Why NBFC Bajaj Finance is on the road to a scorching pace of growth

By Suraj Sowkar, ET Bureau | 27 Oct, 2015, 09.53AM IST

Bajaj Finance has been one of the fastest growing NBFCs over the last few years. The company has grown its loan book fourfold over the last four years. A technology-enabled relationship management approach and deep penetration has helped the company acquire an edge over its competitors.Rajiv Jain, MD & CEO of Bajaj Finance, talks to Suraj Sowkar about the strategy and risk management system the company has put in place.

Please trace for us the journey of Bajaj Finance from an auto financier to a full-fledged NBFC.

Until 2006, the company's strategy was to focus on captive lending, where 90% of the business was auto finance. In 2006 the group demerged its businesses into Bajaj Holdings,Bajaj Auto and Bajaj Finserv. Holding companies were formed to comply with different regulators and capital close to Rs 750 crore was infused. I joined in August, 2007. The company's name changed from Bajaj Auto Finance to Bajaj Finance and was brought under Bajaj Finserv. Although two wheeler loans grew from Rs 2,000 crore to Rs 3,700 crore since then, a whole host of businesses came in and the share of auto finance came down to less than 8-9%.

What strategy did you adopt to grow during the slowdown?

We run 18-20 business segments which include SME,home loan, personal loan, loan against shares and consumer durables finance. In any particular business segment, if both the macro and micro indicators point to a slowdown, we stop lending. If either of the indicators is not strong, then we are cautious. For instance, over the past few years, we saw a weakness in macro and micro factors in the construction equipment business. Our peak exposure was 14%. We exited construction equipment and infrastructure financing and did so without any loss. In infrastructure we stopped at Rs 700 crore. It is now down to Rs 300 crore. In the loan against property segment, macro was not weak a year ago but micro was weak. Our internal assessment showed the market was overheated. It comprises 25% of our balance sheet, but has grown only 4% this year.

How do you manage risks in different business units?

If banks can operate in different lending segments, so can we. We say to our investors we will deliver 18-20% sustainable return on equity (RoE). While private banks generate RoE of 15-16% and NBFC in a single line of business generate 24% RoE, with 18% RoE, we provide the agility of the NBFCs and the risk management processes of the banks. We feel our diversified presence helps in mitigating risks while growing at a decent pace.

You are a strong player in consumer durables financing. What is your business model?

Manufacturers pay lenders to stimulate sales by offering them a discount to reduce interest cost. We are present at 15,000 points of sale. Our person at the store keys in data about the product and the customer. At the back end, we do application score card, bureau score card, fraud check and the approval decision is done within two minutes. A high processing and technology orientation is needed to achieve this quick turnaround time. We process around 18,000 applications across 150 cities every day, which serves as an entry barrier. During the first quarter of this fiscal, we acquired 1.5 million customers.

Going ahead, in which segment do you see growth?

We wish to dominate in the consumer business where entry barriers are high. In SME lending, we wish to consolidate, while in rural lending we want to accelerate growth. At present, we are small and nimble and hence can move with agility. On a sustainable basis, we intend to grow at twice the banking system, while right now we are growing three fold.

https://economictimes.indiatimes.co...ching-pace-of-growth/articleshow/49515880.cms