The Shah of Mahindra
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Rajeev Jain is the quintessential street-smart CEO, who is not afraid of speaking his mind. At a time when many corporates are gung-ho about the economy, Jain, who heads the 27-year-old Pune-based non-banking finance company Bajaj Finance, thinks the Government’s promises are yet to translate into action. In a freewheeling chat with BusinessLine, Jain speaks about the company’s banking prospects and the different lines of businesses it might foray into. Edited excerpts:
Does the optimism around growth reflect on your business?
There are two possibilities. Even if things do not improve much, the country will attain a growth rate of 5.5-6 per cent with some level of de-bottlenecking. Commodity prices being low are a stimulant to the economy. Our current account balance is a positive at this point. These factors being favourable, growth would be where it is irrespective of which government is in power.
I am not taking credit away from anybody, but I am not ready to give credit as yet to anybody. So, you could have a situation of 5-6 per cent growth over the next four to five years or there could be a situation where from 2016 onwards you could have a 7-9 per cent growth if all the noises that are emanating from Delhi are true.
As the operating manager of a company, I look at these two scenarios. A clear view on that will emerge in the next 60-75 days.
If the Budget is short on details and long on promises, and it does not clearly outline the reform roadmap and is not backed by rate cuts across the banking system over next two to three months, let’s agree that despite all the promises we will be a 5.5-6 per cent economy.
What impact will both the scenarios have on your business?
If the economy does grow at 7-9 per cent, then we will grow at 30-35 per cent on an ongoing basis, and 20-25 per cent PBT (profit before tax) growth could happen.
In a high-growth period as such, even the banking system will grow by 21-22 per cent on the assets side. We are a much smaller player and account for only 0.6 per cent of the banking system. So, we have to grow much faster.
If, on the other hand, the economy only grows at 5.5-6 per cent, we will only grow at 16-20 per cent on a PBT basis and 18-22 per cent on balance sheet.
Both are good … We hope the government’s seminal plans are delivered and we grow faster.
Which new segments are you looking to get into as an NBFC?
There are only two business segments where we want to be and we are not there. One is the credit card business, where the RBI is not allowing us to be there, and the other is car finance business.
The RBI allows an NBFC to issue co-branded credit cards. We don’t see too much value in this. We applied for permission to issue credit cards two years ago and raised it to the highest level. We tried co-branded cards but it did not yield value.
The second business is auto finance. In India, because Maruti and Hyundai do not have any captives, there are a few players who operate in the car finance business. Worldover, car finance is largely driven only by captives. When we (Bajaj Auto) launch our own four-wheeler in future, we will get into auto finance business.
We don’t do business for hobby. We don’t get into a business which does not have a billion dollar view over the course of five to seven years. We want all our businesses to aim at the billion dollar mark.
Why not reapply for a bank licence since many of your existing businesses are bank-like?
At one level, we were disappointed that the RBI did not give us the (universal banking) licence. Hopefully, the RBI will issue more pragmatic guidelines to allow NBFCs to apply for banks. We currently have a balance sheet size of ₹33,000-34,000 crore. In a reasonable timeframe, when we cross a balance sheet size of ₹50,000 crore, we would have already become a systemic risk.
The days have changed when NBFCs were all small. The top NBFCs – Shriram, MMFSL, L&T Finance, Bajaj Finance — are bigger than Karur Vysya Bank or ING Vysya Bank.
Very clearly, it will be prudent for the RBI to convert such institutions into banks and provide for a safe landing.
Where do you think the RBI should get more pragmatic?
See, tier-IV branches are the biggest bottleneck area. Existing banks, with a rich history behind them, have no presence in sparsely-populated areas. The RBI could have given the new entrants a timeframe to enter into these areas, like they have given some time for reduction of ownership for promoters.
No bank is able to meet their priority sector lending (PSL) targets now. How can you ask new entrants to meet 40 per cent PSL target on the date of transition? They could have given the entrants a three-year timeline.
If they bring out on-tap licensing now without changing the guidelines, we will wait for two more years to apply. However, if they alter the guidelines, like if they give us three years for PSL norms, I will apply tomorrow.
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