Bajaj Finserv Ltd Management Discussions.

Bajaj Finserv Ltd. (Bajaj Finserv, BFS or the Company) is the holding company for the various financial services businesses under the Bajaj group. It serves millions of customers by providing solutions for asset acquisition through financing, asset protection through general insurance, family and income protection in the form of life and health insurance and retirement and savings solutions.

As per the Master Direction - Core Investment Companies (Reserve Bank) Directions, 2016, as updated by the Reserve Bank of India (RBI) on 13 August 2020, the Company is termed as an Unregistered Core Investment Company (CIC).

As an Unregistered CIC, the Company is required to invest at least 90% of its net assets in group companies, of which at least 60% should be in the form of equity investments. Investments outside the group can only be made in specified short-term securities like money market instruments.

Bajaj Finservs areas of business are given below:

Consumer Finance and Lending

BFS participates in the financing business through Bajaj Finance Ltd. (BFL), a company listed on The Stock Exchange, Mumbai (the BSE) and the National Stock Exchange (NSE).

In its part, BFL has a 100% subsidiary — Bajaj Housing Finance Ltd. (BHFL or Bajaj Housing) — which is registered with the National Housing Bank (NHB) as a Housing Finance Company (HFC) for its mortgage business.

BFL also started its broking business in FY2020 through its 100% subsidiary - Bajaj Financial Securities Ltd. (BFinsec).

The shareholding of Bajaj Finserv in BFL was 52.74% as at the end of the reporting year.

Protection and Savings

These are done through (i) Bajaj Allianz General Insurance Company Ltd. (BAGIC) for general insurance including health insurance; and (ii) Bajaj Allianz Life Insurance Company Ltd. (BALIC) for life insurance and retirement plans. BAGIC and BALIC are both unlisted joint ventures with Allianz SE, one of the worlds leading composite insurers.

In March 2021, both the insurance companies completed two decades since their inception.

As on 31 March 2021, Bajaj Finserv held 74% of the equity capital in both BAGIC and BALIC, with the balance being held by Allianz.

BFL also participates in savings business through its fixed deposits vertical.

Bajaj Finserv also has investments in renewable energy in the form of 138 windmills situated in Maharashtra with an aggregate installed capacity of 65.2 MW.

BFS has a 100% subsidiary, Bajaj Finserv Direct Ltd. (BFSD) — which has long term goal of creating a digital marketplace which offers the full range of financial products including loans, life insurance, general insurance, mutual funds, investments, payments and selected e-commerce. BFSD has the ability to scale up the business to much higher levels in years to come now that its business model is established.

BFS has a digital healthcare venture through another 100% subsidiary, Bajaj Finserv Health Ltd. (BFHL). It launched Aarogya care, a mobile healthcare app in September 2020. BFHL seeks to create a digital preventive, personalised and pre-paid health solution connecting customers with service providers such as hospitals, clinics, doctors, pharmacies, diagnostic centres and the like by offering a complete range of products including financial solutions. In the COVID-19 scenario, it had a year of slow growth; but is expected to settle its business model.

During the year, BFS made an application to the Securities and Exchange Board of India (SEBI) for grant of a licence to set up an asset management company to enter the mutual fund business.

The standalone and consolidated financial results of BFS for FY2021 are compliant with Indian Accounting Standards (Ind AS) and the previous period figures are comparable.

The standalone financial statements of the two insurance companies, BAGIC and BALIC, are prepared under applicable regulations of the Insurance Regulatory and Development Authority of India (IRDAI). Thus, the financials in the sections on BAGIC and BALIC in this chapter are as per Indian Generally Accepted Accounting Principles (Indian GAAP) and the regulations laid down by the IRDAI. However, for purposes of the consolidated financial results of BFS, these have been provided as Ind-AS compliant figures.

The COVID-19 pandemic

The COVID-19 pandemic is a once in a lifetime occurrence that has brought with it unimaginable suffering to people and to almost all sections of the economy. When the pandemic struck and led to nationwide lockdowns to curtail the transmission of disease, it was natural to fear that the global economy would stay in extreme stress of the kind not seen since the Great Depression and would have a long-lasting economic impact.

To counter the crippling impact of the lockdowns on economies, the worlds policymakers have resorted to fiscal and monetary measures never seen before in global economic history. It still remains to be seen if these relief measures sufficed, and whether actions taken by governments across the globe adequately compensated for the disruptions created in the lives of people.

Thankfully, science prevailed. Multiple vaccines were found with impressive efficacy levels in less than a year. Announcement of successful development of vaccines seemed to lift spirits around the world. Unfortunately, the advent of winter saw several countries battle second waves of COVID-19 infections, including more virulent strains leading to partial lockdowns. The race between vaccines and variants is heating up as massive vaccination drives are underway.

Much depends on blocking transmission and not just the disease.

Fortunately for India, which is home to some of the largest vaccine makers in the world, the supply constraints should be limited and temporary. Moreover, our experience in implementing large scale vaccination programmes should help in vaccinating our vulnerable population. Even so, with many states in India witnessing a seriously full-blown second surge of COVID-19, the vaccination challenge is enormous. It is estimated that at 3 million shots per day — a rate that is yet to be achieved — it will take another year to vaccinate all those who are 45 years and above.

To alleviate the economic stress induced by the pandemic the Government of India announced a 20.9 lakh crore economic package (or about 10% of GDP). Of this, 1.2% of GDP comprised direct fiscal spending and the rest consisted of (i) loans and guarantee schemes of 10.4 lakh crore, or about 5% of GDP and (ii) the RBIs liquidity measures of 8.01 lakh crore, or about 3.8% of GDP.

The grey cloud at present is the huge surge in infections that started with the second wave beginning in early March 2021. Hopefully, a serious increase in the pace of vaccinations across the country coupled with proper wearing of masks and social distancing will bring this surge down. If we keep all enterprises and workers open for business, this second surge should not affect the economy in a significant manner. However, that remains to be seen. For much depends on whether state governments react to the surge by large scale lockdowns; and whether the vaccination drive can be accelerated significantly.

Macroeconomic Overview

Given the impact of the pandemic, FY2021 was expected to be an extremely demanding year. The consensus was that GDP growth in FY2021 would not only be negative but also would constitute the greatest fall in growth since 1979-80.

After an estimated historic correction of (3.3%) in 2020, the International Monetary Fund (IMF) has projected the global economy to grow 6% in calendar year 2021 and 4.4% in 2022 on the back of the fiscal and monetary support provided by governments the world over coupled with widespread vaccination.

In fact, the degrowth in Indias GDP was much larger than expected. For April-June 2020, real GDP contracted by a massive 24.4%. India had never recorded a quarter of negative growth since it began issuing such data publicly in 1996. No other large economy shrank so much during the pandemic. In the second quarter, July-September 2020, GDP again contracted by 7.3%. The consensus was that growth in the second half of the fiscal year would be far less than what was needed to erase the effect of the deep recession in the first half.

Thankfully, we began to witness early signs on resumption of economic activity in the second half of the year with several high frequency indicators suggesting that the economy was back on to positive growth. The third quarter (October-December 2020) recorded a GDP growth of 0.4%. And, as mentioned earlier, the second advance estimates of national income for FY2021 released by the CSO indicates a negative GDP growth of 8% for FY2021. Though this was bad enough, the contraction will be far less than earlier thought of — and we should see the fourth quarter (January-March 2021) showing relatively robust growth.

The most recent IMF forecast has also raised Indias GDP growth estimate for FY2022 from 11.5% to 12.5%. If that were to occur, it will be the most significant growth turnaround among all the major nations of the world, including China.

Table 1 gives the data on real GDP and gross value added (GVA) growth for the four quarters of FY2021 and Table 2 gives data over the last four financial years.

Table 1: Growth in real GDP and GVA, India

Particulars Q1-FY2021 (2nd AE) Q2-FY2021 (2nd AE) Q3-FY2021 (2nd AE) Q4-FY2021 (2nd AE)
Real GDP growth (24.4%) (7.3%) 0.4% (1.1%)
Real GVA growth (22.4%) (7.3%) 1.0% 2.5%
(AE) denotes advance estimate
Table 2: Growth in real GDP and GVA, India
Particulars FY2018 (3rd RE) FY2019 (2nd RE) FY2020 (1st RE) FY2021 (2nd AE)
Real GDP growth 6.8% 6.5% 4.0% (8.0%)
Real GVA growth 6.2% 5.9% 4.1% (6.5%)

In the past, India has seen a recession only thrice: in 1957-58, 1965-66 and 1979-80. The reason was the same each time — that of monsoon shocks affecting agriculture, which was then a sizeable part of the economy. The lockdown induced recession in FY2021 was different with agriculture being a bright spot, since agricultural activity was largely unhindered even during the lockdown phase. The manufacturing sector that initially suffered has since benefitted from the recovery aided by the pent-up demand and shifting consumer preferences. The services sector is showing a weaker recovery especially hotels, travel and entertainment industry.

The Government of Indias relief measures comprising (i) direct fiscal spending and transfers to the poor; (ii) loan and guarantee schemes; and (iii) the RBIs liquidity measures aided growth in bank credit, enabled abundant liquidity in the financial sector — which was directed toward impacted segments like the industrial and services sector.

While the RBI has maintained an accommodative stance so far, multiple factors like sticky inflation levels, elevated crude oil prices, and risks of US treasury yields will play a part in whether it can continue to maintain an ultra-accommodative stance; and that may have a consequential impact on interest rates in FY2022.

The government has taken on the onus of heavy lifting to revive the investment cycle. A growth-centric and expansionary Union Budget for 2021-22 puts out hope that it will set the tone for infrastructure growth over the next few years.

The fiscal deficit for 2021-22 is budgeted at 6.8% of Indias GDP — though high but way below the revised estimate of 9.5% in 2020-21. Given the unprecedented economic havoc caused by the pandemic, such deficits are in line with actions taken globally. Indeed, most experts feel that FY2022 is a year when fiscal discipline will be kept in abeyance. Even so, implementation of the various budget measures is now all-crucial for the economic and fiscal health of the nation.

We believe that the resilience shown by the Indian economy coupled with (i) a growth-centric Union Budget and

(ii) the RBI maintaining an accommodative stance, will see the Indian economy grow at a faster clip than other economies.

However, the only cause for concern is the resurgence of infections and partial lockdowns in some states.

Consumer Finance and Lending

Bajaj Finance Ltd. (BFL)

Bajaj Finance Ltd. (BFL or Bajaj Finance) is a deposit taking Non-Banking Financial Company (NBFC) registered with the RBI. It is a subsidiary of Bajaj Finserv Ltd. and is engaged in the business of lending and acceptance of deposits. BFL has a diversified lending portfolio across retail, SMEs and commercial customers with significant presence in urban and rural India. It accepts public and corporate deposits and offers variety of financial services products to its customers.

BFL has two 100% subsidiaries. These are: (i) Bajaj Housing Finance Ltd. (BHFL or Bajaj Housing) which is registered with National Housing Bank as a Housing Finance Company (HFC); and (ii) Bajaj Financial Securities Ltd. (BFinsec), which is registered with the Securities and Exchange Board of India (SEBI) as a stock broker and depository participant. BFinsec commenced its operations in the financial year 2019-20 (FY2020).

BFL had to steer through a difficult year due to the COVID-19 pandemic. Having recorded envious performance metrics over the last 12 years from FY2009 to FY2020 with compounded annual growth rate (CAGR) of 45% in its consolidated assets under management (AUM) and 58% in its consolidated profit after tax, BFL delivered marginal growth in its consolidated AUM of 4% and a degrowth in its consolidated profit after tax of 16% while ensuring adequate loan loss provisioning for risks emanating from COVID-19 induced stress.

Despite a significantly elevated level of losses in FY2021, BFL delivered return on assets and return on equity of 3.1% and 12.8% respectively on a consolidated basis. In this exceptional year of lower acquisition volumes, higher liquidity buffers and increased recovery costs, BFL once again demonstrated the resilience of its business model which generates strong pre-impairment profitability to absorb higher losses resulting from a crisis.

BFL remains well capitalised with a capital-to-risk weighted asset ratio (CRAR) of 28.31% as on 31 March 2021. It remains among the best capitalised large NBFCs in India.

BFL was among the early movers to transit to digital process in the financial services industry. It had moved from Physical to Phygital in a seamless manner and has embarked to move to the last phase, namely Digital, in the last three years.

Business transformation requires significant changes in operating processes and core technology stack. These are detailed below.

1. BFL is developing five proprietary marketplaces. These involve: (i) the EMI store, (ii) the Insurance Marketplace, (iii) the Investment Marketplace, (iv) BFL Health and (v) the Broking App with the help of group companies.

These five apps will provide customers with an option to review, compare and buy host of financial products and services across electronics, insurance, investments and health category.

2. Having received approval for running its own wallet business, BFL has developed a wallet application called Bajaj Pay. This will offer an integrated payment solution comprising of UPI, PPI, EMI card and credit card to its customers. BFL will offer Bajaj Pay to its customers in the first quarter of FY2022.

3. BFL is also developing a Bajaj Pay for merchants. This should broaden the payment solution offering to its approximately 102,000 merchants; and enable higher growth and larger market shares.

4. The company plans to partner with 25+ adjunct app ecosystem which have related products or services offering for its customers. These apps will provide adjacency to BFLs core offerings, and thus increase the customer stickiness.

5. It is developing and significantly transforming four productivity apps: (i) the Sales One app; (ii) the Merchant app; (iii) the Collections app; and (iv) the Partner app. These apps will significantly improve productivity and efficiencies of employees, channel partners and the merchant ecosystem.

BFL: Consolidated Performance Highlights for FY2021

• Number of new loans booked: 16.88 million.

• AUM grew by 4% to 152,947 crore.

• Total income grew by 1% to 26,683 crore.

• Net interest income grew by 2% to 17,269 crore.

• Total operating cost to net interest income improved to 30.7% from 33.5% in FY2020.

• Pre-provision operating profit (PPOP): increased by 6% to 11,961 crore.

• Loan losses and provisions (or impairment on financial instruments): increased by 52% to 5,969 crore.

• Profit after tax (PAT): decreased by 16% to 4,420 crore.

• Capital adequacy ratio as of 31 March 2021 was 28.31%, which is well above the RBI norms. Tier I adequacy was 25.11%.

BFL is one of the largest and most diversified NBFCs in India. It has the experience of working with approximately 48.57 million customers since it started its transformational journey in FY2008 from a mono-line captive lender to a diversified financial service business. During this period, BFL expanded its footprint to 2,988 locations with distribution network of over 110,300 points of sale and created presence in the digital space.

Chart A gives a snapshot of BFLs consolidated AUM. Table 3 gives data on the consolidated AUM across the various business categories.

Table 3: BFLs consolidated assets under management across business categories

Consolidated (Rs. In Crore)
Assets under management FY2021 FY2020 % Change
Consumer B2B - Auto Finance Business 12,111 13,085 (7%)
Consumer B2B - Sales Finance 11,526 12,657 (9%)
Consumer B2C Businesses 30,450 31,255 (3%)
SME Business 20,217 19,429 4%
Rural B2B - Sales Finance Businesses 2,883 2,669 8%
Rural B2C Businesses 11,822 10,659 11%
Commercial Lending Business 8,293 6,411 29%
Loans Against Securities 6,054 4,822 26%
Mortgages 49,591 46,166 7%
Total 152,947 147,153 4%

As can be seen from Table 3, mortgages, managed by BFLs 100% subsidiary BHFL, account for 32% of the consolidated AUM. This is followed by the consumer B2C business (20%), the SME business (13%), the rural business (10%), the consumer auto finance business (8%) and the consumer B2B sales finance business (8%).

Business Update

• 8.9 million consumer durable purchases were financed in FY2021 vs 13.4 million in FY2020.

• There were 23.8 million Existing Member Identification Card holders as at end of FY2021 of which BFL financed 8.7 million purchases in FY2021 as compared to 13.6 million in FY2020.

• During FY2021, BFL financed over 34% of domestic sales of two-wheelers and over 54% of domestic sales of three-wheelers of Bajaj Auto Ltd.

• BFLs rural footprint was further strengthened in FY2021 with the addition of 333 locations taking the total number of locations to 1,690. The AUM from rural business grew strongly at 10% to 14,705 crore.

• Government of India carved out a special Emergency Credit Line Guarantee Scheme (ECLGS) to provide top-up financing to mitigate the disruptions caused to SMEs and MSMEs. BFL disbursed 934 crore across 23,703 customers under ECLGS.

• The deposits book increased to 25,803 crore in FY2021, representing a growth of 20%. BFLs deposit book now contributes to 26% of its standalone borrowings and 20% of its consolidated borrowings as on 31 March 2021, compared 21% and 17%, respectively, as on 31 March 2020.

Financial Performance

Table 4 gives BFLs consolidated financial performance for FY2021 as well as FY2020. Table 4: BFLs consolidated financial performance, FY2021 and FY2020

(Rs. In Crore)
Particulars FY2021 FY2020 % Change
Total income 26,683 26,385 1%
Interest and finance charges 9,414 9,473 (1%)
Net interest income (NII) 17,269 16,912 2%
Employee benefits expenses 2,499 2,548 (2%)
Depreciation and amortisation 325 295 10%
Other expenses 2,484 2,818 (12%)
Pre-provision operating profit (PPOP) 11,961 11,251 6%
Loan losses and provisions 5,969 3,929 52%
Profit before tax (PBT) 5,992 7,322 (18%)
Profit after tax (PAT) 4,420 5,264 (16%)
Other comprehensive income/ (expenses) (57) (115)
Total comprehensive income 4,363 5,149 (15%)
Earnings per share (EPS) basic, in 73.58 89.77 (18%)
Earnings per share (EPS) diluted, in 73.00 89.07 (18%)
Book value per share, in 614.11 538.40 14%

Provisions for expected credit losses

Through FY2021, BFL made prudent loss provisions and write-offs based on credit weaknesses arising out of the pandemic. In FY2021, it absorbed an elevated credit loss of 5,969 crore versus 3,929 crore in FY2020. Despite such provisioning, BFL delivered a consolidated pre-tax profit of 5,992 crore. This validates its business model, which creates an adequate quantum of pre-impairment profitability to absorb higher losses resulting from such unforeseen events.

BFL ended the year with a net NPA of 0.75% on consolidated basis. The standalone net NPA stood at 0.91%. On a consolidated basis, the provision coverage on non-NPA assets, excluding the management overlay provision, stood at 145 bps; and at 181 bps including the management overlay provision.

Asset Liability Management (ALM)

BFLs consolidated total borrowing was 131,645 crore as on 31 March 2021. Its Asset Liability Committee (ALCO), set up in line with the guidelines issued by the RBI, monitors asset liability mismatches to ensure that there are no imbalances or excessive concentrations on either side of the balance sheet.

BFLs robust liquidity management framework has ensured that enough liquidity was available throughout FY2021 to meet its debt service obligations, despite it having to offer EMI repayment moratoriums to its customers. It has maintained significantly cumulative positive ALM position across all buckets.

Bajaj Housing Finance Ltd. (BHFL)

Bajaj Housing Finance Ltd. (BHFL), a 100% subsidiary of BFL, started its lending operation from July 2017.

BHFL offers the following products to its customers: (i) home loans, (ii) loan against property, (iii) lease rental discounting, and (iv) developer financing. It also has a dedicated vertical offering home loans and loan against property to rural individuals and MSME customers. Table 5 gives BHFLs standalone financials.

Table 5: BHFLs standalone financial performance, FY2021 and FY2020

(Rs. In Crore)
Particulars FY2021 FY2020
Total income 3,155 2,646
Interest and finance charges 1,966 1,616
Net interest income (NII) 1,189 1,030
Total operating expenses 329 339
Pre-provision operating profit (PPOP) 860 691
Loan losses and provisions 247 124
Profit before tax (PBT) 613 567
Profit after tax (PAT) 453 421
Other comprehensive income/ (expenses) 1 (1)
Total comprehensive income 454 420
Earnings per share (EPS) basic, in Rs. 0.93 1.12

Bajaj Financial Securities Ltd. (BFinsec)

BFinsec started its business operations from August 2019 with a strategy to ring fence Loan Against Securities (LAS) customers of BFL by providing them a full suite of investment products and services. It offers demat, broking, margin trade financing and financing for offer for sale to retail and HNI clients. It offers spread financing to its customers through BFL.

With a base of approximately 42,900 customers as of 31 March 2021, BFinsec offers HNI demat and broking, retail demat and broking and margin trade financing. BFinsec generated total income of 36 crore and profit after tax of 6 crore in FY2021.

Protection and Savings

General Insurance: Bajaj Allianz General Insurance Company Ltd. (BAGIC)

BAGIC is one of Indias leading composite general insurers offering all types of general insurance including motor, health, crop insurance, marine, and various forms of commercial lines of insurance. It has built a strong retail franchise and retained a leading position among private insurers. BAGIC has been able to hold ground during FY2021 which saw COVID-19 affecting not just the general and health insurance industry, but virtually all economic activity.

BAGIC focuses on building a quality portfolio, supported by strong underwriting, multi-channel distribution and prudent financial management. In a market where most peers continue to chase market share, BAGIC has differentiated itself by focusing on building a profitable and diversified portfolio, balancing growth with profitability. It is one of the most respected brands in general insurance.

All of this is visible in BAGICs continued healthy market share and all time high PAT of 1,330 crore in FY2021.

Industry Update

After recording approximately 17% CAGR in Gross written premium (GWP) in the last five years, the general insurance industry in India faced one of its most challenging years. As the national lockdown was announced towards the end of FY2020, the year started with the economy at a near standstill.

Production and sales of automobiles across all segments — two wheelers, private cars and commercial vehicles — were down for several months in the wake of the lockdown. The motor segment represents over 34% of the industrys gross premiums and hence this had a major impact on industry growth. Travel had come to a standstill and, correspondingly travel insurance segment also suffered negative growth for much of the year. Equally, however, there was a spurt in demand for health insurance policies for a few months, especially COVID-19 specific policies.

From Q3 FY2021 onwards, businesses started to revive and, by the end of the year, many segments reached their pre-COVID-19 levels in terms of growth. Having said so, it needs emphasising that recovery in a few segments like passenger carrying commercial vehicles is yet to gain full momentum.

On the Motor Third Party segment, where the price is fixed by means of a tariff, there was no increase in premium rates granted in FY2021 and no increase is expected for FY2022 either. This is a segment where the industry historically has loss ratios above 90%.

On the claims front, lower frequency of accidents in motor insurance and non-COVID-19 health insurance claims were positive events which were partially offset by a significant occurrence of COVID-19 claims in health insurance.

Average claim sizes started moving up for motor and non-COVID-19 health claims as the recovery started.

Despite such challenging circumstances on all fronts and in spite of sharp decline in GWP in the first half of FY2021, the industry posted growth of 4.0% for FY2021. This was largely driven by growth in health and property insurance.

Growth rates in gross direct premium in India (GWP less reinsurance accepted) for the industry, and for BAGIC, are shown in the Table 6.

Table 6: Gross direct premium in India - the general insurance industry*

(Rs. In Crore)
Particulars Gross direct premium
FY2021 FY2020
BAGIC 12,570 12,780
Private sector 98,014 93,266
Public sector 71,826 73,263
Industry 169,840 166,529
Standalone health insurers (SAHI) 15,720 11,951
Industry including SAHI 185,560 178,480
Growth rates
BAGIC (1.6%) 15.6%
Private sector 5.1% 12.2%
Public sector (2.0%) 6.4%
Industry 2.0% 9.5%
Standalone health insurers (SAHI) 31.5% 26.9%
Industry including SAHI 4.0% 10.7%

Source: GI Council figures, IRDA website and IRDA, Handbook of Insurance Statistics. * excluding specialised insurers.

Further to a series of actions against various intermediaries in motor insurance distribution operating through a network of motor insurance service providers during the previous year, the IRDAI carried out review of its Motor Insurance Service Provider (MISP) guidelines. These recommendations are under examination. The IRDAI also made an effort to standardise products across the general insurance sector. Further, after the lockdown, the IRDAI announced measures to allow digital issuance of policies (with digital signatures) to ease business.

Business Update

BAGIC focused on immediate steps to tackle the pandemic — dealing with the well-being of employees, enabling work-from-home, providing customers with facilities to report claims and keep their policies renewed and so on. It further strengthened its business continuity plan based on its experience of handling the lockdown.

BAGIC has a strong focus on growing its retail business. While its total portfolio includes motor insurance, health insurance for individuals, other personal lines of insurance, insurance for commercial entities like shops, SMEs, etc., it continues to participate in annual tender driven businesses like crop insurance and government health schemes.

BAGIC posted degrowth of 1.6% (growth of 8.2% for H2 FY2021). Its growth during the year was lower than the industry due to depressed sales of highly profitable passenger carrying commercial vehicles for most part of the year where BAGIC had higher exposure than the industry. Parenthetically, that had also led to better than industry profitability for BAGIC in the previous years.

BAGIC continues to be among the more profitable general insurers vis-a-vis peers in the public and private sectors of comparable size.

Its combined ratio of 96.9% in FY2021 is expected to be one of the lowest in the industry, reflecting a sound balance between growth and profitability. BAGIC has done so by: (a) robust and prudent underwriting practices; (b) generation of cash flows through strong retention of premium and judicious investments of the proceeds; and (c) focus on high quality customer service.

Motor, property and retail health insurance are the major focus areas, with over 60% of gross premium coming from these lines.

BAGIC has one of the largest distribution network through tie ups with banks, NBFCs, individual agents, MISPs, POSPs and the proprietary Virtual Sales Offices.

It continued to expand network of independent bancassurance partners including private banks, public sector banks, regional banks, small finance banks and cooperative banks. During FY2021, BAGIC tied up with 15 new corporate agents, renewed its long-standing relationships with Canara Bank, several co-operative and medium sized commercial banks and NBFCs and also secured entry into automobile brands which hitherto it was not present.

During the year, BAGIC introduced several initiatives to further enhance its service. Some of these were:

1. Digital empowerment to offer faster, safer, efficient and better services to the customers, and a go-green initiative to ensure that processes become paperless as much as possible.

2. Several digital initiatives under the Digi-Sampark programme to stay connected with customers. The programme extended its reach to the customers and digital servicing peaked at an industry beating 80+%. The rapid development of a COVID-19 self-test BOT along with Social Trackback were wholeheartedly adopted by customers. Digi-Swasth, a mobile based digital end-to-end health check-up process was launched which ensured over 98% turnaround time for medicals with four hours.

3. Cloud adoption by migrating the retail health business to the cloud provided agility and scalability to the business. BAGIC launched a cloud-based hospital portal for cashless claims registration and settlement, which saw an uptake of 35,000+ claims processed in six months. Combined with automated, machine-vision based bill processing, it was able to settle health claims in a shorter time and with higher accuracy.

BAGIC: Performance Highlights for FY2021

• Gross written premium (GWP) stood at 12,624 crore in FY2021, degrowth of 1.6%. H2 FY2021 growth was however 8.2%.

• BAGICs market share in the industry, including standalone insurers, was at 6.8% in FY2021 versus 7.2% a year earlier.

• Net earned premium for FY2021 was 7,436 crore.

• The combined ratio was 96.9%.

• PAT increased by 33% to 1,330 crore in FY2021 due to overall lower claim and expense ratios and higher investment income.

• Some 25 million policies were issued in the year, versus about 26.9 million in FY2020.

• 3,771,501 claims were reported in the year, versus 5,766,512 in FY2020.

Financial Performance

BAGICs financial performance for FY2021 is summarised in Table 7.

Chart B plots the companys PAT over the last five years.

Table 7: BAGICs financial performance, FY2021 and FY2020 (Rs. In Crore)
Particulars FY2021 FY2020 % Change
Gross written premium (GWP) 12,624 12,833 (2%)
Net earned premium 7,436 8,206 (9%)
Underwriting result 237 (11)
Profit before tax 1,769 1,376 29%
Profit after tax 1,330 999 33%
Claims ratio 68.5% 70.7%
Combined ratio* 96.9% 100.8%
Return on average equity 20.3% 18.1%

* Combined ratio is calculated according to the Master Circular on Preparation of Financial Statements of General Insurance Business issued by the IRDAI effective from 1 April 2013.

01-09 10-84 85-286

Capital and solvency

• Paid up capital, including share premium, stood at 277 crore as at 31 March 2021. No fresh capital was infused in FY2021.

• BAGIC completed 13 consecutive years since the last capital infusion and continues to be one of the most efficient users of capital in the private sector — as measured by the ratio of GWP to share capital and by GWP to shareholders equity.

• Shareholders equity of BAGIC was 7,524 crore as on 31 March 2021, versus 5,642 crore a year earlier.

• As on 31 March 2021, BAGICs solvency margin was at 345%, which is well above the normal regulatory requirement of 150%.

Cash and investments

BAGICs cash and investments as on 31 March 2021 were 23,150 crore, versus 18,746 crore in the previous year.

Cash flow generation continued to be strong.

An expected economic recovery should give the general insurance business some tailwind in the coming year.

Sales of new motor vehicles and investments in assets will be the key drivers. Demand for health insurance should pick up. However, given the overhang on several industries still operating below capacity, any slowing down in the progress of vaccination drives and the recent recurrence of a huge second wave of COVID-19 could spoil this scenario.

BAGICs excellent solvency, large AUM in relation to its premium, liquidity, prudent underwriting, stable management team and strong brand positions have helped it in these challenging times. And should help it to come out of the crisis and make most of various opportunities.

Life Insurance, Savings and Retirement: Bajaj Allianz Life Insurance Company Ltd. (BALIC)

BALIC recorded an all-time high GWP of 12,025 crore and an AUM of 73,773 crore in FY2021. Although market conditions for the industry and overall consumer sentiments, remained depressed during the initial two quarters, BALIC recorded excellent growth, well above that of the industry growth.

During the year, BALIC continued its journey of transformation, which included:

• Enhanced product portfolio with launch of annuity proposition, new feature rich participating and unit linked products and revamped retail term offering.

• Continued focus on building profitable agency with investment in new sub-verticals and focus on balanced product mix.

• Developing direct selling channel (BALIC Direct), aimed at upselling and cross-selling opportunities to existing customers.

• Focus on existing channels productivity for all third party distribution and investment in new tie-ups with RBL Bank, Karur Vysya Bank, India Post Payment Bank, IDFC First Bank and building on the Axis Bank partnership.

• Continued focus towards gaining mind share in mass and mass affluent category of customers.

• Continued leadership in the online investment space and being Life Goal enablers.

• Digitisation of insurance operations (pre and post-sales) and continued focus on improving quality of business which includes persistency, customer grievances and claims servicing.

• Implementation of interest rate derivatives to manage the guarantees risk efficiently.

• Focus on new business value (NBV) through balanced product mix, enhancing productivity, cost control and improving persistency across cohorts.

The results of the steps taken towards transformation over the last few years have been visible through growth of new business and market share, customer retention, improvement in persistency, a revamped product portfolio including a new business line of providing annuity solution to customers, several technological advancements in serving the customers and distributors and brand enrichment.

Industry Update

After recording approximately 14% CAGR in Individual rated new business premium (IRNBP) in the last five years (FY2016 to FY2020), the life insurance industry faced one of its most challenging years. Consequent to the national lockdown, the year started at a near standstill economic activity. Retail consumers were holding on to cash in the wake of uncertainty about how long the COVID-19 pandemic and the lockdown would last. Until Q3 FY2021 there was low confidence that the economy might reach pre-COVID levels in Q4 FY2021. However, the life insurance industry recovered strongly during Q4 FY2021.

The overall industry recorded growth of 3% in IRNBP in FY2021. Within the industry, private sector grew by 8%, while LIC de-grew by 3%. BALIC recorded strong growth in IRNBP of 28% for the financial year ended 31 March 2021.

Table 8 gives the industry-wide data, along with BALIC.

Table 8: Premium in India — the life insurance industry

(Rs. In Crore)
Particulars Individual rated new business New business (NB)
FY2021 FY2020 FY2021 FY2020
BALIC 2,468 1,927 6,313 5,179
Private sector 45,192 42,031 94,103 80,919
LIC 30,466 31,457 184,175 177,977
Industry 75,658 73,488 278,278 258,896
Growth rates
BALIC 28.0% 10.6% 21.9% 5.2%
Private sector 7.5% 4.8% 16.3% 11.6%
LIC (3.1%) 8.3% 3.5% 25.2%
Industry 3.0% 6.2% 7.5% 20.6%
Market share
Private industry 59.7% 57.2% 33.8% 31.3%
LIC 40.3% 42.8% 66.2% 68.7%

Group premium contributed 59% of the overall new business premium in FY2021 for the industry as a whole, versus 61% in FY2020. Of the total growth experienced by the industry, individual new business grew by 12%; and group new business by 4% in FY2021.

During the year, with the unprecedented pandemic situation, volatile equity markets and falling interest rates gave prominence to protection and guaranteed life insurance solutions for people looking to conserve wealth with secured returns.

Business Update

As with every company under the umbrella of Bajaj Finserv, the first set of priorities for BALIC as FY2021 began was on the immediate steps needed to tackle the effect of the lockdown. This focused on the well-being of employees, enabling work-from-home, providing additional technology support for distributors to connect with potential customers, launching new products for different customer needs, providing customers with facilities to report claims and keep their policies renewed and so on.

In terms of individual rated new business premium, BALIC registered a growth of 28%, which was significantly higher than the industry growth rate of 3%. The growth of BALIC is evident in the Chart C (CAGR for five years at 25%).

BALIC registered increase in market share from 2.6% in FY2020 to 3.3% in FY2021 on IRNBP basis. Within the private industry, its market share grew from 4.6% in FY2020 to 5.5% in FY2021.

BALIC grew the fastest within the top ten private players on the basis of IRNBP during FY2021.

In line with industry trends, BALICs share of non-participating endowment, non-participating guaranteed savings and protection products increased to ~ 35% for FY2021 versus ~ 21% in FY2020.

BALICs average ticket size of retail regular premium policies de-grew by 6% in FY2021 to over 57,782 versus 61,716 in FY2020 due to a higher share of non-participating guaranteed savings and protection products.

In FY2021, BALIC continued with its emphasis on a balanced and sustainable product mix, with a view of de-risking its business from volatile market movements. As a result, the proportion of ULIPs, in the product mix has been brought down from 51% in FY2020 to 41% in FY2021.

During the year, the company introduced numerous initiatives to enhance customer experience. Some of these were:

• First in the industry, Smart Assist, along with a voice calling feature to support new business sales; best-in-class WhatsApp service; implementation of CRM (iAhead) with 360 degree view of customers at all digital touch points; launch of E-Sampark (B2B2C), a platform for insurance consultants and sales managers to share personalised and approved marketing content on WhatsApp, email and social media; and the launch of the E-Welcome Kit.

• BALIC continued to provide customers with best-in-class product suites. It launched Flexi Income Goal, which is one of the most unique, comprehensive and competitive participating product in the industry. It also launched Smart Wealth Goal on the ULIP platform with multiple unique features for various customer needs.

• It scaled up alternate retail channels like Digitized Work Force, a work from home model in BALIC Direct, corporate distributorships, new bancassurance partnerships and increased the contribution of low cost variable agency models.

BALIC: Performance Highlights for FY2021

• Individual rated new business premium grew by 28% in FY2021 to 2,468 crore.

• Group protection new business premium decreased by 15% in FY2021 to 1,597 crore due to overall lower credit pick-up.

• New business premium grew by 22% to 6,313 crore.

• Renewal premium grew by 25% to 5,712 crore.

• Gross written premium (GWP) increased by 23% in FY2021 to 12,025 crore. BALIC registered its highest ever GWP during FY2021.

• PAT for FY2021 was 580 crore, primarily due to higher investment income partially offset by higher new business strain.

• New business value (NBV), a key metric used to measure profitability of life insurance businesses, increased by strong 59% to 361 crore.

• 13th month persistency* saw a marginal improvement to 79.8% in FY2021, from 79.2% in FY2020, and 25th month persistency* remained relatively flat at 71.3% in FY2021. All other cohorts registered growth over FY2021.

• Customer grievances saw a significant decline of 12% in FY2021 versus FY2020, to all time low of 44 grievances per 10,000 new policies issued.

• The embedded value of the company at FY2021 stood at 15,534 crore up from 13,438 crore at FY2020.

• AUM crossed 73,000 crore.

‘Policies issued in the March to February period of the relevant years.

Financial Performance

BALICs financial performance in FY2021 is summarised in Table 9.

Table 9: BALICs financial performance, FY2021 and FY2020

Particulars FY2021 FY2020 (Rs. In Crore) % Change
Gross written premium (GWP) 12,025 9,753 23%
New business premium 6,313 5,179 22%
- Individual rated new business premium 2,468 1,927 28%
- Group protection new business premium 1,597 1,872 (15%)
Renewal premium 5,712 4,574 25%
Policyholders surplus (69) (10)
Shareholders profit after tax 580 450 29%
New business value (NBV) 361 227 59%


As on 31 March 2021, BALICs AUM was 73,773 crore — up by 32% from 56,085 crore on 31 March 2020, reflecting a significant improvement in equity markets. Table 10 provides the data.

Table 10: BALICs assets under management (Rs. In Crore)
Particulars FY2021 FY2020
Shareholders funds 10,058 9,237
Policyholders linked funds 28,855 19,620
Policyholders non linked funds 34,860 27,228
Total 73,773 56,085

Capital and solvency

• Total capital infused by shareholders in BALIC was 1,211 crore as on 31 March 2021. No fresh capital was infused in FY2021.

• Including accumulated profit of 9,076 crore and mark-to-market profit on equity investments of 394 crore as on 31 March 2021, the shareholders net worth was 10,735 crore. For the previous year, accumulated profits were

8,662 crore, and shareholders net worth was 9,731 crore.

• BALIC has a strong solvency ratio of 666% as on 31 March 2021, which is well in excess of the minimum regulatory requirement of 150%.

Indian Union Budget 2021 introduced taxation of proceeds from Unit Linked policies with premiums exceeding 250,000, which, hitherto were tax-free. BALIC had already taken steps over the last two years to balance the product mix. Its dependence on Unit linked business was reduced and the portfolio was re-balanced between pure protection, guaranteed endowments and linked business. In FY2021, BALIC was able to weather the adverse conditions reasonably well.

Towards the close of the year and subsequently in April 2021, a huge second wave of spread of COVID-19 was seen across India. While the growth of the life insurance industry in Q4 FY2021 was very good, the outlook for FY2022 will depend on how the pandemic evolves and the extent of localised lockdowns.

Renewable Energy and Conservation of Environment

Bajaj Finserv owns and operates 138 windmills in Maharashtra with total installed capacity of 65.2 MW. During FY2021, the Company continued generating green energy, thereby contributing to conservation of the environment. Apart from revenue from sale of power generated by these wind farms, BFS also earns revenue from Renewable Energy Certificates (RECs).

Due to low winds, the windmills generated 639 lakh units in FY2021, which was 19% lower than the FY2020 generation of 792 lakh units. Revenue generated from renewable energy in FY2021 was 24 crore versus 39 crore in the previous year, due to low generation and REC trade suspension by regulatory authorities during FY2021. The Companys application for renewing the permission for Open Access (sales to third parties) for a further period of 5 years has been approved by the Maharashtra State Electricity Distribution Co. Ltd.

Financials of Bajaj Finserv

BFS: Consolidated Performance Highlights for FY2021

In a year impacted by COVID-19 pandemic, following all time highs were registered:

• Consolidated revenue of 60,592 crore.

• Consolidated profit after tax of 4,470 crore.

• BFL consolidated - pre-provision operating profit of 11,961 crore.

• BAGIC profit after tax of 1,330 crore.

• BALIC gross written premium of 12,025 crore.

Standalone Financials

Standalone financials of the Company are given in Table 11 and the significant ratios in Table 12. Table 11: Standalone financials of Bajaj Finserv, FY2021 and FY2020

Particulars FY2021 (Rs. In Crore) FY2020
A. Income from wind farm activity 24 39
Administrative expenses 20 20
Profit from wind farm activity 4 19
B. Income from investments and others* 368 776
Other expenses 127 113
Profit before tax (PBT) 245 682
Tax expense 66 15
Profit after tax (PAT) 179 667
* Includes dividend received from BFL of Nil (Previous year : 509 crore).
Table 12: Significant standalone ratios of Bajaj Finserv
Particulars FY2021 FY2020
Current ratio 4.2 1.7
Operating profit margin % 62.5% 83.6%
Net profit margin % 45.6% 81.8%
Return on net worth % 4.9% 20.0%

Consolidated Financials

The consolidated results are given in Table 13. These include the results of subsidiaries and joint venture and are prepared in accordance with the Ind AS.

Note on consolidated profit after tax

Under Ind AS, the insurance subsidiaries have chosen to hold a large part of the equity securities portfolio as Fair Value Through Profit and Loss Account. The spread of the COVID-19 pandemic resulted in a significantly larger than normal fall in the value of shares traded on the stock exchanges in Q4 FY2020. As on 31 March 2021, the BSE Sensex has rebounded by over 68% from 31 March 2020 levels, resulting in higher than normal mark-to-market gain on investments of insurance subsidiaries during FY2021. This has resulted in an increase in consolidated profit after tax of 892 crore for FY2021 compared to decrease of 451 crore in FY2020.

Consequent to the ongoing pandemic, BFL has as a matter of prudence, written off/provided for principal and interest of potentially unrecoverable loans, by also utilising the available expected credit loss provision. BFL continues to hold a management overlay of 840 crore in provisions, given the dynamic and evolving nature of the pandemic along with other variables.

Table 13: Consolidated financials of Bajaj Finserv, FY2021 and FY2020

(Rs. In Crore)

Segment revenue Segment results-profit after tax
Particulars FY2021 FY2020 Particulars FY2021 FY2020
Life insurance 16,215 11,122 Life insurance 426 324
General insurance 17,961 17,018 General insurance 984 730
Wind-farm 24 39 Wind-farm 4 19
Retail finance 26,683 26,386 Retail finance 3,446 3,207
Investments and others 480 904 Investments and others (167) (104)
61,363 55,469 Profit before MTM and Credit
Less: inter-segment 771 1,118 cost impact 4,693 4,176
Total 60,592 54,351 MTM and Credit cost impact (223) (807)
Profit after MTM and Credit cost impact 4,470 3,369

In a year which was unprecedented in terms of external headwinds, the Company has performed creditably. All the major businesses have recorded profits and ended the year with better capital adequacy / solvency and net worth. The pressures on BFL due to the credit losses arising out of the moratorium were partly offset by strong growth in profit in BAGIC and a solid performance from BALIC.

Awards and Recognition

The Company, its subsidiaries and key personnel received several prestigious awards, some of which are given below.


Sanjiv Bajaj, Chairman & Managing Director of Bajaj Finserv was the Vice President of CII for the year 2020-21.


1. Company of the Year India 2019 by Economic Times (ET) Awards.

2. Great Place to Work with respect to best in industry: BFSI, Top 25 best large workplaces in Asia for 2019 and Indias Best (Top 5) Companies to Work for in 2019.


1. Best Motor Insurance Provider of the Year at Business Today-Money Today Financial Services Awards.

2. Best Digital Insurer in Asia at IDC Financial Insights Innovation Awards 2021 for Digi-Enroll, an automated, interactive and customised portal for GMC Customers.

3. AI in BFSI Award at ET Innotribe Awards for Digi-Swasth.

4. Celent Model Insurer Award 2021 for SkillSity, Companys learning platform, under Digital and Emerging Technologies category.


1. The Best Digital Customer Experience Initiative award for WhatsApp servicing, at the Customer FEST Leadership Awards 2021.

2. The Best Use of Innovation to enhance Customer Experience at the Customer FEST Leadership Awards 2021 for Smart Assist, a first-of-its-kind co-browsing service in the insurance industry.

3. Ranked #2 amongst the Most Trusted Private Life Insurance Brand, Economic Times, and Brand equity - Nielsen.

4. Featured third time in a row among the Top 75 Most Valuable Indian Brands 2020 list, as per Kantar BrandZ Top 75 Most Valuable Indian Brands report

Cautionary Statement

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward looking within the meaning of applicable laws and regulations. Actual results may differ from those expressed or implied. Important factors that could make a difference to the Companys operations include global economy, political stability, stock performance on stock markets, changes in government regulations, tax regimes, economic developments and other incidental factors. Except as required by law, the Company does not undertake to update any forward-looking statements to reflect future events or circumstances. Investors are advised to exercise due care and caution while interpreting these statements.