Bajaj Finance plans to enter rural markets in second quarter of FY14

To offer gold loan, farm equipment and used vehicle loan from second quarter of FY14

Pune-based non-banking financial company (NBFC) Bajaj Finance, which has operations in urban areas and a few semi-urban regions, is planning to enter rural markets in the second quarter of the next financial year. Initially, it plans to offer gold loans and loans for used vehicles and farm equipment.

The operations, to be launched in Maharashtra and Gujarat, would be scaled up at a later stage. Chief Executive Officer Rajeev Jain told Business Standard, “This is not a change in strategy but an extension of services. By entering the rural market, we are expanding our base to the larger customer group residing in the smaller towns of India…Currently, it’s a test market for us. Based on our experience in these markets, we will set clear targets for ourselves.”

Mahindra Finance has strong presence in rural areas. The two NBFCs of the Shriram Group — Shriram Transport Finance and Shriram City Union Finance — also cater to the rural market, offering personal, gold and truck loans. All these groups are likely to apply for banking licences from the Reserve Bank of India (RBI).

Bajaj Finance seems undeterred by the competition. “We see this (rural) market as a new challenge. We have been doing well in the urban markets and we plan to continue the success in the rural segment,” Jain said. For the gold loan business, Bajaj Finance would maintain a loan-to-value (LTV) ratio of 60 per cent.

RBI guidelines for gold loan companies that have more than 50 per cent of their assets in gold emphasise on 60 per cent LTV. “I think it was very prudent on RBI’s part to restrict LTV at 60 per cent. We will follow it,” Jain said.