Bajaj Finance’s Fire Fighter

LEARNING NEVER ENDS for Rajeev Jain. He and his management team tracks one international company every year that has made a transformational impact on the business it operates in. The team analyses financial releases and investor presentations of the last 10 years and deploys the learnings in Bajaj Finance Ltd (BFL). In 2022, the study was on Starbucks. A year before that, it was Microsoft, and prior to that, bookings.com.

The learnings have held Jain in good stead. When things go downhill, he prefers to keep his head down and chart out the rescue plan. In the first 15 months when Covid-19 hit BFL’s lending business, Jain focussed on managing operating costs and debts, besides building a digital platform to reach customers. When the business came out of turbulence, he presented a plan to expand operations by adding new businesses.

It has helped BFL out of the crisis, says Jain, who joined the company in 2008 as its first CEO. “If 1.6% customers defaulted pre-pandemic, it was 3x during the lockdown. In the lending business, default has a multiplier effect. So the outcome became 10x. The management usually prepares for 1 to 1.3x,” says the current MD & CEO. According to Jain, the only way to navigate through a crisis is to keep your head down, work and improve. “If you fret and fume, the desired results cannot be achieved,” he says.

BFL did a stress test of its portfolio, updated the board and investors, and booked non-performing assets (NPAs) alongside, instead of waiting for “the right time”. “In our business, the faster you provision the losses, the faster you will get out of trouble. Most firms fail to identify the problem and make the mistake of not provisioning it early,” says Jain.

The micromanagement helped. BFL came out of the crisis ahead of other lenders. In FY23, the company posted a 64% year-on-year growth in net profit at ₹11,508 crore, and a 31% rise in total income at ₹41,406 crore. Assets under management (AUM) rose 25% to ₹2.47 lakh crore, while net interest income (NII) shot up by 32% to ₹28,846 crore. Gross NPA came lower at 0.94% and net NPA at 0.34%. The company acquired a record 11.6 million new customers during the fiscal, taking its customer franchise to 69.1 million. “This year, we expect to add 14 million customers — 11 million offline and 3 million digital. As the India stack is growing, the ratio of offline and digital customer acquisition will become 50:50 in three-five years,” says Jain.

It was during the pandemic that BFL transformed into an omnichannel NBFC with the launch of its digital platform, which Jain calls the “digital twin”. BFL has 41 million customers on the app. “If all goes well, in the next 12 months, we will fully transform into a digital enterprise across our products and services,” he says.

The 56-year-old believes he is more of a risk manager than a lender. “The chances of falling are high in the lending business when you don’t understand risk management,” he says. According to Jain, creating a risk management culture among BFL’s 45,000 employees is an arduous task, but not impossible. “We have successfully navigated risk management in the last 16 years. In March 2023, we ended with our lowest-ever gross NPA of 94 bps and net NPA of 34 bps,” he says. The lender is present in 3,800 towns.

The second major outcome of the Covid crisis has been the growth-oriented stack that BFL is building within. “Crisis handling gave us the confidence to add businesses. We just launched a car financing business. We will be launching microfinance in November, tractor financing in January next year and commercial vehicle lending by June 2025. That would complete what retail banking in India stands for,” says Jain. With this, BFL is looking to have around 50 different lines of businesses.

Jain prefers to call himself a bottom line-focussed CEO who doesn’t get swayed by macro trends. “We are a small part of the economy with just 175 bps of total credits in India. Our approach is that macro challenges affect everyone, not only us,” he says.

Future-ready

According to BFL’s five-year roadmap, retail banking in India will grow 16% versus 13% historically. New products, geographies, platforms, operational excellence and subsidiaries will be key parts of its business strategy. The company is in the process of launching four products. “In geography, the present strategy is wherever there is TV, there will be Bajaj Finserv. It will change to, wherever there is Bajaj Finserv, there will be all products,” says Jain.

“Among subsidiaries, we already have Bajaj Housing Finance (BHFL) and Bajaj Securities (BSL). BHFL is going to have ₹90,000 crore AUM this year. BSL wants to be among the top 3 in business,” he adds.

According to Jain, BFL’s margin profile is comfortable. “Return on equity (RoE) was 24% in FY23. Our guidance is 21-23% over a sustainable period. The leverage strategy is net-net not more than six times on a consolidated basis. The leverage would be 5.2-5.3 times today. Rather than capital adequacy, we focus on leverage because we are a very large non-bank. We think low leverage is a long-term sustainable business model,” he adds.

The Beginning

BFL started with the late Rahul Bajaj’s decision to spin off the two-wheeler lending business into a separate company. It was his second son Sanjiv Bajaj who was picked to head the NBFC in 2008. Bajaj’s relative, the late Nanoo Pamnani, who had just then retired from Citibank, also joined the business. Sanjiv and Pamnani together interviewed over 30 candidates before selecting Jain as CEO. It is this trio that charted the spectacular journey of the NBFC.

Jain’s execution skills have helped BFL ride high in the last 16 years. The firm has leveraged technology to maximise business. Jain’s team finds customers with the help of business intelligence and data analytics, offers tailor-made loans and cross-sells products while tapping new geographies. The company targets businesses with customers who have a minimum annual income of ₹6 lakh in urban areas and above ₹3.6 lakh in rural areas. The classification helps the company cut risk and increase profitability. The Street is cheering as well. BFL had a market cap of ₹4.5 lakh crore as on September 21, 2023.

Jain is now keenly watching the entry of new players, including Jio Financial Services and Godrej Capital in the NBFC space. He wants people to mention Bajaj Finance while talking about financial services 15 years later. For now, he wants to build the Amazon of financial services in India.