Covid first wave was more about fear and the second wave is more about numbers and the impact of it. How big could be the impact of the Covid second wave to the economy and demand and how different is it from the first wave?
The first wave was as much about fear as it was about tackling the unknown because a lot less was known about the virus, it’s is impact both on health as well as on the economy and actions that were taken were taken with significantly less information available than today. This time is different to that extent. Over the last six to eight weeks, we have seen more localised lockdowns rather than a full national lockdown like last time. To that extent, its impact on the economy will be lower.
While in the last five weeks, all the big cities have been reasonably shut, we are starting to see things open up over the last seven to ten days. Maharashtra has just announced a set of liberalised measures with non-essential shops opening from today for at least half the day and this will help trade and business pick up. We also have to be careful. We are still not out of this second wave and we have to take all the necessary precautions.
Also the restructuring that RBI has permitted makes a lot of sense because one can apply the solution to where the problem is versus a more blanket moratorium that was done last time which again created a lot of uncertainty. So the situation is different. It is, I would say better. A lot depends now on how the country comes out of this second wave, what is the level of confidence, what is the level of speed? But at a country level we know the last couple of weeks and definitely in Pune, where I sit, for the last ten days or so, things are looking much better.
Is it safe to assume that given everyone has directly or indirectly felt the pain of the second wave and rural India has also suffered, there would be a challenge in terms of demand, recovery and delinquencies, especially at the retail end?
That is a fair point. While I believe that the economy will be less affected this time compared to last time, on the social side, people clearly have been affected a lot more. We have all seen people near and dear to us suffer. Many people have lost family members. RBI has already taken the lead for creating confidence in the current circumstances by accelerating vaccinations, importing the ones that work in the developed world, expanding capacity over here. All this has been happening the last four-six weeks. We will see the impact from next month and even in June, which has just started.
Serum Institute recently said that they are going to up their capacity and try to do a hundred million doses. So we need to provide that confidence. Vaccines will do that, not just the availability but the delivery. We need to get to at least seven million vaccinations per day. The government is talking about ten million by July, I hope we get there. But at least seven million so that we can vaccinate our adult population by the end of the year and that will make a big difference.
I also believe that like the government came out with a bunch of fiscal measures for stimulus last year and have further expanded the scope of the support to MSMEs, the ECLGS scheme just a couple of days back, we need to expand the amount that is available as well so that a combination of these measures can at least gets the economy going.
Yes, rural India this time is more hit than it was last time. We will see how the recovery is to take place. We have to pray once again to the rain Gods to see that we have another normal monsoon because a lot of that economy is driven by agriculture. It will require government support as well, especially for people at the lower end of the pyramid like last year through food as well as through some income support. So it is again a combination of these factors that we saw last year. We need that right combination again this time.
When I spoke to you at the IEC forum, things were different. The mood was upbeat. Demand was robust. Corporates were looking at committing capital. Some were committing capital to brownfield, some to greenfield and some to both. Right now the animal spirit seems to be missing. When do you think it will come back?
I am hopeful that this is going to be much faster than what it was last year. I believe that by the second half of June, states like Maharashtra, Delhi should be back and humming. They will not be humming at 95% but they should be humming at 75-80% of what they were doing earlier. We will see Gujarat, parts of the south coming back by early July and then we have to see the north and the east. I do see this coming back faster than what it did last year. Clearly as far as the corporate sector is concerned, people will add capacities when they are reasonably full with their existing capacity utilisation and some of that capacity additions have started. We see that panning out in the coming quarters.
Those that still had ideal capacity will naturally wait and that is where the government’s programme for investment in infrastructure which was announced over the last year and further in the Budget, has to continue because in these times, that provides the primary stimulus that provides that large scale employment and creates demand so we get the wheels running again. The government has to be the first to do it with the private sector following.
What can the private sector do which could be different and how prepared is the private sector if there is a third wave?
That is a very relevant question and everybody has become sensitive to the fact that we need to prepare better for the third wave. Naturally at some level, cases can exceed capacity but we need to anticipate and let me tell you the role that I think private sector can play along with the public sector because we need that collaboration to anticipate, plan, act and to support in such situations.
When I say anticipate, I mean we set up joint teams and we build the right tools and the models which can monitor and anticipate future healthcare crisis. That is the first thing we have to be able to do.
Second is to plan additional capacity in healthcare infra and medical research in vaccines and medicines. We are already known as the vaccine manufacturer of the world. Push that forward on the research side as well. Stockpiling of medicines and building both international and domestic alliances for support and procurement of all kinds of medicines has to be done under plan.
What we need is trigger-based localised action plans and these should be based on a combination of positivity rates, hospital bed availability etc. There are experts who can guide us on that and Maharashtra has just recently announced that at a city level. But these trigger-based action plans should then have a set of standard SOPs that people know what will open up, what will shut down, transparent to all citizens and maybe updated weekly so that as businesses know when things are getting worse, when things are going to tighten up and anticipate when things are getting better. If you give that information to the normal citizen, his own behaviour will be modified according to it. So that is on the action side.
Finally support. Support employees, their families, support the local community. If we each do that and whether it is through medication, whether it is through vaccination drives, we need to do this all together. At least at Bajaj Finserv and across our financial services companies, we have provided financial assistance to families of deceased employees which ranges from one and a half times to three times their annual salary and addition education assistance of two lakhs per annum per child for two children up to graduation and extended medical insurance for the family for five years.
If we each do our bit and different size companies can do this at different levels, we will end up supporting as well. So this kind of a set of coordinated measures to anticipate, to plan, to act and to support will prepare us for the next wave.
I will talk about broader trends about the two businesses which you currently are involved with. Let me start with insurance. There is a big reboot and as reinsurance premiums have gone higher, suddenly Indians have to pay more premium. Is this a permanent change?
The insurance business goes through cycles. One has to keep in mind that insurance is a business where we pool risks. We take a little bit of money from a large number of people to be able to pay those that have those claims. All insurance companies reinsure a large part of their risk with the reinsurance companies internationally. Now this pandemic has hurt the world and as a result understandably claims have gone up. That means the reinsurance companies have suffered losses or have not made money so they have increased their conditions and their rates which automatically flows down to the insurance companies as well.
At the same time, it is a very competitive industry so one will go through a cycle where in the next couple of years as things settle down and I hope even by the end of this year things settle down, competition kicks in and rates start going down. So these are the cycles that you see. Keep in mind that most individuals pay in terms of their annual premium is a fraction — 1%, 2% — of what the claim amount can be when you have trouble. So while we each want to reduce every rupee that we can from what we pay, we must keep in mind that for that small amount that we pay to protect ourselves, it is important to ensure that the protection is proper and timely when we need it.
The dynamics of the insurance sector is such that at most top four or five players are actually making money. How do you see the dynamics in terms of the number of players, the size of the industry and market share gain changing because of this pandemic?
Building businesses is interesting but hard work. The top five, six companies have been there for along time. They are in most lines of businesses and are making reasonable amounts of money. The next set of companies that came up, thought they could take a part of that pie and could get their valuations up and sell out but most have followed the same business strategy as the other larger companies and that is disappointing because this is such a large country.
Bajaj Finance, our other business has shown how you can innovatively build a significant company in a crowded space. Digitisation is going to make that difference and provide that opportunity to smaller companies and even larger companies will drive change using that. Last year, consumer behaviour changed so dramatically that we are seeing insurance policy buying, at least the lower amounts, are happening digitally. The entire claim registration, claim handling is happening digitally. We have a smart assist where our agents can see the screen of the customer when they are on our app and help them through their entire process of evaluating and buying policies. India is such a large country. Why aren’t some of the companies thinking of selling a large number of small ticket policies in rural India? Why is not some company saying that I will not have branches, I do not mind if I just sell to half a million customers! I will be a small but a very profitable company that will be only digital.
Opportunities exist but we have to see a lot more innovation, a lot more hard work and focus on differentiation that our country allows us. The digital infrastructure that has been created in India last year, the JAM trinity that one talks about can truly set us aside and I hope we get to see that, at least my companies are all working on that.
The NBFC sector now there are two changes which are evident. One big change is where fintechs were trying to be NBFCs. Do you see that change accelerating because there is no dearth of capital in the start-up world?
When we talk of fintech, we must keep in mind that there will be those fintechs that will focus more on the technology side and will sell their product and solutions to large incumbents. There will be those that will use the technology as a platform to distribute financial products and then there will be those that will also get a NBFC licence to not only distribute products but to manufacture them and you will see all types. That is what innovation should do. The important thing is that it is great to see private equity that has helped spawn a whole bunch of start-ups in India. But unlike most of the private equity led industries lending, if you have to also manufacture the product and keep it in your own books, that is a highly leveraged business. As I had mentioned earlier, the typical private equity model where out of every 10 deals you do, two or three are stars, four or five are okay, and three or four die as they cannot necessarily work with the leverage business like in NBFCs.
You need to put in the time and hard work to build the risk model along with your technology model. You cannot go and buy just data from outside and our data protection norms which will come at some point of time, will make that correct, so there’s more in the hands of the users. It is a combination of these factors that will help beside how these companies do well. At Bajaj Finance, we started as an NBFC but today we leverage technology more than most fintechs do and you will see transformation of the next avatar of
by the third quarter of this year. Normally, I do not like to talk before we act but we will hopefully show what a real fin plus tech should look like.
You have prompted me to ask a follow up question. So what should we expect in October?
At Bajaj Finance and we have already announced to our customers and our partners digitally that we will see a combination of an app and web-based environment which will have a lending platform, digital platform, an insurance platform, an investment platform and an ecommerce platform that supports 100-1000 retailers around the country. It will have our own payment platform. Each of these will be in place. Some of them have already started rolling out. The important thing is how do all these work together intelligently? We will start rolling it out from September or October this year and we will see the power of that and the power of how we use data and analyse to provide better solutions in a frictionless manner to customers.
Our insurance companies will start leveraging some of those platforms themselves and in addition to that, keeping in mind that customers do not want products, they want solutions, we are also in the process of building two new markets. The finserv market is already live and gets a couple of million consumer views a month. This is an open market platform where we have tried an app with the number of banks, insurance companies, NBFCs to offer all kinds of financial products.We will open this up even for outside in due time. It can be an open market platform.
We are also working on health solutions with another business which we have recently launched in pilot mode called Finserv Health. It brings together not just insurance and finance but also doctors on a common platform. It brings together hospitals and labs so that when consumers have a medical issue, they see all this working in an integrated smooth manner. It will take a couple of years to build and it is still in the pilot stage. This is the first time I am talking publicly about it because it is available there other than the launch time. A lot is happening across our group of companies, we are getting more and more digital with the intention of making life easier for our customers, for our partners and our employees.
I will take the clock back and talk about a matrix which we had constructed exactly a year ago and we use the words survive, revive and flourish. You said that Bajaj Finance and Bajaj Finserv have survived. They were in a revival mode this year. Does it belong to the flourish part which is that you will come back strongly and much better than what your peers are doing?
I do not know about my peers, I wish them the best. This country needs multiple Bajaj Finances to succeed and to make sure financial services reaches everybody in the country but yes we are hopeful that the first quarter may be a bit muted but from the second quarter as long as we get this vaccination drive going fast and hard and early, things should start coming back. But the culture that we have built in our companies is the process of reinvention every three to five years.
Over the last 10 years, there have been periods where, as Bajaj Finance or as a general insurance company, we have been flourishing but we went back to the drawing board, scratched out everything that has worked for us in the past and we found a new way to do business going forward. This whole process of reinvention every three to five years is what keeps us going, it is what keeps the intellectual juices flowing and empowers our team. That is the excitement of working at the Bajaj Finserv companies and that at least gives us the best chance to see that we do not get complacent with our success. Our thrill is to keep building the new Bajaj Finance, the new Bajaj Allianz, the new finserv markets every three to five years.
What to your mind is a permanent change at the end of the customer or the borrower and what to your mind is the big permanent change at the end of the lender?
Let me take this at a broader level and there are a few key changes that I see. One is just the importance of the digital world. This is making a very big difference with high consumer adoption over the last year across ages, across geographies and this has enabled our partners to intermediaries to get themselves acclimatised with using digital tools and of course our employees continue to do that.
So the digitisation of the world or the digital world which will still be a hybrid model between offline and online world but people need to get that correct. Second is a combination of a hybrid working model, working from home partly, doing a bunch of meetings on VC and at the same time, coming to the office to collaborate. There are certain roles that need to be done in the physical world, getting that balance right. Third is uncertainty. We have seen uncertainty, we have seen the impact of this pandemic for an extended period of time and unfortunately from what we read these kinds of occasions may come again. How do we prepare ourselves for that? Companies will need to be more watchful, build the right alter tools but be equally nimble because one cannot always forecast right. But if we are nimble enough to be able to change, we will survive like a palm tree in a storm versus an oak tree that falls/ So, a combination of these three areas has definitely changed and businesses that adopt them will be ready for the future.
