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Budget 2020: Govt needs to get growth & demand back, cut personal income tax, says Sanjiv Bajaj
January 21, 2020

Budget 2020: Govt needs to get growth & demand back, cut personal income tax, says Sanjiv Bajaj

Sanjiv Bajaj, Bajaj Finserv from the sidelines of the World Economic Forum (WEF) at Davos shared his views on the outlook for the business, their hopes from the government in the budget, merger and acquisitions etc.

From the budget 2020, the hope is that the government focuses on getting growth back rather than have a very slow revival over 4 or 5 years.

"On the consumer side, the two big asset classes are home and auto. The government needs to incentivise that, even if it is for a short period of 18 months for people to buy new homes and for people to buy new cars - whether it is goods and services tax (GST) or there are other ways to incentivise customers and they need to do that," he said, adding that there is also a need to cut personal income tax.

Talking about mergers and acquisitions, he said, "It is always something that we are open to. We will look at opportunities when they come. However we do not find too many where the price is right, which is complementary to what we are doing rather than just buying a few years growth and more importantly where the culture of people is the same."

Below is the transcript of the interview with CNBC-TV18

Q: What is the expectation as you look at India, you look at the world, what do you hope to be able to achieve here in Davos in terms of conversations and what is making CEOs anxious today?

A: First and foremost, Davos is probably the only place which brings in leaders from all around the world - business leaders from every place, and also people from all kinds of fields. I learn as much from some of the digital artists as I do from the economists and some of the successful investors. It is always interesting to hear some of the politicians from different parts of the world.

The theme keeps changing every year, this year is more about working together, it is about sustainability, and it could not be more timely to talk of sustainability because if you look around, the hills do not have anywhere near the amount of snow as we have been used to seeing over here in Davos.

To me, it is the time to meet new friends, reacquaint myself with old ones, and there are always interesting sessions. I end up meeting a whole bunch of people as well.

Q: Now what are you anxious about?

A: I am never anxious about anything.

Q: Just in terms of market sentiment and market mood, the International Monetary Fund (IMF) has just put out its economic outlook report and it has cut the growth forecast for India for FY20 largely on account of the troubles that the NBFC space has been facing. You have been different because in a sense what we have seen happen with the downturn in the NBFC side is perhaps come to an advantage for stronger players like yourself. But what is the sense that you get from ground, on a pick-up and whether that is imminent?

A: There are two or three basic issues. The trouble or the slowdown in the NBFC space is itself a victim of a number of other actions. Banks not onward lending to NBFCs, so at some point of time the raw material which is also money and the finished product is also money, so if the raw material runs out, how do you lend onwards.

Q: Has it gotten better, is there more raw material in the system now because the government has announced measures?

A: There is a lot more raw material or liquidity measures that the government and the Reserve Bank of India (RBI) have announced, naturally it will go to the better quality NBFCs, it will not go to all of them, but the basic problem is that the economy is slow. We are not seeing the consumer confidence, and with our NBFCs, since we have a large presence both on the consumer lending side and the SME lending side, we get some early signs of what is happening. It was as long as 4 quarters ago that we could see things slowing down. The last 4 or 5 weeks we are seeing some improvement.

Q: On both SME, as well as consumer?

A:  On consumer, but I do not want to ring the victory bells yet, I want to wait another month or two to see that. However, consumer confidence is down and because of that the economy has been slowing down. They have not been buying as much as they should and they have not been investing. Then, in addition to that, we saw most of our public sector banks still need additional capital, they are scared to onward lend and that is why the NBFC sector has slowed down also.

Q: You said that there are some green shoots, you are not willing to call it a turnaround just yet, but some green shoots on the consumer side. On the SME side as well, at this point in time do you see any indications that we may have bottomed out?

A: I think we have bottomed out. We are not seeing things get worse so far in the last few months. I do not still see the impetus for growth going from here. I think we need to see that there is a large amount of goods and services tax (GST) refund that is due to these SMEs, and I have spent some time in my role with Confederation of Indian Industry (CII), heading the western region in India, that exposes me to some of these numbers as well. I think the government needs to pay off its dues to kickstart SMEs because if they are tied for working capital, then they are not going to be able to build their business.

Q: Would you be concerned then about retail loans, that is something that the RBI has cautioned about. Given sentiment today, given where demand is, what is the indication that you are getting on retail loans and do you expect slippage on that front?

A: Firstly, I am not going to talk about numbers because we are in the silent period. We have always felt that in a country of 1.3 billion people where you have 300-400 million middle class, there is always opportunity. If you are building a business for the long term, then there will be periods of stress, periods of slowdown like what we have seen in the last one year and you have to be willing to slow down over there. So, for example, we have cut out our bottom 15-20 percent of approvals as well, and then there are the good times when we will grow faster. So, I think we are still at a period where we see a slowdown.

Q: When you say you have cut out the bottom 15-20 percent, can you explain a little bit more about that?

A: Typically on consumer loans, these end up being small value loans from Rs 10,000-15,000 to maybe a couple of hundred thousand rupees at the max from six month loans to two years loans. So, these are not large value loans and not long tenure loans, but they are large volume. We do on an average a 100,000 loans a day. So, we rely a lot on data at a very granular level. We can tell you what is happening at a zip code level in 2,300 cities around the country; we are adding 200 cities a year, and that allows us to see early stress. It allows us to see in a particular geography or a particular trade for an SME things slowing down, money coming a little later to us, and that allows us to tighten our approvals in those areas. So, it is at a very micro level, but when we put that together, it is the bottom 10-20 percent of our approvals in different segments because we are in consumer, we are in SME, we are in commercial, and rural.

Q: The budget is around the corner now, what would the expectations be? There have been several measures taken by the government outside and of course the Reserve Bank of India (RBI) by way of easing liquidity as well as interest rate cuts has tried to do its bit on monetary policy. What is the expectation now from the government?

A: Expectation I don't know but the hope is that the government focuses on getting growth back rather than have a very slow revival over 4 or 5 years.

Q: What would you like the government to do?

A: On the consumer side, the two big asset classes are home and auto. The government needs to incentivise that, even if it is for a short period of 18 months for people to buy new homes and for people to buy new cars - whether it is goods and services tax (GST) or there are other ways to incentivise customers and they need to do that. Those are the two large value asset classes which can change the direction of the economy. You then have the whole infrastructure segment but that takes its own time and we have seen that a whole bunch of companies are still in bankruptcy courts, that takes its own time, you cannot necessarily accelerate that process.

On corporate tax, they have come out with a whole bunch of measures but I hope they do the same for existing companies as well because eventually it is the existing companies that are already invested in this country. As the country grows they are ones who are more likely to put in additional money rather than somebody new coming in and facing a whole new risk called India.

I believe they need to cut personal income tax, I think they should have done this 12-15 months ago when the early signs of slowdown came in. The fact that they have not done, this naturally means that on the fiscal side you are going to see some expansion. So, you will need some expansion which you may not have needed about a year ago. Hopefully, in 4-6 quarters growth and the denominator increasing will bring back the fiscal deficit into the kind of range that they are comfortable with.

Q: Given the outlook what is the plan for both the insurance businesses as well as the retail and the consumer side in terms of expansion, in terms of further investments?

A: As far as we are concerned, we are prudent long term players. Our two insurance companies haven't needed capital for the last 12 years and they are still amongst the leading ones in the sector, in the comparable group. They are profitable and they are growing well and with quality. So, if you are going to build a good quality business, on the insurance space, after the first 10 years you should not need money.

As far as our finance company is concerned, we have just gone and raised USD 1.1 billion and that is equity capital for additional growth. As far as capital raising is concerned we are set now for the next few years.

Q: You talked about insurance and again the possibility of whether the government is going to hike the FDI cap for the insurance sector and this has been something that one has been expecting for a while now. If it were to come through what is the latest on the talks with Allianz?

A: There are no talks with Allianz. Allianz is still at 26 percent. The current law permits foreign companies to go upto 49 percent and of course we have an agreement, so there are details around that that I won't get into now. However Allianz is very comfortable with the way we are building the business in India, they have been very supportive. I sit on their global advisory board. So, as and when they believe that they want to put in capital into India because they have been putting in a lot of capital into China, and given that the Indian business does not need capital - they have so far been very supportive with everything they can do on technology, on data, on relationships, we have been doing that together but a lot of it is naturally local, so that is what we do in India.

Q: Will merger and acquisition (M&A) be a focus, a priority, a preferred strategy in 2020 or beyond?

A: It is always something that we are open to. We will look at opportunities when they come. However we do not find too many where the price is right, which is complementary to what we are doing rather than just buying a few years growth and more importantly where the culture of people is the same.

We have been able to build our business with speed but also with quality. It is not the top 4, top 5 or top 10 people in the company that drive the business, it is really the top 100 and to build that right culture, to know how to experiment early, to fail early, to systematically execute once you go into execution mode, to know when to press the accelerator, but also to step back and this is what our leaders do day in and day out. Our challenge whenever we are looking at an acquisition is how do you integrate if it is a big acquisition

Q: Do you have the appetite for a big acquisition if everything else falls into place?

A: We are always open.