India needs to have a decisive government that is also inclusive: Sanjiv Bajaj

The Davos Summit is happening at a time when a lot of people believe that global growth has peaked and the figures could be revised downwards as far as global growth is concerned. It is happening at a time when there are global uncertainties in terms of trade tension. Sanjiv Bajaj, MD - Bajaj Finserv & Bajaj Holdings & Investment, Chairman, Bajaj Allianz and , VC - Bajaj Finance, talks to Supriya Shrinate of ET Now at Davos.

Edited excerpts:

Supriya Shrinate: How do you think the global economy is placed and where is India in the midst of it all?
Sanjiv Bajaj: This year the focus is again on what is called the fourth industrial revolution. The digital world is interconnected but it is increasingly polarised today and there is a greater need for a dialogue to iron out differences and find a common path. Nothing is more important than to get people to come together and discuss and that is what Davos is about.

Supriya Shrinate: Globalisation in the era of industrial revolution 4.0 is all about digitisation. How different will this wave of globalisation be than the last wave when there was a lot of trade going on?
Sanjiv Bajaj: I believe that is a developing story. Nobody clearly has the answer to that. On one hand, we have all grown up in a market economy and in a globalised economy especially after the Second World War. So, nearly 70 years of that and overall the world has gained. Unfortunately, it has not gained equally and that is what you are seeing right now. You are seeing the people who have grown significantly less than others to say that you need to carry us with you as well.

This is a very important point. What the digital economy does is it allows for very low-cost delivery of all kinds of products and services to the last customer, which you could not do earlier. It was far too expensive and the digital economy makes the whole process far more inclusive and that is the opportunity there. That is why I am very positive of how this whole story is going to uncover but we have to wait and watch.

Supriya Shrinate: All eyes are on the big election in India this year. What has been your assessment of the government in last five years? What were the big achievements and what were the laggards?
Sanjiv Bajaj: What is important for a country like ours is to have a decisive government and one that is inclusive as well and one that can get things done. To that extent, this government has got a number of things done. On the other hand, there is still rhetoric and issues which should have not happened. We need to be inclusive. We live in a country where whether you want to be or not, it has to be an inclusive way for moving ahead. The world is telling us that in different ways, it could be economically inclusive, it could be socially inclusive, it could be religiously I am not getting into those levels of detail. I think that is very important.

The second is that because we work in a federal structure, we have to have a way for the centre and the states to work together. I am not here to take names or blame one side or the other, but the question is if all of it does not work together, the country does not progress.

Despite all this, what we have seen with the Insolvency Code, the bankruptcy resolution, the way Aadhaar has grown, there has been tremendous progress as well over the last four or five years. I just think that we want more, we want to go from seven to nine to 10% -- double digit growth and that is possible.

Supriya Shrinate: Are agriculture and jobs the two fields where Indian industry would have wanted a lot more to happen and would these be the two big issues in this election as well?
Sanjiv Bajaj: They could be but let us also not forget that there is a very large urban young educated middle class which is also driving elections. Their aspirations need to be met as well. It is as much about rural as it is about urban now. Going forward, you need to take a look at both these issues.

Supriya Shrinate: There is a lot of chatter about how India’s fisc could expand. The government so far has been remarkably restrained about going populist. Are they going to give into that temptation finaly? There is some buzz about an agri relief package. Do you believe the markets will understand like the finance minister says that it is a rational and not a populist move?
Sanjiv Bajaj: It is always tempting to do right and expanding budgetary deficits is something that is happening the world over. So, we are just in that phase. Election time clearly ends up being a tempting time and we have always seen in the past elections also, some amount of expansion and some populist moves taking place.

But beyond that, one has to get to some fiscal discipline and that is a balance. I am not an economist and nobody can tell you what that balance is. It is something that we have to leave to the finance ministry and RBI.

But going ahead, if India has to come close to double digit growth, we need a lot of reforms in the financial sector. Today there is only one type of bank license -- whether you call it SFB or otherwise -- they are all universal bank licenses and 95% of things are common. Now if somebody says I want to set up a digital bank just for 100,000 customers, but at a very low cost and only for those who are digitally enabled but I do not want a PSL responsibility, we should be willing to do that.

Somebody else says that I am going to set up something just in the neighbourhood. Cooperative banks and others were something but they failed, I am talking now about private sector involvement. At the same time, I can understand that RBI is worried on fit and proper, making it public, having the right set of guidelines and if somebody does not meet that, they do not meet that but do not stop everybody else.

Supriya Shrinate: You have been largely unscathed by the NBFC crisis. There is a lot of debate on liquidity and things like that. What are the key lessons that you believe you want to share?
Sanjiv Bajaj: There are two different issues; one, there were a bunch of HFCs that were mismatched on funds and they got caught at the wrong end. They had short- term liabilities but did not have the assets. Clearly, if you have to grow. you have to match your assets to your liabilities. That is one of the first things you learn whether you are an NBFC or a bank. This is something that requires correction and RBI has taken some steps towards that.

The second is the larger issue, why did all NBFCs, HFCs fall in value by between 20 and 40% in a matter of a few days? This is systemic risk. Today. the top 10 NBFCs in the country each have AUMs of over Rs 10,000 crore and they are responsible for 30% of incremental credit going into the system. Consumer and SME growth in this economy has been helped by NBFCs. We u need to find a way to ring-fence them. It does not mean that you are going to create the wrong incentives but why did not banks fall because everybody knows that a bank license is a secure license under RBI. RBI will open up a window for liquidity. Why don’t you do that for big NBFCs?

Supriya Shrinate: What would your prescription be for big NBFCs -- , tighter ALM?
Sanjiv Bajaj: I would say tighter ALMs but at the same time RBI opens up a liquidity window. It will probably never get used but it prevents these kind of shocks in the economy. Most of the NBFC stocks have recovered. So, somebody lost a lot of money for no reason at all in the middle.

Supriya Shrinate: On the liquidity front, there was so much of clamour for liquidity. Do you believe RBI needs to look at a special window or do you believe the worst is behind us and we do not need to do that?
Sanjiv Bajaj: No, no. That situation has passed. They need to think of this more structurally because what is an NBFC? It is a license to lend with some limitations. A bank is the same but there are some differences. Why should NBFCs be associated with shadow banking? It is real banking. This is where some fundamental thinking and rethinking is required.

Supriya Shrinate: It is said the Indian economy is a one-engine economy that grows only on consumption. What are the trends you are seeing?
Sanjiv Bajaj: Clearly, we see a pick-up. You should catch Rajiv Jain who is the MD of Bajaj Finance. He can tell you a lot more. But we are seeing that improving.

Supriya Shrinate: There is some amount of debate on high growth in retail lending and unsecured lending. Could that be leading to another asset bubble?
Sanjiv Bajaj: When you look at it from a larger perspective, the opportunity is huge and on average, the consumer is significantly at a low leverage. But there could always be pockets or particular NBFCs which are taking on higher risk. But are they pricing higher risk? Is that getting priced in the money that is being lent to them? When you go down to a macro level, this needs to be dealt at the macro issue but there is a larger opportunity.

As you said with Bajaj Finance, over the last 10 years, we are doing this because we are focussed on the long term. We are focussed on building the right risk metrics before we lend and we keep reviewing that on a continuous basis.

Supriya Shrinate: One risk metric is that you have slowed on the loan against the property book. Is that a segment that you are wary of, a segment that you believe poses threat and risk?
Sanjiv Bajaj: Two years ago, we slowed it down for two years. Between FY 2016 and 2018, the book did not grow. We have just started growing it last year or this year. This financial year, the book has started growing. The LAP book, the incremental book, sits in our new home finance company called Bajaj Housing Finance and we are growing. We are lending month on month.

We are being a little cautious just to see the external environment on liquidity as I said the worst is behind us. Does it pick up? We want to be careful over there not because we are seeing higher risk on the ground but we just want to make sure the last liquidity event just settles down and passes by.

Supriya Shrinate: A word on life insurance. How is that business doing? April to December outlook was good. Is that a segment here to stay in terms of robustness?
Sanjiv Bajaj: Life insurance clearly has evolved into pure protection of life but fare more importantly into both an investment product and a protection product. That is because outside of the big cities, mutual funds are still low on penetration. ULIP is a fairly simple product which gives you a little bit of both but of course, it goes without saying that you have to explain it correctly to the customer.

We are very bullish. We have transformed our business about three years ago and from there, we are showing steady growth in the overall top line, in the product mix as well as in the productivity across the different channels. That is growing well.

Supriya Shrinate: Any plans to list one of the two JVs?
Sanjiv Bajaj: No, because we do not need to, at this stage. As for whether we will ever list -- it is never say never but there has to be a trigger for it. Both Allianz and Bajaj businesses are profitable and very well capitalised. So there is no need to do that in the short term. Let us see thereafter.

Supriya Shrinate: There is this sense of fear among a lot of investors and Indian industry about a fractured mandate. What if it is a strong decisive government? Does one necessarily need to fear coalitions because coalitions in the past have not been bad for the reform trajectory so to say?
Sanjiv Bajaj: A decisive government clearly is a more stable government than a coalition but as you have said, we have coalitions in the past also which have done reasonably well. So let us put it this way. Decisive clearly ahead of a coalition, but whether one or the other we want one that will stay five years and that will keep focussing on what is right moving forward.

Supriya Shrinate: Whether this government gets voted back or a coalition government is formed, the reform trajectory is perhaps going to move in one direction. Are you confident about that?
Sanjiv Bajaj: I very much hope so because I see the benefits of that and I think a large number of Indians have seen the benefit of that in the last four years.

Supriya Shrinate: Do you have a digital detox day in a week or a month?
Sanjiv Bajaj: In my case I am hardly ever speaking on my phone. I drive it the way I am comfortable. I am on message, I am on email but I have not felt the need to detox.

Supriya Shrinate: Do you still put your phone next to your bed when you sleep or is in the other room?
Sanjiv Bajaj: No, it is next to my bed but it is off.