Sanjiv Bajaj sees ‘slight uptick’ in consumer credit business

So consumer loans and SME loans – we’ve talked about those two, but we also do business loans. We started ten years ago with Bajaj Auto supplier loans, we knew we were expanding that to automotive segments, and we went through segments. We lend to light engineering because we believe the dynamics of these segments are still good. We do this to financial services and NBFCs which are much smaller than ours but of good quality but are unable to borrow, or they borrow at very high rates. So we have a little business book and then we have a rural book. By rural, I mean essentially consumer. The rural customer behaves a little differently. The aspirations are the same, but they behave differently. So, we look at this vertical independently.

Then we focus significantly on the costs where, for example, on a durable consumer product, we offer an extended warranty. So we sell them that. So if someone takes out a SME loan, we cover them with credit insurance products and we have had cases where the breadwinner and the family have died and we actually worked as an insurance company where we paid off the loan and gave the rest of the money to the family.

It is therefore not a question of making more money, but of securing the borrower. So there are those five segments, and within that we have 35 different product line segments. This is why we are very diverse. In 2010, we entered the field of infrastructure finance within the infrastructure finance company. In about 18 months, we lent to about 15 different borrowers and unions. Across roads, electricity, multiple sectors. Our very simple assumption was actually not completely wrong. The assumption was that, India was going in the last 10 years, infrastructure was an obvious segment that this country needed and all over the world, infrastructure lending is a very low risk business. This is because of its usefulness. Now, when you build roads, you are going to put cars in them and you can collect tolls. So it’s not an ROE business, it’s a business where you can get big loans and build a book. Long-term loans also stabilize your business. It is a low yield. Our consumer loans offered a high but volatile return and that was supposed to balance it.

What we have realized is that in India we are still not mature as an economy. Thus, approvals were delayed with a debt ratio of 3-4 to 1. If your project was delayed for 2 years, the penal interest has practically wiped out your equity. We realized that in the good times, as we knew it would be a segment with low returns, it was fine with us, but in the bad times, your bottom just falls. So this model just didn’t make sense.

Fortunately, in 18 months, we stopped, closed the business. We were able to sell all of our loans with almost no difficulty. It took us two years to do it. So I don’t see us going into that segment. I think it has very different characteristics. It takes a lot more maturity and I sympathize with a lot of these developers. They were good quality developers. Someone was driving a hundred kilometer road and did not get land from the government for 400 meters. This scuttled that project after he did it with 90 percent 98 percent of the project. So we still have to see a lot more maturity entering the segment before someone like us gets into it.

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