Daybreak - India's largest non-bank is a prisoner of its own growth

Episode Date: October 3, 2024

Phone calls from Bajaj Finance offering loans are almost inescapable and the non-bank has been facing quite a backlash for it.But telecalling has been an enduring sales channel for the company which boasts of a loan book worth nearly $30 billion. And despite the massive size of its loan book, it’s been growing at a phenomenal rate. But now, Bajaj Finance has become a prisoner of its own growth rate. It has to maintain it anyhow.Tune inDon't forget to send us your recommendation for this Thursday’s Unwind segment. The theme is “your favourite murder mystery.” Send them to us on WhatsApp as a voice note or as a text message. The number is [phone]. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcast, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor have been working on an ambitious new podcast. It's called Intermission.

We want to tell the Sita Ramancahans, my colleague. secret-source stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of

multi-camera shoots in professional studios, laborious editing and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts. or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Have you received a call from Bajaj finance asking if you want a loan? I'm quite sure you have because Bajajan finance folks are relentless.

And that, at least to a certain extent, explains why the company boasts of a loan book worth nearly $30 billion. Bajajan finance is a baby of the call center era and it is now the largest non-bank in the country. But what makes it stand out is how it has been using tele-selling successfully despite the advent of so many other innovative ways of digital marketing. A senior executive at a prominent non-banking financial company or NBFC told my colleague Arundati Ramanathan that nobody, does call centers the way Bajaj does. It runs them at an industrial scale. But as true as that statement is, there is no denying the fact that these calls are irritating. And if you think the company does not realize this, you are wrong.

They are fully aware. But here's what's interesting about Bajajan finance. More than half of the loans that it gives out are to its existing base of customers. Now usually this for any other non-bank is much lesser. Now, despite the massive size of its loan book, surprisingly, Bajaj finance has been growing at a phenomenal rate. And this has been the case for years. And if you're thinking that's a great thing, wait a second.

Because Bajar finance has now become the prisoner of its own growth rate. It has to maintain it anyhow. So today, I thought I'll take you. you back to a previous episode of Debray to find out what really goes inside India's largest non-bank. Welcome to Debray, a business podcast from the Ken. I'm your host, Nick Dha Sharma, and I don't chase the new cycle. Instead, every day of the week, my colleague Rahal Philipos and I will come to you with one business story that is worth understanding and worth your time. Today is Thursday, the 3rd of October. Just like other lenders, Bejajajan has many ways

to acquire borrowers. It uses its 4,000 plus branches and 150,000 point-of-sale networks. It employs field agents, sends emails, SMSes and contacts digitally through its website and app. But the one sales channel that has managed to maintain its relevance through the decades is its team of nearly 5,000 outsourced call center agents. Bajaj finance has over 50 products, from loans dedicated to doctors, to loans for getting a hair transplant and everything in between. A former Bajajaj executive told Arundati that on an average,

nearly half of these loans to existing customers are pitched via phone calls. When the Ken contacted Bajajaj finance, they told us that they added 10 million customers to their formal financial system in the last three years. They also told us that they get a dominant portion of the loans through their point of sale network and digital assets. They said, and I'm quoting, loans originated by our call centers and direct selling agents account for a relatively smaller number. Our existing customers account for two-thirds of our point-of-sale financing transactions and almost all of it happens through EMI cards.

End quote. Also, like I told you earlier, after the backlash against these relentless calls, last year, Bajajan finance even updated its governance mechanism to make sure that no customer receives more than two calls a month. But if you go just by numbers, it does not seem like the volume of calls have actually gone down. In the last quarter of 2022, Bajaj finance added over 3 million customers

and gave out 7.8 million new loans. Now, according to a former senior Bajajaj executive, with this level of growth, the volume of calls is unlikely to have gone down. And that is because call centers are among its top sales channels. But while these numbers sound super impressive, it also means that Bajaj finance has to maintain this rate of growth. For a company with a loan book, its size, that is not easy.

In January this year, when Bajaj finance published its December quarter numbers, it said that its interest income grew by 27% to $2.7 billion. dollars. But guess what? The market still punished it with an 8% fall in its stock prices on that particular day. Like an analyst told Arundhati, Bajaj finance is a prisoner of its own growth. So how does the company plan to keep up with this growth rate? Stay tuned to find out. Bajajajan's plan is quite simple. Keep adding customers and sell more to them. The non-bank is also working on getting more traffic to its website and app as a part of its omni-channel strategy. It also has 66 million customers in its franchise and it

hopes to touch 100 million mark in the next five years. In a call with analysts after its December quarter results, Rajiv Jain, the managing director of Bajajaj finance had said, and I'm quoting, I don't think we need to reinvent anything. We've got to keep mining customers. End quote. But this very pushy approach can backfire. And NBAFC executive told us how. They said that usually when a customer gets bombarded by calls in this manner, they will shut down all types of communication, not just with that company, but the entire industry. Another challenge is the regulatory risk. On 27th of March, the Telecom Regulatory Authority of India, or TRI held a review meeting with the top telcos in the country to discuss steps to stop unsolicited

commercial communication and discuss the use of AI to clamp down on it. But Bajaj has built this almost foolproof system of telecalling for itself over years and clearly so far it has paid off. So even if it has to change it, it will surely require some time. Coming up next, we take a closer look at Bajajan's tele-calling mechanism. Bajaj finance has been playing the long game when it comes to telecalling. The company invested in understanding who to call. Usually, a Bajaj customer tends to pick up calls more than other lenders' telecallers. A former executive of the company told us that Bajar has 40 to 45% connectivity success

where people pick up their calls compared to the 30 or 40% for others. And how do you think Bajaj managed to do this? By playing smart, of course. It worked with caller ID verification companies such as True Caller in 2021 to get its number in the allow list. Usually, when a user tags a number as spam, the number flashes in red as spam. But as it turns out, it can be reversed to green. And then two Bajajaj executives also told us that even if there is a 0.01% chance of getting someone to take a loan, Bajaj Dalekollers will put their 100% into that. In fact, even though 40% of people

may pick up the calls, only 1% actually take the loans. But what about the Do Not Disturb or D&D guidelines? Any company that violates D&D guidelines on purpose could risk having their phone lines cut as penalty. Turns out, these calls from Bajaj finance are not only made via the call centers. Even the army of Bajaj's field agents has access to the customer database and they keep trying to reach out to customers. And it does not matter to them if they are on the D&D list or not because they call from their mobile phones. By simply switching phone numbers from one to another, they escape the D&D trap, which was anyway not laid out too well. And not just this. Bajajaj finance also gives its agents month and targets based on which they can.

get incentives. Plus, Bajaj does not mind spending on getting quality agents. It acquired close to 3,000 seats from TCS e-serve, which is a call center partner, inclusive of agent and equipment cost for 51,000 rupees per seat. But the average cost of a seat in the market is about 25 to 30,000. But why is Bajajajan? Because it demanded that TCS only put graduates and post-graduates to the task. And that is because the communication skills of these agents is much better. The company also exercises a lot of control on its call center partners in terms of work and payroll policies. The company is also expanding its call center operations across eight two-tier cities where costs could be half of what it pays in metros.

And right now, even though Pajajaj finance is investing in creating and maintaining digital channels to reach out to customers, aggressive calling has proved to be a more dependable method and it is unlikely that Bajaj is going to give it up anytime soon. Hi there. I just wanted to let you know that there will be no daybreak on wine segment today because yesterday was a public holiday. Which means you can still send in your recommendations for favourite murder mystery book or movie to our WhatsApp number.

You'll find it in the show notes of this episode. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the Ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv Sien.