Founders Message

Dear shareholders,

Bajaj Finserv is the holding company under which there are three key financial sector businesses:
(i) Lending through Bajaj Finance Ltd. (BFL), which is a listed company;
(ii) Life Insurance, under Bajaj Allianz Life Insurance Company Ltd., or BALIC; and
(iii) General Insurance, under Bajaj Allianz General Insurance Company Ltd., or BAGIC.

In addition, there are wind-farm assets in Maharashtra with an installed capacity of 65.2 MW.

Let me use this letter to briefly share with you the key achievements of your Company in FY2015 under BFL, BALIC and BAGIC.

Bajaj Finance Limited (BFL)

Despite a slow up-tick in economic growth in the last two quarters of FY2015, significantly lower crude oil prices, lower consumer price inflation, t wo policy rate cuts aggregating 50 basis points by the Reserve Bank of India (RBI) and three cuts in the statutory liquidity ratio (SLR), the year has been difficult for banking and financial services. At 9.5%, credit growth was at its lowest in the last 18 years. Low credit growth plus high non-performing assets (NPAs) have resulted in banks being risk averse and reluctant to pass on the benefits of the eased liquidity and rate cuts. Overall, conditions continue to be challenging for financial services as a whole. Under these trying circumstances, BFL has delivered excellent results - as it did in the last few years. Let me touch upon some of these.

•  BFL’s total income increased by 33% to Rs. 5,418 crore.
•  Receivables under financing was up 36% to Rs. 31,199 crore.
•  Assets under management rose by 35% to Rs. 32,410 crore.
•  Profit before tax rose by 24% to Rs. 1,357 crore.
•  Profit after tax grew by 25% to Rs. 898 crore.
•  Loan losses and provisions stood at Rs. 385 crore, partly on account of internal provisioning norms that are more stringent than those prescribed by the RBI. Thanks to careful monitoring of loans, BFL’s net NPA was 0.45% of total assets, which is among the lowest in the industry.
•  Capital adequacy as on 31 March 2015 stood at 17.97%, which was well above the RBI norms.

As a shareholder of Bajaj Finserv, you ought to know of an important development related to BFL. On 21 April 2015, BFL’s Board of Directors were presented a persuasive case as to why the Company will need greater capital for it to continue along the same growth trajectory. The Board formally considered a proposal to raise funds through issue of:

•  securities upto Rs. 1,400 crore through the Qualified Institutions Placement (QIP) route to Qualified Institutional Buyers, and
• preferential issue of upto 925,000 warrants, convertible into an equivalent number of equity shares amounting to around Rs. 400 crore to Bajaj Finserv Ltd., the promoter of BFL.

The board of BFL unanimously approved both proposals. Further, it has been approved by BFL’s shareholders at an extraordinary general meeting held earlier on 20 May 2015. Thus, BFL is now on its way to secure additional capital to finance higher growth while maintaining sound capital adequacy.

General insurance: BAGIC

BAGIC is a composite insurer offering various types of general insurance including motor, marine, health and various forms of corporate insurances. In an extremely competitive market, BAGIC has built a strong retail franchise and retained a leading position among private insurers. It is one of the most respected brands in general insurance and focuses on building a quality portfolio with strong underwriting, multi-channel distribution and prudent financial management. Despite two major catastrophes in FY2015 - unprecedented floods in the Valley of Kashmir for which BAGIC settled over 27,000 claims valued over Rs. 930 crore, and the tropical cyclone 'Hudhud' in eastern India for which the Company settled more than 1,000 claims worth Rs. 32 crore - BAGIC has continued to perform well. Here are some facts:

• Gross written premium (GWP) for FY2015 grew by around 16% to Rs. 5,301 crore.
• BAGIC ranked No.2 amongst private players. Market share was 6.7%, excluding specialised insurers, a 30 basis points increase over the previous year.
• Net earned premium grew by 10% to Rs. 3,832 crore in FY2015. BAGIC issued 7.3 million policies in FY2015, versus 6.7 million in the previous year.
• Profit before tax was Rs. 777 crore in FY2015, up by 32% over the previous year. • Profit after tax was Rs. 562 crore, up by 37% compared to FY2014.
• The solvency ratio as on 31 March 2015 stood at 182%, well in excess of the minimum of 150% stipulated by the Insurance Regulatory and Development Authority (IRDA).
• The return on average equity was 28.9% - marginally higher than 28% recorded in FY2014.

Life insurance: BALIC

BALIC is among the top five private life insurers and manages over Rs. 36,000 crore of policyholders’ funds with a high solvency margin. Over the last few years, the industry had been struggling to grow on the back of a reduction in financial savings rates and falling risk appetite among retail small savers. BALIC is no exception to this reality. It has taken several steps to improve the quality of business and reorganising its distribution. The results of such initiatives should become visible over the next couple of years. FY2015 was the first full year of sale of new products, which were revamped after the new product regulations took effect. It was a challenging year for all in the life insurance industry, and BALIC was no exception. However, it still managed to close the year with a 4% growth in new business premium and 3% growth in gross written premium.

Highlights of BALIC’s performance for FY2015 are:

• BALIC’s new business premium grew by 4% in FY2015 to Rs. 2,702 crore. In terms of new business premium, BALIC was ranked 4th among the private life insurers.
• Within the private sector, BALIC’s market share of new business was 7.8% in FY2015. BALIC’s renewal premium increased by 2% to RS. 3,315 crore in FY2015.
• Gross written premium in FY2015 was 3% higher at Rs. 6,017 crore.
• Assets under management was at Rs. 43,554 crore as on 31 March 2015, which was 12% higher than at the end of the previous year.
• Profit after tax reduced by 15% - from Rs. 1,025 crore in FY2014 to Rs. 876 crore in FY2015.

Assets under management was at Rs. 43,554 crore as on 31 March 2015, which was 12% higher than at the end of the previous year.
Profit after tax reduced by 15% - from Rs. 1,025 crore in FY2014 to Rs. 876 crore in FY2015.
How, then, does your Company stack up in a difficult year. In a sentence: it has done excellently from the performance of BFL; very well from that of BAGIC; while BALIC needs some improvement, which I hope will come about soon enough. All three companies have good managerial teams and excellent leaders. So, I as well as you, should look forward to even better results in FY2016 and the years to come.
I should share with you one other piece of information. With effect from 1 April 2013, the boards of BAGIC and BALIC appointed Sanjiv Bajaj as Chairman of both companies. He has been doing excellent work as chief fiduciary of both these companies. I continue serving on both the boards.

Thank you for your support.
Yours sincerely,

Rahul Bajaj Sign
Rahul Bajaj