Q&A: Sanjiv Bajaj, MD, Bajaj FinServ

'Consumer lending business likely to slow down'

Subdued demand and high interest rates could slow consumer lending business by December, believes Sanjiv Bajaj, co-chair, Confederation of Indian Industry (CII) National Committee on Insurance and Pensions, and the managing director of Bajaj FinServ. In a conversation with Sheetal Agarwal on the sidelines of the CII Insurance Summit, he talked about the outlook for the insurance sector and Bajaj FinServ. Edited excerpts:

What is the outlook for the consumer lending business of Bajaj FinServ?
We are yet to see any pressure point. But with the overall slowdown, I am forecasting a slowdown in consumer lending in few quarters. But even till the last quarter, we were growing strongly. The Diwali season was strong. From December, we should see some slowdown.

When are you planning to launch your mutual fund schemes?
We are in no hurry to start the business. We are hoping to start it by the end of 2012, but that’s not certain. We have asked our team to find the right differentiating way to enter the market. The team is evaluating different business models. When we get it right, we will start the business.

How much pricing power do you enjoy in terms of passing on higher interest rates?
We have been able to pass on most of the additional interest cost. That’s why our margins have remained steady and fairly strong. But going forward, we have to balance rising borrowing costs with competitive pricing scenario.

For the insurance sector, new business premiums are shrinking. When do you think these will bottom out?
I think these are close to bottoming out. Over the next two quarters, the industry will start growing, partly because of the base effect. It will take a year or two for the industry to move up significantly, assuming there is no further regulatory change. I think the worst is over.

Are you witnessing any asset quality pressure?
In the September quarter results, our asset quality has been our best ever. But we are also watching it closely because when a slowdown happens, it can create some stress.

What can regulators do to boost product innovation?
There have been significant regulatory changes in the last few years, partly brought on by irrational competition. If the industry gets a little longer term view of what the regulatory part is going to be, then whether it’s product or distribution, we can make those changes keeping in mind the regulatory guidelines.

What are the key challenges for the insurance industry?
The key challenge is how to efficiently distribute products at low cost, and that is where we have to innovate. How do I find a viable model by which companies can reach the end-customer? For example, the demat process with equities has worked well. The Securities and Exchange Board of India has been trying to move mutual funds to the exchange. We can think of an exchange for small value insurance policies. That will improve transparency and efficiency.

What are the key issues related to motor pool losses?
It’s a huge challenge for the industry. Insurance companies must have the flexibility on pricing and they must be able to do it efficiently. The minute you put something into a third-party motor pool, nobody takes responsibility and you can see as a result what is happening. Unlike a rail accident or an air accident, there is no limit on a motor insurance claim. You can theoretically file it up to 100 years and still the claim is legal. Things have to be done in a more practical manner. I hope there is a positive development there.