Bajaj Housing Finance: Unlocking growth: Bajaj Housing Finance gears up for an IPO as it looks to expand in the market

“We are taking public action Bajaj Home Financingwhich is currently a 100% subsidiary of Bajaj Finance. It is a seven-year-old company and in these seven years the capital capital It has been provided by Bajaj Financewhich is also growing as we know,” he says. Sanjeev BajajChairman, Bajaj Housing Finance.

“In the way we analyse companies, we are not guided by a specific figure. Of course, the figures you have mentioned in the past are public domain.” Atul JainMD, Bajaj Housing Finance.

Why are you going public? It is a minor issue. Capital is needed to grow the housing finance business, but Bajaj Finance could have capitalised on it. So, when you go public, there is more scrutiny. It is good news for the shareholders, but it is more scrutiny for you. So, why have you taken the decision to go public?
Sanjeev Bajaj: Well, as already announced, we are going to float Bajaj Housing Finance, which is currently a 100% subsidiary of Bajaj Finance. It is a seven-year-old company and in these seven years the share capital has been provided by Bajaj Finance, which is also growing as we know.

In these seven years, the team led by Atul has managed to build a portfolio of high-quality and high-volume assets. In the first quarter, we had Rs 97,000 crore in assets under management, making us the largest non-deposit housing finance company in the country, with strong growth.

And when we look at our own future capital requirements, this is a way to go and raise money now. marketrather than looking back at the matrix itself. There is also a second reason, which is that given our size and being in the top tier as per the RBI classification, there is a requirement to list before September 2025. So, the combination of those two factors is what has brought us to this situation. IPO.

Bajaj Home Finance is growing at a rate of over 25%, making it almost double the industry average. On this broad base, can it sustain this kind of growth? growth?
Atul Jain: So the way we look at businesses is not guided by a particular number. Of course, the numbers that you mentioned in the past are in the public domain. We have grown over the last three years at a compound annual growth rate of 31% or over the last five years at a compound annual growth rate of 29%. We believe that there is sufficient or very large market opportunity available in the mortgage space. The market is very large. Even with the size and scale that we have achieved, we are still a very small portion of the overall mortgage market, because the mortgage market is the largest asset class in the country as far as the retail space is concerned. Given our relative size, we will take the opportunistic view, whatever growth opportunity there is, at the right balance of a risk and return metric, in the segments that we deem appropriate, we will continue to grow, but without being guided by a number, the market is large and the market itself is also continuing to grow at 12-13%. For a market of that size to grow at that figure also shows the robustness of the market. Several government initiatives are aimed at growing this market, specifically through housing for all, because it is a corollary of housing for all and applies to the housing loan market, which is the market we operate in. The market continues to grow, we continue to grow, without being guided by a particular figure.

If we look deeper into Bajaj Finance’s loan portfolio or housing finance in this case, there is no presence in Pradhan Mantri Housing Yojana. There is no presence in small towns. Will that be the differentiating factor that will sustain this growth if we focus on high-value loans and semi-urban areas?
Sanjeev Bajaj: So, this is Bajaj Housing Finance and it is distinct from Bajaj Finance, but where Bajaj Housing Finance leverages Bajaj Finance’s experience in the past is in how to enter thoughtfully and over time into all the relevant parts of the market.

So the most obvious areas to go into were the prime spaces with salaried clients, the big cities, because the volume was there, so there were economies of scale.

From there, we move into developer financing so you can participate across the entire value chain in the mortgage space.

Last year, we set up a separate team to go into affordable housing finance as well. We will be involved in each of these spaces and when we do, we will also be very conscious that for the individual customer, this is probably their highest value loan. So, they are very sensitive to who they are dealing with, not just pricing but the whole experience and their needs also differ. So, if you look at big markets, be it Delhi, NCR or Mumbai, we build capabilities at the micro-market level. So, what we will see over time is not just one way of building this business that fits everyone, but there will be a lot more action related to the micro-market.

So, in answer to your question, you’ll see us in each of those lines of business, but we’ll build them out gradually as we understand those customer segments, understand those micro-geographies, build the teams that are necessary, build the technological capabilities that have differentiated us for so long, and then enter that market.

As per the listing requirement, the shareholding needs to be reduced by a further 15% and brought to 75% over the next three years. So are we perhaps seeing more supply for Bajaj Housing Finance’s issue?
Sanjeev Bajaj: Even what we see in our capital raising right now, it is a mix of primary offering and sale offering and this balance is driven by one, the housing finance company, the amount of capital it needs for the next few years, but also the fact that too much capital can end up depressing the ratios.

So, we have tried to balance that and the rest goes to Bajaj Finance, which has been the sole shareholder so far, so they can also monetize some of their stake and we will follow that same balance going forward.
So, first it will be driven by the equity that the housing finance will get and the rest will be OFS that Bajaj Finance will do to meet the regulatory requirements.

Everyone wants to be like you. Why do you want to be like everyone else? You are a role model for everyone.
Sanjeev Bajaj: Because we have to try to improve even further and so my answer was that with great respect for what HDFC has done over the last few decades, that is what the future of HDFC will be. It is not about how a housing finance company should evolve in the coming years, but how we aspire to be and hopefully build excellence around that.

HDFC Limited eventually merged with HDFC Bank. Are you saying that is how you started thinking 5-10 years ahead?
Sanjeev Bajaj: Well, right now we are focused on excellence towards our clients and our stakeholders.

The HFC space is a brutally comparative market. There are public sector banks which are, in a sense, charging rates that are very disruptive. Technology, which was an advantage, is perhaps now becoming a common bond. So, my question is: why is Bajaj Home Finance growing at a rate double that of the industry on such a large base? Are they taking more risks? Do they understand their customers better? What is that secret sauce?
Sanjeev Bajaj: Well, that is a secret formula and the key word is secret. And no, if you were taking on a disproportionately higher risk, that will be reflected in our numbers. But what you are seeing is, again, the main ratios of net GNPA and net NPA.

Technology just for the sake of using it is pointless, but it does help us understand the customer better, to be able to access them more quickly, to be able to complete the loan process faster than someone else, because the rates are, in general, the same, as you said, and that is where technology makes the difference.

Technology helps us in our processes, in our risk assessment, in our debt management capabilities. In each of these areas, we use technology very effectively.

The variabilisation of our entire technological infrastructure running in the cloud, each of them represents a very big difference in operating costs, because at the end of the day we are talking about a business in which the differentials are very narrow, so every 5 basis points that you save ends up having an impact on the final result.

But one of the avatars, which is in a sense evident in the way we see Bajaj Finserv, is the move to being a platform company, you have platforms that are incubating, you have platforms that are small but now becoming very, very big and relevant. So do you think Bajaj Finance, in a sense, we will talk about Bajaj Finance in 2030, will it really be a platform company, will it be a traditional company that will follow the fintech path?
Sanjeev Bajaj: Why should we look ahead to 2030? Why should we look at Bajaj Finance today? Our app has over 60 million users. We add over 10 million a year. In the last six years, we have added 24 million Indians who have entered the formal financial cycle for the first time, which means moving them away from unscrupulous lenders and into a more institutionalised space.

So, we can see Bajaj Finance, and in addition to that, Bajaj Housing Finance, already leveraging the digital platforms available.

And our presence is omnichannel or we call it phygital, it goes from physical to digital. So, there are 130,000 stores across the country where you can come in, you can see a particular product, you can go to a new housing project, see a particular apartment, and from there on your entire process becomes digital with us.

Leveraging the best of the physical and digital worlds is what helps us create this omnipresent platform. And when we say we operate in both the physical and digital worlds, what we mean is that you can move seamlessly between these spaces in your interaction with us. And the app and the web you use also demonstrate this, and the better we become at this, the more we can become a financial platform.

And looking at your understanding of the economy, and I’m talking about the medium term, do you feel reasonably confident that the growth rate you’ve reported in the past is here to stay?
Sanjeev Bajaj: Let’s look at the economy overall over the last decade, decade and a half. When I look out over the next decade, decade and a half, I think we will see or have the opportunity to grow even faster. The government has demonstrated over the last decade not only its intent but also in action and India today is a very different place than India 10 years ago, even 15 years ago, across multiple governments, I would say. And as long as we continue to see that and from the intent of the government, it will make no difference. I expect that for companies, and for good quality companies focused on the long term, the sky is really the limit.