMEs. It's a great model to offer to your branch walk-in customer." Bajaj Finance's smaller presence in the gold loan segment was the key reason it did not feel the pain of the falling gold prices.

Jain claims that Bajaj Finance has been choosy about the people it works for. "We are here to create a commercially profitable business venture, and risk is central to the strategy of the lending business. One of the key learnings of the 2007-08 crisis in India was that dealing with the mass and below mass consumers is fraught with much higher risks," he says. "As a result, one of the calls we took was to deal with mass affluent customers. Even they are not highly penetrated. This also works with our cross sell strategy."

Bajaj Finance also took the help of technology to increase its penetration. It has made use of data warehousing, analytics, data churning among others to mine customer information. Six years ago, the company embarked on the journey to adopt cloud computing. This allowed the company to crunch time for loan application approval from a few days to three minutes.

For loyal customers, it came up with loyalty cards that allow them to just swipe the card and get access to consumer loans.

For Bajaj, Bajaj Finance is already a bank. "We need hundreds of innovations in the banking space to effectively deliver banking services throughout India. By handing out two or three licences every 10 years, RBI is creating scarcity. I understand that there is a risk of failure when a licence is given but there is a much bigger risk to our economy by not trying," he says.

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First Published: Sep 28 2015 | 10:30 PM IST

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