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Selling consumer financing products to India’s vast middle class presents “limitless” opportunities over the next 10 years, according to one of the country’s top business leaders.
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That’s partly because, for a country with a population of 1.3 billion people, India’s credit card penetration rate is comparatively low, Sanjiv Bajaj, managing director of Bajaj Finserv, told CNBC on Tuesday. That creates an appetite for small-ticket loans for day-to-day purchases like groceries or buying a mobile phone, he added.
As India’s economy grows, so will the disposable income of households. In turn, demand for financial products, such as personal loans and working capital loans, would also increase.
But traditional banks have historically underserved this segment of borrowers. That’s because the amount they borrow is comparatively lower and seen as unprofitable.
Bajaj Finserv is the financial services arm of one of India’s largest and oldest conglomerates, Bajaj Holdings and Investment.
Bajaj Finserv is further broken down into different business segments, one of which is Bajaj Finance, a non-banking financial firm that lends to consumers, farmers, businesses and small- and medium-sized companies.
“We’re catering to the middle class and the upper middle class consumers,” Bajaj told CNBC’s “Street Signs.”
Bajaj Finserv sells a variety of loans — personal, business and housing — as well as insurance and other investment products. It has a so-called EMI Network, which the company describes as a payment system with instant financing options.
Users can buy household items such as television sets, laptops, or even their groceries, and split the purchase into equated monthly installments ranging from 3 to 24 months. Loans are approved quickly and the items bought usually have little to no down payment — no interest is charged on those repayments.
In the three months that ended Dec. 31, 2018, Bajaj Finance saw its consolidated assets under management grow 41 percent on-year and its gross non-performing asset ratio was around 1.55 percent. That happened against a backdrop where the lending abilities of other non-banking financial companies (NBFC) have been reduced.
Bajaj said the company’s efforts to diversify its liabilities helped it weather the liquidity crisis.
“We were very clear five years ago as we were building our book, we needed to diversify ourselves on the liability side,” he said. “Five years ago, 80 percent of our borrowing was from banks. Today, it’s less than 30 percent.”
“We have built out the corporate debt market and built an appetite for our credit. So, the liability side has got reasonably diversified, I think more diversified than any NBFC. This is then helping us grow,” he added.