Bajaj Finance aims to have a share of 4-5% in retail credit over the next five years as it builds new lines of business, MD-designate Anup Saha tells Shobhana Subramanian. Excerpts:
In this digital age, how many customers do you expect to be servicing in the next five years? How big is the cross-selling opportunity?
Our customer franchise in the third quarter stood at 97.12 million and we are on course to cross the 100-million milestone in FY25.
As Bajaj Finance transitions to BFL 3.0 — a Fin-AI company, the target is to be a pre-eminent choice for all the financial needs of its customers. Our ambition is to be a 200-million-consumer company with a share of 3-4% in total credit and 4-5% in retail credit in India over the next five years. The next 100 million customers will be acquired organically and through strategic partnerships.
We recently forged a partnership with Bharti Airtel, one of India’s largest telecom service providers. As Airtel will offer Bajaj Finance’s products on its Airtel Thanks App, the partnership presents an opportunity to expand digital financial inclusion and transform last-mile delivery.
The partnership will also leverage Airtel’s nationwide network of stores. Undoubtedly, there is substantial opportunity for cross-sell.
Another key lever of the growth will be our AI-enabled technology architecture which integrates AI across our processes to deliver significant operating leverage and create a virtuous growth cycle.
Would you be exploring any new areas and will there be a significant change in the loan mix?
We are building new lines of business in a calibrated manner based on an analysis of incoming risk data.
We are witnessing a strong momentum in our newly-launched businesses such as new car financing, gold loan, loan against property, microfinance, tractor finance and commercial vehicle finance. These businesses have started contributing nearly 3% of AUM growth. We are investing to scale them further while ensuring that our portfolio mix does not change significantly from the current level.
We are also looking at green financing as a new product line and have recently started financing solar and EV products for retail and MSME customers. For the medium term, we have completed our investments in launching new businesses.
These businesses will start to contribute to profitability and operating efficiencies from next year.
With the secured portfolio expected to grow faster than the unsecured portfolio, would the yields fall?
We are a risk-first company, focused on delivering the right mix of AUM for optimal risk and return ratios. In the first quarter of FY25, we started to pivot towards secured assets. Our asset composition is stabilising in the second half of the year. Our portfolio composition maintains a rightful mix of profit enablers and scale builders to deliver a sustainable AUM growth, rightful NIM and robust profitability. The pivot in AUM composition is essential to create the right blend of secured and unsecured in Bajaj Finance’s standalone AUM. It will provide stability and longevity to our AUM.
Are there signs of stress in the unsecured portfolio which was 40% of AUM in FY24?
Our net non-performing assets (NNPA) in the third quarter was 0.48%, which was among the lowest in the industry. We remain well within 40-50 basis points of our NNPA guidance to investors. We continue to remain watchful for risk across our portfolios and proactively prune segments where required.
We continue to tighten our already-strong underwriting capabilities. For instance, we clearly articulated the fine-tuning of our rural B2C business in terms of risk cuts over the past year and a half. We also reduced the contribution of personal loan borrowers with three or more personal loans to 8% of our acquisition.
Having said that, our rural B2B growth has been very robust. Our personal loan businesses pre-dominantly focus on existing well-performing customers acquired from B2B. So that gives us significant latitude to offer the right product to right customers. Given strong growth in consumer B2B and good credit performance of that portfolio, our cross-sell franchise has tailwinds.
You plan to expand in the micro-enterprise segment to grow the MSME business. How big can this be?
We are evaluating options in the MSME space, including micro-enterprises. The MSME sector represents one of the largest untapped credit opportunities in India and is expected to be our next big growth engine.
Will fee revenues continue to come in from the same sources —cross-selling and the omni-channel network?
Fee income continues to be an important part of our overall revenue mix. We expect fee income to remain in the current state, although we have several levers to enhance it.
To what extent can Gen AI and use of other technologies boost the business and lower costs?
Fin-AI is key to executing our BFL 3.0 strategy. Overall, as we transform into a Fin-AI company with AI-enabled technology architecture, we will be integrating AI across all our processes to significantly improve customer engagement, grow revenue, reduce operating expenses, reduce credit costs, enhance productivity and strengthen controllership.
Our operating costs will be managed better by deploying AI. We are excited about creating growth and revenue opportunities using AI. Over the last two years, we have implemented multiple use cases of AI in specific areas of operations, service, marketing content and contact centre. We plan to extend the scope of AI to all business lines and functions.
(Anup Saha was the deputy managing director of Bajaj Finance at the time of the interview)