We should double in size in 5 years, says Bajaj Finance MD Rajeev Jain

We have unveiled our AI technology transformation strategy. And we have, in general, as a firm, been huge beneficiaries of using technology early, Rajeev Jain said

Bajaj Finance has recently unveiled its long-range strategy for the next five years, where it said the company will pivot from financial technology to FinAI. RAJEEV JAIN, managing director of Bajaj Finance, shares the milestones the company aims to achieve in the next five years in a telephonic interview with Manojit Saha. Edited excerpts:

 

Bajaj Finance has recently announced its next five-year growth road map, which will be powered by artificial intelligence (AI). What was the thought process? 

We have unveiled our AI technology transformation strategy. As a firm, we have generally been huge beneficiaries of using technology early.

 

We have been early adopters of new and emerging technologies, and it has helped us grow from Rs 2,500 crore to Rs 3.7 trillion by the end of September. So, clearly, we think the time has come for AI to be a central part of our strategic framework to transform the business yet again. Businesses are getting transformed every three years nowadays.

 

We believe we are in the AI age and should deploy AI at scale. The way we have defined it is: create an AI-enabled technology architecture that is embedded across all our processes. I think that’s the most important part, rather than deploying it in a few areas. It should help us grow revenues, improve customer engagement, reduce costs, improve controllership, and, in the process, improve profitability.

 

What are the milestones Bajaj Finance wants to achieve by the end of this five-year period, i.e., 2029? 

So far, we used to think that we wanted to be a 100-million-customer franchise company. We will cross 100 million this year. If you take an organic way to grow the business, you will only reach 160-170 million. As part of the strategy, we have said that strategic partnerships will be one of the ways to reach a 200-million-customer franchise.

 

As part of 3.0, we aim to be a 200-million-customer franchise company. We should continue to deliver similar profitability ratios and return on equity and more than double in size over the next five years.

 

When we crossed Rs 2 trillion (in business) in 2022, people started asking why no one had crossed Rs 2 trillion, except for HDFC. We had a plan to go to Rs 4 trillion, and by March 2025, we will cross Rs 4 trillion.

 

We are at Rs 3.7 trillion, adding Rs 20,000 crore of new assets every quarter. We expect to reach Rs 4.2 trillion by March 2025.

 

Some are asking, “If you cross Rs 6.5 trillion in two years, what will happen next?” We will continue with 3.0 and become a FinAI company. Not only do we publish the strategy, but we also publish the outcomes we expect from it.

 

So, you’re saying that your assets under management (AUM) is expected to double by the end of the five-year period, from Rs 4 trillion to Rs 8 trillion? 

If you compound at 25 per cent, it will actually happen in three and a half years rather than four.

 

You’re taking a conservative view. 

Given our size and scale, our focus is as much on sustainability and the longevity of the business as it is on AUM or profitability.

 

What kind of cost savings are you looking at due to AI? 

We are already one of the lowest-cost producers, with operating expenses to net interest margin (NIM) at 33.2 per cent, which is among the lowest in the country.

 

But clearly, one of the key challenges in regulated businesses is that costs are linear in nature. I think AI represents an opportunity where costs may become non-linear.

 

That’s just one aspect. In our presentation, we’ve said that the revenue from just the SMS we send should see a 3x higher conversion rate. We expect benefits as we deploy AI across all processes, leading to a dramatic rise in productivity and efficiency.

 

Will you put a number on how much cost you aim to save? 

We foresee that on a trailing basis, which means looking at the four-year plan as a five-year plan, we should aim to reduce our operating costs to NIM by 1 percentage point every year over the next three to four years.

 

How do you see the present asset quality challenges, and when do you think asset quality will start to improve? 

If you look at a three-year compound annual growth rate view of asset quality, comparing it to a pre-pandemic view, our average credit cost to AUM used to be 195 basis points (bps). In the first half of the year, it was at 2.05 per cent. That’s one factual point.

 

The second part is that we came from a very low base — the last two financial years had abnormally low credit costs, going as low as 163 bps. If you take a three-year credit cost view, we are still very close to the long-term averages.

 

But there is no doubt that the supply side has increased considerably. Household debt to gross domestic product has grown faster than it should have in the past three or four years, which has collateral impacts on large players, including us.

 

However, there is no structural change. From the next financial year onwards, you should start to see credit costs fall below 185 bps.

 

Your current term ends on March 31, 2025. There was a plan for you to move to Bajaj Finserv as vice-chairman. Shed light on the succession planning at Bajaj Finance? 

It is for the board to decide, so I would not comment on it.

 

There is a push from the regulator for non-banking financial companies to diversify their funding sources and not rely solely on banks. What is the share of banks in your total resources, and how do you plan to diversify? 

Money markets account for 47 per cent of our borrowings, bank borrowings stand at 29 per cent, deposits make up 20 per cent, and external commercial borrowings are at 4 per cent.

 

Our deposits franchise grew 21 per cent to Rs 66,131 crore, despite the price war and fiercely competitive conditions.

 

We are among the lowest in India, compared to non-banks, in terms of our share of bank borrowings. We continue to diversify on an ongoing basis.

 

Between March and September, we raised close to $1.6 billion in external commercial bonds. By the end of the year, we will have raised $2 billion, or Rs 16,000 crore, in foreign currency borrowings.

 

We had an investment-grade rating from S&P earlier, and now we also have it from Moody’s. We have a dual rating that should further enhance our ability to raise foreign currency borrowings, which are fully hedged.

 

While we are seeing demand across all our borrowing instruments, our liquidity buffer stood strong at Rs 20,200 crore as of September 30. This gives us flexibility in choosing optimal funding sources.