Bajaj Finance 's Vice Chairman Sanjiv Bajaj is pinning hopes on a stable government reviving consumer sentiment. In an interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy he said loan defaults in the first three quarters of FY14 were negligible, indicating that the worst may be behind. But he also spoke of there being higher stress in the infrastructure and two-wheeler loans segment.
The insurance business has been a mixed bag in terms of performance. The general insurance business was growing slightly above the industry average, but the life insurance business continues to be under pressure.
Bajaj sees new business (in insurance) picking up in the second half of this financial year.
Below is the interview of Sanjiv Bajaj, Vice Chairman of Bajaj Finance with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: A couple of automakers that we spoke to, expect to see a revival in the second half of this fiscal in terms of sales performances across categories, what is your sense on the same?
A: From an auto financing perspective; a two-wheeler and three-wheeler financing point of view, people are depending on two different initiatives. Firstly on a strong stable government coming in, so that the basic mood lifts up because auto sale depends on the consumers and consumer mood has been down in the last couple of years. We have also witnessed that in consumer durable financing.
Therefore, one is the hope of a strong stable government that will send a very positive message to India which will then start increasing the purchase of items like two and four wheelers.
The second is in relation to individual manufacturers. In our case, we are a captive financing for Bajaj products and we know that there are a number of interesting products lined up. With a pick up hopes for the economy, the customer will move to sportier, expensive and better products and thus, Bajaj should have both - the opportunity of new products coming in as well as a pick up in customer sentiment.
Latha: Your answers seem to be more out of hope. When considering two wheelers, in the last four months, is it that a bottom has been hit; because the sales number--inclusive of your group, show an uptick month-on-month.
A: Yes, we hope it is. It is difficult to say whether it is this month or the next one but we hope it is. I am looking at it purely from how I see financing happening over there. So, for vehicle sales we will need to talk to Bajaj Auto.
With respect to financing, we are the largest financiers for Bajaj products in the country and have already reached a certain market share. The underlying vehicle sales ends up mimicking what we do in financing but yes, I believe that the bottom has been reached. However, it is hope at this point. The next two-three-four months will point out whether this is real or not.
Latha: What about the commercial vehicle (CV) space? As further mining ban at least not being imposed, some seminal steps of mining bans being removed and some activity starting - maybe trade related like cargo movement, are you getting a sense that the CV people are coming in and asking for more loans?
A: We don't do classic CV financing and hence I will not have exposure to that. But, in a very limited way, the construction equipment financing that we do also includes small trucks that are used in mines and other areas. Here, we have seen some uptick but, only for this limited segment and that too in the last few months. The reason being that under burden of heavy debt and large projects, all the larger players with more sophisticated and specialized equipment are not moving. Typically, the simple trucks that ferry raw material and stuff over are the ones that get bought by smaller players who are much more nimble.
So, we are seeing some movement there but in our case, as I have mentioned, that is a very small part of the entire segment.
Sonia: We are seeing a lot of launches in 110 CC, 100 CC segment vis-à-vis the luxury products are not selling as much, barring a few. In accordance with kind of financing you are seeing within the two-wheeler space itself, are the disbursement increasing for the lower level bikes and are consumers preferring lower level products at this juncture?
A: The natural shift of consumers who sit on the fence between a typical 100 CC commuter product and a 125 CC or 150 CC is downwards when the economy slows down because they are not sure of their earning power.
In the near future, the same guys who sit on the fence move up. Also, there are those that want to buy a good 150 CC motorcycle and will not compromise by going down to a low end product. They would rather wait another year or so, save a little more and then buy.
So, it is the fence sitters that make the shift and in these eighteen months, they have gradually shifted down. In the past, whenever the economy picked up, we have seen enough instances of them moving up.
Latha: What is the trend on loan defaults and is that lessening?
A: If you see the first three quarters, you will notice that our overall loan defaults has been very low for the book that we have which is significantly retail and small and medium enterprises (SME). I think that goes to show the risk policies and the credit assessment of the company.
However, within these loan defaults two lines that did show higher stress through the year were our infrastructure lending lines, which is less than 3 percent of the books but immaterial as well as the two-wheeler financing.
As we have just already discussed when the economy slows down and two-wheelers especially the 100 CC, 110 CC bikes are at the lowest end, we end up seeing some higher stress there. Overall, it is still a number that as you will see next week to be very healthy.
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