Gauging the risk of lending is the primary task of Rajeev Jain, Managing Director and CEO, Bajaj Finance (BFL), as the non-banking finance company's (NBFC's) profit lies in the last instalment of loan repayment. That is why Covid-19 and the resultant lockdown were tough for the lender. Taking up the challenge, Jain, along with Chairman Sanjiv Bajaj, younger son of industrialist Rahul Bajaj, prepared different scenarios and contingency plans under each alternative. The result: BFL's net profit surged 36 per cent to Rs 965 crore during the July-September quarter. At a time when everybody was predicting a rise in non-performing assets (NPAs) of lenders, BFL's NPA shrunk to 0.37 per cent in the second quarter, compared to 0.65 per cent a year ago.
Jain earlier told Business Today that BFL wants to do business only with affluent customers who have a minimum annual income of Rs 6 lakh. In rural markets, BFL deals with customers with annual income above Rs 3.6 lakh. The classification helps the company drastically cut the risks and increase profitability. 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. "If I know the customer, I can offer him more products in a frictionless manner," Jain had said.
Existing customers contributed 66 per cent of new loans during the July-September quarter. According to Jain, BFL is entrepreneurial on one side and institutional on the other. "The entrepreneurial spirit enables us to think quickly, while the institutional culture ensures that we research, assess and create a business plan," Jain had said. "We're constantly innovating and disrupting, identifying the gaps in our product portfolio and filling them."
BFL had always looked at long-term business opportunities and stayed away from short-term profitable distractions. The NBFC closed its two-year-old infrastructure lending business in 2012 sensing a downturn.
Though banks and financial services companies traditionally function in the B2C space, Bajaj is both in B2B and B2C. In the retail loan segment, they first reach out to manufacturing companies such as LG and Samsung and negotiate a deal. Manufacturers offer a margin for additional sales achieved through BFL. This helps BFL offer consumer durables loans at zero per cent interest.
The main reason for low NPAs is prudent asset-liability management. BFL raises long-term loans and uses a mix of borrowings from banks, money markets and deposits. Earlier, 80 per cent of BFL's capital requirement was met through bank borrowings. It is down to 37 per cent currently. "We are committed to grow our balance sheet by 25 per cent and net income by 20 per cent. We want to double the balance sheet and profit in three-and-a-half years," Jain had said.
When Sanjiv Bajaj was picked to head the new NBFC in 2008, he was given one crucial aide from within the extended family - Nanoo Pamnani, the brother-in-law of Rahul Bajajs wife who had just then retired from Citibank. Pamnani was one of Citibank's youngest CEOs at 37. Sanjiv and Pamnani interviewed over 30 candidates before selecting Jain as CEO. It is this trio - Bajaj, Pamnani and Jain - that has since charted the company's amazing rise. The sudden demise of Pamnani last year has increased the burden on Jain. But his art of managing risks helped BFL weather the crisis even while there was 'no business' during the lockdown.
In 13 years of operation, BFL has spread itself across 1,134 urban locations 1,507 rural locations (as on September 2020), building assets under management (AUM) of Rs 1,37,090 crore, 1 per cent higher compared to the year-ago period. The AUM witnessed a compounded annual growth rate (CAGR) of 39 per cent in the last 10 years until March 2020, while net profit surged 40 per cent during the same period. According to September numbers, the biggest chunk of AUM comes from consumer lending, which is around 46 per cent of the overall portfolio. Rural, SME, commercial and mortgage verticals contribute the rest.
BFL has grown from two lines of business to about 55 lines, including businesses under the new subsidiaries Bajaj Housing Finance and Bajaj Financial Securities. In just 10 years of operations, it found a place among the Sensex companies. The stock has delivered huge returns. The share price, which crashed to Rs 1,900 in May, has bounced back to Rs 5,200 as on December 16, with the company crossing Rs 3 lakh crore in market cap.