Engaging Lender

In 2008, when Rahul Bajaj decided to go the whole hog in non-banking financial services (NBFCs), he roped in the former CEO of Citibank India, Nanoo Pamnani, also his relative, and his younger son Sanjiv Bajaj. The first job of Pamnani and Sanjiv Bajaj was to find a spirited chief executive officer (CEO) for Bajaj Finance (BFL). They rounded in on a quintessential banker after meeting 30-odd executives - Rajeev Jain, who fits into every aspect of BFL's business and, after a decade or so of explosive growth, is transforming the non-banking financial Service (NBFC) business into data and artificial intelligence (AI)-driven lender.

BFL's journey has been stunning, to say the least. In just 10 years of operations, it has found a place in the BSE Sensex (the list of India's 30 major companies). Its stock has delivered huge returns - Rs 1 lakh invested in March 2009 would have become Rs 8 crore in November. Its market value stood at Rs 2.4 lakh crore as on December 4. The holding company, Bajaj Finserv, which also has two insurance companies under it, had a market value of Rs 1.44 lakh crore. BFL had assets under management (AUM) of Rs 1,35,533 crore as on September 2019. The AUM rose 41 per cent in 2018/19. Consolidated income grew 45 per cent to Rs 18,502 crore while net profit rose 60 per cent to Rs 3,995 crore. Net interest income went up by 46 per cent to Rs 11,878 crore. As on March 31, 2019, standalone capital adequacy was 20.66 per cent, well above the Reserve Bank of India norms. The lender's consolidated net non-performing assets (NPAs), at 0.63 per cent, are among the lowest in the NBFC industry. "We managed to navigate our way well for two reasons - we remained focused on retail and SME and managed the risk well," says Jain. "The harder you work, the luckier you get. We enjoy the journey more than the outcome. This ensures that we keep discovering new products," he says.

The biggest reason for low NPAs is BFL's prudent asset-liability management. It raises long-term loans and uses a mix of borrowings from banks, money markets and deposits. It faced only a five basis points increase in cost of funds in 2018/19 over 2017/18. As on March 31, 2019, consolidated borrowings stood at Rs 1,01,588 crore. "The company is well capitalised. It doesn't have major risk issues. It has adequate talent. The product portfolio is complete and we are present in 2,000 cities and towns. We are largely in retail, which is the flavour of the season. We are well positioned to seize the opportunities as they emerge," says Jain.

As part of a plan to future-proof the company, Jain is ensuring the use of latest tools such as data analytics, which he says is becoming the core of business strategy for lending companies. "If I know the customer, I can offer him more products in a frictionless manner. Technology and data help us do it better," he says. "It's all about how a company organises the data. Companies require AI and machine learning to analyse the data. Since we have 40 million customers and each one has 4,000 variables, we need a strong technology backbone to find the customer needs," he says.

BFL is betting big on using insights on customers to stay relevant. That is why the EMI facility is now available at points of sale. "Earlier, the customer needed to apply for a loan and wait for approval, and then the bank took time to dispatch the card. We have simplified the process and made purchases simpler. This has helped us reduce cost and improve chances of doing more business with the same customer. The revenue per customer has gone up as a result," says Jain.

What can make the future journey tough for BFL is the fact that banks are also entering the same business. But Jain says it's tougher for banks to make margins from small transactions. "Competition helps BFL become more efficient. We started as a consumer durables financing company. Then we got into furniture, education, stem cell, bike, mobile phone and insurance. The life cycle of some products will end in the middle as is the case with television. However, new products will emerge, but we need to capture the financing opportunities as early as possible," says Jain.

According to Rahul Bajaj, Chairman of the Bajaj Group, BFL's ability to deliver outstanding operational, financial and shareholder performance, backed by high standards of analytics, risk management, technology and customer service, is appreciated across the world. BFL, says Jain, is in the business of giving money to people who don't want money. His team finds customers with the help of business intelligence and data analytics, offers tailor-made loans, and cross-sells more products, while reaching out to newer geographies. BFL believes in the omnichannel strategy for selling products rather than choosing between offline and online. It owns a 14 per cent stake in MobiKwik, one of the fastest growing wallet companies. It sells credit cards in partnership with RBL Bank.

Talent, says Jain, has been central to the transformational journey. "We are clear that we should challenge employees, give them larger opportunities and offer rapid career growth. Employees make the business," he says, admitting that operating out of Pune makes it difficult for the company to attract talent. However, it's an advantage in retaining talent, he adds.

Macroeconomic issues remain as one of the major challenges before Jain. "We can protect the company from economic turbulence for a while. Since we are in a subsystem of the economy, the financial shocks will finally trickle down to the business. I hope we have seen the bottom and will bounce back," he says. Another challenge in complacency. Given India's low household debt to GDP ratio, external competitive environment and sectoral issues, the NBFC has no room to become complacent and rest on its laurels. The third challenge is the stress in the financial sector. Government-run banks are not doing well and waiting for capital from the government. Non-banks are in trouble as a result of the IL&FS failure. Mutual funds are wary of lending. The economy will have to improve and the financial sector will have to be stronger, says Jain. BFL came out of the NBFC crisis unscathed, though its share price fell sharply in the initial phase.

However, all this is not affecting Jains long-term focus. "We will end the year with 42-43 million customers. Our share of customers' discretionary wallet - consumer durables - is quite large. But our share of the customers' core financial services products is very low. They approach banks for mortgages, personal loans and credit cards. Over the next three-four years, we will target customers' financial services wallet, including payments, loans, insurance and mutual funds. We will do more business with the same customer," he says. BFL's share of retail lending market is around 3 per cent. It aims to take it to 8-10 per cent in the next few years. Home loan business is 32 per cent of the balance sheet now. Jain wants to make Bajaj Housing Finance among the top four mortgage companies in India.

@nevinjl