oday Bajaj Finance is the largest contributor, then comes non-life and then comes life, says the CMD, Bajaj Finserv.
I understand that you have been consciously reducing your exposure to crop insurance and it stands at just 1% of your product mix as of Q1 FY21. Given the kind of recovery that we have seen in the rural end of the economy, do you see the share of crop insurance grow in future?
We have not been reducing our share of crop insurance. Our market share within general insurance companies is between 6.5% and 7% and we tried to see that as we run a diversified set of business lines, by and large most of them are around that percentage, some may be a little higher, some may be a little lower. It also varies year on year because the competition intensity changes and the opportunities in the market changes.
In some years, you see very heavy price discounting, especially by the public sector companies and it does not make sense to over expose yourself. There are other years where they cannot afford to discount as heavily and we find other opportunities.
In retail lines it is less so because we have built a relationship with customers. We may not be the cheapest but we are quick, we are fair, we are transparent not only in policy issuances but in claim handling. Coming back to crop insurance, it is about 6.5-7% of our mix of the overall industry’s share and as there are two main seasons — kharif and rabi — it depends on what is the dynamic in that season. But if you were to see over a year, it would normally even out.
What about motor insurance? We are beginning to see some green shoots in auto — call it pent-up demand or the urge of people to travel in their personal vehicles, would you say that a recovery is very far away or is the picture looking hazy and you do not have a clear answer yet?
I would say the picture is still not completely clear. There is pent-up demand. We are seeing growth because of that. We would continue to see growth with the big festival season coming up. But then what happens towards the end of the year and the first quarter of calendar year 21? We have to wait and watch.
It is still pretty much interwoven with the pandemic and the impact of the pandemic on local lives. For example, we saw good growth in June. July and part of August with local lockdowns it was terrible because offices were shut down, supply chains were getting broken and you could not get products out to the market for people to buy and this was also confusing people as to whether their jobs exist, whether they do not exist and that is where we have to be very clear. This fight against the pandemic unfortunately is going to be there for some time till the vaccine or medical treatment is available and administered to the larger population.
We have to work sensibly, we have to follow the protocols that all the health experts tell us to but we have to keep the economy running and that is why I believe the focus on health needs to be local but the focus on the economy needs to be national. We cannot have individual cities, states randomly shutting down because that shuts down the entire economy.
There has been an increased awareness both for life as well as general insurance. If one talks about Bajaj Finserv’s consolidated profits, what do you think is going to be the share of each going forward?
This is something that has evolved over time. Seven-eight years ago, our life insurance company contributed the largest, then came the general company, then came Bajaj Finance and life and non-life probably was about 75-80%. It has changed in this period of time. Today Bajaj Finance is clearly the largest contributor, then comes non-life and then comes life because there is a peculiarity with life business. When the life business grows well, because it is a long-term policy, we pay commissions and book our expenses in the first year under Indian GAP but we earn premium over a period of time.
So when you grow fast, you actually burn more upfront but you make profits in later years and so the profit comes down. On the other hand, if you go through slow years, then the opposite happens and the profit goes up. But naturally we want a balanced growth and profitability. It is not easy to project it out in this set of moving parts. How would you distribute profits across these companies? Keep in mind that we own 74% of the two insurance companies but Finserv owns a little under 52% of the finance company. So even the proportion of the profit pick up ends up being different. But the good thing is they are all growing well so that shareholders get a diversified mix of profits from these companies.
Since we are on the subject of life insurance, the premium collections clearly got a little impacted because of the lockdown. Have things got ironed out, are collections back to normalcy?
I would say they are now back to between 80-85% of where they were earlier and that is a very good sign. Our life insurance business like our nonlife is distributed very well through the country and that is why recovery is quite good because recovery outside of the top 10, 20 cities has been very strong.
The top 20 cities because of these local lockdowns in the last few months osaw business getting impacted and that is why it impacted Bajaj Finance more where a large percentage of our business still comes from the top 20 cities but it is getting better, August has been better, September is looking okay. It is very difficult to predict how local governments will react to the ongoing pandemic in the coming months but as long as it is done sensibly and thoughtfully and we are not only saving lives but we are also saving livelihoods. then I think it should be okay, we should see steady recovery.
When you talk about Bajaj Finance we have definitely seen some improvement in collections. People are getting back to regularly paying their EMIs. Do you still foresee any asset quality concerns going forward?
We have been very transparent with what we are seeing in terms of bounces, what we are seeing in terms of probably loss numbers and we have been issuing this at the beginning of every quarter to the Street because who knows, where this is going to end and when this is going to end. We can talk about the numbers that different people can project for themselves. We have seen that over two-thirds of the people who took the moratorium, had never bounced with us earlier. That means they were conserving liquidity at this point of time. Almost 30% took a moratorium in the first couple of months. It came down to the low teens in the last two months because as people got more confident and as the cities and businesses started opening up, they started paying as well and that is a very good sign.
I am hopeful that things are moving in the right direction but because it is very difficult to predict the impact of this pandemic even in the coming months we would rather be extra conservative, we have stocked up on liquidity and we are making the additional provisions. We are working with our borrowers on the collection side so that we can support them at this point of time as well and stay more conservative in our incremental lending and as we see things improving then get growth back.
What is the message that you would like to give to your shareholders?
The message is very clear nobody wished for this pandemic and particularly people at the lower end of the pyramid have suffered and are suffering. For those in the middle and above, it has been a time for reset, time to rethink but given that we are in this, as they say never let a crisis go waste. Our companies have become even more digital than before and we have plans that they will come out stronger, better and we will see that we provide a set of solutions for our customers keeping in mind what this crisis is teaching us and keeping in mind our customers needs.