India is desperately poor in banks and it can do with more specialized banks with separate set of rules, says Mr Sanjiv Bajaj, Chairman & Managing Director, Bajaj Finserv. He is pleased that the NITI Ayog has released a draft paper on branchless digital banking in the country. "Why can't there be digital banking for the evolved customer?" he asks.
Mr Bajaj expressed his views on development of India's financial services sector and financial inclusion at the 50th LeaderSpeak programme of All India Management Association (AIMA). The online chat was moderated by Mr Nikhil Sawhney, Vice President, AIMA and Vice Chairman and Managing Director, Triveni Turbines. Ms Rekha Sethi, Director General, AIMA anchored the programme.
Mr Bajaj mentioned that Sri Lank has more banks than India and the US has more than 7,000 banks that serve a much smaller population. "We need more competition for the old banks in India that are making good money while doing only a few things," he said. He pointed out that 70% of Indian banking is done by the public sector banks, which are hobbled by the compulsion of opening rural branches. He argued that without the obligation to open rural branches, Bajaj Finance has built a successful rural business among young rural consumers and MSMEs. "Bajaj Finance's rural loss ratio is better than its urban loss ratio," he said.
Talking about the proliferation of fintech and the growth of the financial services sector, Mr Bajaj argued that while the fintech players understand the customers, they lack the understanding of risk and the capacity for collection. Also, he argued, the money is in lending to the manufacturing sector and not in payments. He referred to the largest payments player in the country having modest revenues and outsized losses. "On payments, one makes no money. It is only the plumbing," he said.
Comparing India's digital financial services evolution with that of China, Mr Bajaj pointed out that the Chinese fintech players built their own closed ecosystems and protocols in absence of government oversight from the start, whereas in India, the government has been the driver of digitalization of finance from 2008. He gave credit to the Jan Dhan Accounts, mobile banking, Aadhaar, GST and UPI payments for the growth of Indian fintech sector. He mentioned that the GST information is available to finance providers, which enables them to identify the MSMEs to lend to. He believes that with the MSMEs' cashflow and GST data available to the finance companies, both the lenders and the borrowers will benefit. "This will be great for Indian business,". Mr Bajaj is excited about the government's promised digitization of all Indians' healthcare data and making it available to the healthcare providers. "Health data protocols will revolutionize Indian healthcare industry," he said.
Regarding the impact and lessons of the pandemic for Indian finance companies, Mr Bajaj said that the initial lockdown was a shock and it froze collection for some time. However, it was the second lockdown that did the most damage, as the small and informal business had a harder time surviving, he pointed out. He mentioned that the sales of the 100cc-125cc motorcycles are yet to recover. "The businesses related to the low-income consumers and informal economy have suffered more," he said. The key lessons from the pandemic, according to Mr Bajaj, are that since companies cannot plan for events like a pandemic, they need to build prudence and extra capital.
Talking about the reinvention of Bajaj Finserv as a technology company that lends, Mr Bajaj mentioned that the company has partnered Salesforce.com in adapting the latter's CRM platform for lending and the two companies now share IP for many digital finance solutions. Bajaj Finserv also works with the global R&D of Microsoft's cloud service, Azure, he mentioned.
On the potential of financial services in India, Mr Bajaj said that India is at the cusp of a huge expansion in discretionary spending, as its per capita GDP approaches $2000. He argued that India's mutual fund industry is a fraction of what is possible.
The session was also broadcast on AIMA's social media channels and more than 1000 people logged in to the programme.