Rise of the Financial Services Giant
It’s an interesting question, that’s the first time I would say for me – key milestones very clearly were firstly, the last of my education that I did was the MBA that I did at Havard. Prior to that I did my engineering in India, my masters in Engineering in the UK, after my MBA, my family said, okay enough fooling around, come back and start working now. So the first milestone was joining Bajaj auto and this after my MBA in 97. I would say the next significant milestone, the first one at work was building exports in Bajaj Auto. In 2004, when I decided to take on the exports as a challenge and exports used to be about 50000 vehicles a year and at that point of time, we were doing probably about two – two and a half million vehicles a year. It was 2 – 3 % of sales at best and as a company we had always had this dream that exports should be at least 5% – 10% of sales so that you have some small global presence as well. And between 2004 and 7 and towards the end of 2007, when I moved to Bajaj Finserve, our exports moved up from that 50000 to 625000 and when I moved, exports were roughly 25 to 30% of sales and they have done significantly well even since then and it’s now 52% of sales. So that was I would say a huge period of satisfaction of building the exports up, because exports were not just about the volume, it was about setting the right partnerships, it was about helping the local partners in as many as 30 countries, building the right distribution, ensuring that the right strategies for the right product with the right local pricing, because we had on one hand the Japanese, who were priced higher than us and then the Chinese who were priced significantly lower than us. So how do you build your own position? How do you build your own brand in that market? So getting that right and which differed market to market and the kind of products that we had to sell differed market to market, and eventually building a business that was profitable to the local partner as well as to us. So what the team and I did in those 3 to 4 years was great and we have a solid team there that continues to swell. Thereafter the move to financial services was more to leverage the opportunity that we saw, because even as a business group, Bajaj Auto was and still is our flagship company but that was only the really large company that we had and a few of us believed that as India grows one of the segments that is likely to grow the fastest and one of the largest segments is financial services. We were lucky enough to already have Bajaj Auto Finance at that time – we call it Bajaj Finance now, because it used to be an active auto financier that time and these two insurance companies where we have a great partner Allianz, but the companies were 5-6 years old, still in their infancy. So, building those – I disagree with your statement that I’ve achieved a lot in my career, I think we are just a little ahead of the starting line, there’s still a long way to go – but we have had some great years, we have gone through periods of slow down, we’ve learned from that and we have learned to build long term strategy. We’ve learnt how to create capable team members, empower them and then hold them accountable. And we have learned how to innovate in essentially what is a commoditized industry in financial services. I think these learnings have helped us.
So I would say 5 clear learnings. One is it’s all about people, whether it’s your own team, whether it’s partners that you work with, so these 3 companies, choosing the right team members and that’s why we take a long time through all our interviews in trying to identify people to see whether they will fit into our culture and I will talk about the culture because that is really combination of the 5 points that I am going to talk about. So one is getting the right people on board, tremendously empowering them. When you look at Bajaj Finance in the last 5-6 years, or when you look at our general insurance, none of the new lines of business or the innovations or technology or the other areas has stuffs that we have mentioned. These have all come from people. So the next best option to them for being their own entrepreneur is to join us and we give them a chance to be an entrepreneur within the environment that we have within our companies. And then we hold them accountable. We have very detailed monthly reviews through which we ask them what they want to do and then we hold them accountable to deliver. So, I think people very clearly is one.
The second significant I would say area of focus is innovation, and as I just mentioned earlier, we are in a business which is heavily commoditized. So to prevent a guy from chasing one bank or an NBFC to another just for loans that are little cheaper what we find is if we can try and understand what are his needs, and if we can differentiate through the product and service that we offer, we have a greater chance of meeting his aspiration and of building sticky customers because the way to make disproportionate money in this business is if you can cut acquisition cost and you can sell repeat products to the same customer. So how do you use innovation and how do you differentiate in your service and product offering in what is generally a commoditized market, I think this is a key second driver of what makes us different.
Third is smart outsourcing. I am one of those firm believers that you must focus on a few key areas where you want your business to be different and the rest give it to the other experts to do it. So, for example, as we transformed Bajaj Finance from 2007, the whole bunch of operational areas that we realized we did not need to run it ourselves. We could oversee it along with an expert. And after trying out a few, we outsourced this whole area. For eg., to TCS
You mean technology and the backend etc.
Yeah… and we have a team which oversees it with them. So we hold them accountable and we are part and we naturally drive strategy, but the bin counters there, running the operations day to day, improving it year on year, the transactional level stuff is what they do. So, it takes away a lot of mind share that goes away from what should be your critical focus areas. So I think smart outsourcing is very key.
Fourth and this thing has been under rated very often because people talk about it and only pay lip service is high level of transparency. When we deal with our customers, when we deal with our partners, even our own employees, they know what to expect from us. So, if we do a 0% consumer durable loan, we declare what’s the return we are getting on it because we are a manufacture differential. We don’t need to declare that, but we do it voluntarily. When we for example, do mortgage loans, we were one of the first if not the first lenders many years ago, much before RBI made it mandatory to tell them that you know we will not charge you any pre payment penalty. So if you want to come and pay a loan earlier, go ahead and do that. Now our attrition levels are higher as a result because people pay back when they can but we think that if someone wants to pay his loan back, he should know that this is a friendly bank or NBFC he is dealing with, and not be charged an arm or a leg to pay back a loan. I mean it’s a great incentive for people not to pay back a loan then. But we say this upfront. So, transparency is the fourth major driver that makes us different.
And the fifth, I can summarise all this together – is the culture that we have built. So the culture in this organization pushes you to innovate, pushes you to be transparent, pushes you to think long term, but at the same time, gives you all the tools, flexibility and capital to go and achieve it. So when I interview candidates for senior or mid level positions, I basically tell them this is the place to realize your dreams. If you want a 9 to 5 job, this is not the place to come, because the entire mood has tremendous energy, because people are going and building their mini businesses of course, within a level of integration, but that’s the freedom and flexibility. So the culture is the culmination of all these drivers.
Learning from mistakes
It’s funny to talk about mistakes and that’s part of where our innovation comes from. When we hire people we tell them if you are not making mistakes here, you are not pushing the boundaries to what’s mediocre and you will never build greatness. So if you are not failing and we don’t see you fail then you are not going to succeed in the future with us. So don’t play safe. It’s our job to see that you don’t take a risk that is large enough to shut the entire business down, but you must take small risks and you must learn to fail and the earlier you do that, the better it is. So, for me, in my experience in the early years at Bajaj Finserve, we actually had 2 failures. Lucky that none of them was big enough to shut us down. One as we started an independent wealth management business- finance product distribution and actual wealth management for the common man, because I saw that as being a very significant need. And we started with 5 cities, we hired a team, built a company to do this, got all the licenses to do this and this was 2009 and that’s when the entire commission structure of mutual funds and insurance crashed. So we realized very early on that to do an independent wealth business with the lower commissions was no longer viable and we had to shut that down. But the great learning that came from it was that we actually moved that team to a division of Bajaj Finance and that today is a very significant division that cross sells wealth products to our existing 10 million customers, and because here is to existing customers, our biggest cost for our stand alone business was acquisition cost. And here there is no acquisition cost. So the business is hugely sticky and from that failure, we have found success. The second failure was when we started doing the infrastructure financing and construction equipment financing in Bajaj finances and we started this again I think in 2011, because India had started to grow again after the 2009 – 10 slow down and infrastructure clearly was a big push. It is actually one of the lowest risk assets to be financing because if you don’t have a road, you are going to have people honour it, if you don’t have a power plant in a country where you need power etc. etc. But then we know what happened after that. The economy slowed down and the segment completely crashed because of the regulatory blockages and the over leveraging promoters etc. etc. Fortunately, we saw it early on and within 15 months of start, we had done about 15 – 20 loans by then, we stopped the business. We first put it on hold and eventually we shut that business down and associated wth infrastructure financing was also construction equipment financing where we were financing the contractors who were taking care of these large projects. What we learnt was very interesting from that business. What we learnt was in good times, because it was one of the lowest risk asset classes, there were so many people chasing such few assets that margins were very thin in that business. So your ROE was not sufficient enough to meet out minimum hurdle. ROE was sub 10%. And in the bad time you lost money. So, here was a business that in the good time never gave you the ROE that you wanted and in the bad time you lost money. So, the learning that came from that was that any new business line we start now we run it through cycles, we do sensitivities through cycles to see that in the good times or in steady state, does it meet your minimum hurdle on ROE or not and in bad times, how bad does it get. So this kind of assessment we were not doing it as hardnosed earlier as we have started doing now. So that was another interesting learning.
Selecting right people at the right places
Not only at the level of the CEO or the CFO or the senior management levels, I would say the top 25 – 30 people in a company, say in a mid-sized company, these are very critical positions, especially in environments like ours which give tremendous amount of empowerment, but also holds people responsible. See it is very different when you have an autocrat at the top who is driving the company singlehandedly because then as long as he is good, you are fine. Of course when he comes close to retirement, then you realize that there is no pipeline over there. But that’s a different problem. But for us, we have seen in the top positions, when we have got the person wrong, we have lost 2 -3 years, because it takes you at least 6-8 months to realize, then the guy has just come, he has got uprooted, you put somebody new, so it takes you another 6-8 months to try him out, so then it’s a year and a half, then you arrange for him to leave and then you go and interview again which takes another 6-8 months. So it is 2 to 3 years period lost. Plus the negativity that it creates within the organization, because the rest of the organization is buzzing and this one area will not be. So I think that’s our biggest challenge.
The Proudest moment
There’s no single moment that I can talk about yet, but on the other hand, there have been multiple moments. I remember when we started Bajaj Finance I think out PET was 30 crores in 2006-7 and market cap was about 500 – 7- 800 crores and Rajeev Jain, the CEO, and I was talking, and the stock price was about 200 Rs or something and he said that 5 years time, we can take this to a 1000 bucks. And I told him that if we get this right, in 5 years time you’ll get multiples of that, but the first time it touched a 1000 bucks was huge. The first time we achieved a quarterly profit of 50 crores, was great excitement and when I see that now year after year and no longer just in terms of financial matrix, but I see the innovation we are driving in each of our products and services, very simply in one of our meets 2 years ago, our file processing cost for our mortgage loan was between 30 and 40 thousand rupees. The file processing cost for our consumer durable loan was 300 rupees. And Rajeev tasked the team to say why should there be such a big difference. Of course there will be some difference, one is also a 20000 rupees loan and one is a 5 crore loan, but the team took this challenge up. The team on a 300 rupee ticket size will be bringing it down by the end of this year to less than a 100 rupees and the team that was on the 30 to 40 thousand rupees will be dropping that by half. Now each of these are occasions to be tremendously proud of your team because the 30 to 40 thousand is still an industry benchmark. So to have the confidence and then to go ahead and execute it and to create a completely new benchmark – for example consumer durable loans, 2007, if you went to buy a television and if you got a loan, it took you 2 days for the bank or NBFC to tell you whether you got a loan. And in India, these are family buying purchases. So the entire family goes in their car to buy a television or a washing machine, they want to take it home. That is the challenge we put to our team that why can’t we do an instantaneous loan. It took us 2 years and by 2009, we were doing loans in less than 5 minutes and today we do instantaneous loans. You can buy – end of this year we will go one step ahead where we will send you a QR code which will be a pre approved loan. When you go to one of the 12000 consumer durable stores in the country, you like something, you show the code, he scans it, you take your product and go home.
For the next generation companies, whether it’s in insurance, whether it’s in lending the only way that they can get ahead of the game of the earlier generation companies is by leveraging technology. Now if you have to be a pan India player and if you are going to be in multiple customer segments, you need some physical presence, because there is still a certain large segment of consumers, who want to go to a physical location to transact or for service. But other than that the way you can leverage technology has changed dramatically. So, today not only we have customers taking end to end loans by working on their computers, but they will soon be able to do it on their mobile phones. I was at an agent conference with a general insurance company last year – last week in Switzerland, as part of our RNR programme and our CEO Tapan over there demonstrated a new app which they downloaded on their phones and sitting right there in Switzerland, issued themselves an end to end digital health insurance policy. This is all real and I think this is dramatically going to change the rules of the game going forward.
But this is not only for incremental or additional new players but also the incumbents right. So new technology is going to be a big game changer. So how are you gearing up for something like that internally?
So, our DNA is to think of ourselves as new player. We never think of ourselves as established because we keep driving change. We have technology working at multiple layers. For example, if I look at again Bajaj Finance, our entire loan origination works on the cloud platform. And there’s a US based company called Sales Force set up by Mark Benehoff, who is ex- Oracle and we use them sitting over here in India and we’ve helped them customize there what was essentially a cloud based CRM package of theirs which help us do loan origination . So we do millions of loans completely on the cloud. So, that’s one level that it works at, just on your transactions. Second is as an interface with customers. So whether today you are on an IOS or android platform or sitting in front of our computer, we’ve got multiple ways in which you can access the company whether for a service request, you get a single customer view with all your loan, all your insurance that you bought from Bajaj Finance and you can instantaneously ask for a loan and if you meet our risk parameters you’ll get an instant answer. So, there is another level of technology that deals with customers. At another end now, we today run a reasonably large analytics team along with an international partner where we leverage technology to try and understand what are the kinds of best products that we can offer to the customers so that it becomes a lot more intuitive than banging the customer with mindless emails and sms’s all the time. The same analytics also runs to say that of the millions of customers – see we bank every month electronically between 20 and 25 lakh payments. Now even if 10% of those bounce, to go and collect two and a half lakh payments is a huge challenge. So we run analytics models to try and understand what type of customer segment is likely to bounce in this particular month and how can we start the process earlier. We find that even a simple sms 3 days before his payment is due gets a lot of them to pay. So, simple stuff like that. So technology runs across these areas and of course, basic core technology to run systems, processes prevent cyber hacking, cyber security, all that exists anywhere.
Practical Learning through cases
There are 3 phases of learning, I believe at a very simple level. The first is basic learning, where you have to go and mug stuff, you know, maths, unless you mug, you can’t know, science b- unless you do a little bit of mugging you can’t, history – unless you do you can’t. And think as Indians we are very good at that. Once you’ve got the basic learning, the next step is understanding. I think we are very poor at that, because our basic method of teaching is only about learning by rote. It is not about understanding. So, if you have a good teacher, he or she will try to make you understand, but otherwise, we miss this understanding piece in India. And the third is applying, which in most schools and college, there is no application. And that needs to change. Now, when you go and do an MBA, the entire case study method and the business tools that they take you through really teach you to think hard, to try and understand the issues and very much as real life business, you realize from the case studies very early, there is o right answer, because it’s a case study of a particular real life business situation. You have to put yourself into the CEO’s shoes, understand what his problems were, what would you have done in that situation – so you think of should I have done A or B or C and eventually you have to choose one right answer and in front of 90 students in your class, you have to defend your answer, where everybody else is trying to attack you to show that they are smarter than you. So doing this over 6-700 cases over 2 years gives you such a fantastic ringside view to what real business is going to be like. It doesn’t necessarily mean that you will come up with that situation in your real business life, but your mind gets trained to learn, to understand and to apply in a virtual situation which has not worked at business and I did my MBA 20 years ago, so long time back, but when I look at the Havard programme now, the field activity has become a very significant part of the programme. So in a small way to get people to do the third thing, the application while doing the MBA, they have started now, which didn’t exist in my time.
Gap between Understanding and Application
Big gap in the understanding and the application – this is when we take freshers. If you are hiring laterally, then of course you choose people who don’t have those gaps. So they all come with great degrees, great marks, but a lot of basics are missing. And that’s why – when I speak once in a while to MBA students and I tell them that it is okay to ask stupid questions. You must ask stupid questions in the early part of your career, when you are doing your MBA or when you start working because you have to get all your fundamentals right and cleared, because you are going to build on those at your work. So ask all your stupid questions early on.
Revising Indian Education System
In most cases, if you look at the undergrad education ends up mostly being theoretical. It’s only post grad education that brings the practical element even in the US and other countries, other than select particular schools or colleges. So I would say that the first is that in undergrad education itself – how do you make it more relevant. Today somebody goes and does a BCom, what kind of a job can he get? How much time does he spend in college? He is hanging out in the canteen all the time or a smarter guy and is doing CA on the side? So, we have to see that our education in itself, helps prepare the student for a particular role after that. I think that’s where what they need to do is consult with people from other fields including industry because we are the ones hiring them. Industry from their side, needs to bring part of the curriculum and can even offer a bunch of projects. So a very simple initiative that we have taken up as a part of our CSR – what we realize is that people who come to sell financial service products, mutual funds, lending products, insurance are mostly BCom’s, BA’s, BSc’s. This is not seen as their first choice job that they have not got something else, and their understanding, their communication skills are very poor. So along with one of the premier universities in Pune, Symbiosis, we have just launched a 3 months course, it is an evening course where we have taken students as part of our CSR initiative and Symbiosis has also supported that, and over a 3 month period they get a certificate on – one, learning all the different financial products, second, applying themselves, learning how – understanding first and then applying themselves. We also end up teaching them how to prepare to speak, how to use the basic computer products when they are selling and at the end of it, we take them through mock interviews. This we are doing – so the curriculum was made by our company people as suitable along with Symbiosis. Symbiosis teachers are the ones who are teaching this and when the final mock interviews that we do, we do it together. This is a great way in which industry can work with teaching institutions to create programmes which will help a person eventually get a job.
Message for Upgrad
I think most of this can be taken online. 2 or 3 simple ideas – one, make it as visual as possible and then make it available in vernacular languages as well. So today, when we write our insurance policies, we do it in 20 different languages because we need to go outside in the top 50, 70, 80 cities and people don’t necessarily know English and people don’t know Hindi everywhere. So one is make it visual vernacular. Second make sure, it is available for the mobile screen. I think the days of the computer are gone. And with the availability of smart phones in India at 4- 5 thousand rupees, every Indian will have a smart phone. So you have to leverage the smart phone because that is one product that is always there in a person’s pocket. So he can be on a bus, he may have 20 minutes, he can go through a quick test or a quick curriculum. And the third is keep it simple. And then I think you break all barriers of literacy as well.
I would say the clear answer there is yes. Work life balance, other than for people right at the start of their career where I can understand that it can be tough both because of your own ambition and because the position you are there in the organization, you may not have the flexibility, but anybody from middle management above can choose to do that. For eg., we don’t check what time people are coming to work and what time people are going. They are given tasks to do and as long as that is done n time and the times of the day when we run meetings, everybody is expected to be there, beyond that, we have people that come very early and leave early, there are people that wake up late, with young kids, they come in late and leave late, somebody may come on a Saturday, somebody comes on a Sunday if he wants, others don’t. so, today’s life allows you a high level of flexibility and what your own work life balance is – is left to you. But what I clearly believe that in our day to day life, we get caught in a rut and you need to have a few other pursuits, not just to relax you to get your stress levels down, but I think it helps you work as well, because you approach then the same problem with a different point of view. And that makes a big difference. When I talk to some of my senior guys who are travelling all the time and they say our best ideas come when we are away from work, because that allows us to think. When we are at work, we are on a – we have a time crusher, we know we have to deliver on A,B and C. When we are away, it helps us think.
Advice to Youngsters
Very clearly I would say that India offers us a variety of opportunities today and will for the next 20-30-50 years and more, which it didn’t 20 years ago. 20 years ago, you had to be an engineer or a doctor or you are in trouble. No longer. So, pursue your passion. But then try and be the best at what you are doing. So, that’s the clear simple message there. Second, there are no short cuts in life. Work is going to be a marathon. It is not a 100 meters dash, where all you need is power and some control – like in a marathon, you need strategies, you need mid course corrections and when you are done 30 kms, when your muscles are burning, you need that confidence that you can make it to the finish line. That’s what work is like. So, be ready for that. And the last is actually a little story that we all know of which is you know in the African jungles, the lion wakes up in the morning and he knows at if he doesn’t run faster than the fastest deer, he won’t get any food the deer and he won’t wake up the next morning. But in the same jungle, there is a deer that wakes up and he knows that if he doesn’t run faster than the fastest of the lions, he again won’t see the next morning. So, in our life, the message is that it doesn’t matter whether you are a lion or a deer, but when the sun rises, you better start running.
That’s a lovely note to end on Snajiv, thank you so much.