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Bajaj Finserv Ltd
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Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Limited Q2 FY '20 Earnings Conference Call hosted by JM Financial Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Bunny Babjee from JM Financial Limited. Thank you, and over to you.
Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss the second quarter FY '20 results. To discuss the same, we have on the call Mr. Sreenivasan, CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance; Mr. Milind Choudhari, CFO, Bajaj Allianz General Insurance; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance; and Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz Life Insurance. May I request Mr. Sreenivasan to take us through the financial highlights, post which we can open the floor for Q&A session. Over to you, sir.
Good morning, everybody. It's my pleasure to have you for discussing the results of Bajaj Finserv Limited, the consolidated results for the quarter ended 30th September 2019 and the half year ended on the same date. Before we begin, let me wish all of you a very happy Diwali and I wish everyone to have a year of health, prosperity and happiness. In this call, we will largely be concentrating on the consolidated results as well as the results of our insurance operations through Bajaj Allianz General Insurance, Bajaj Allianz Life Insurance Companies. Bajaj Finance, which is another major subsidiary of ours, has already had its conference call. However, if there are any high-level questions, we would be glad to take that as well. We will not be taking any questions on the status of Allianz' stake in our insurance company except to state that the status has remained the same as at the end of the previous quarter, and there is no change. Any statements that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. As you may be aware, as required by regulation, BFS has adopted Indian Accounting Standards from FY '19. And this quarter, our results consolidated as well as stand-alone results have been published on the basis of -- in compliance with Indian Accounting Standards and the previous year figures are comparable. The insurance companies are not covered under Ind AS. They have prepared Ind AS financials only for the purpose of consolidation. Accordingly, for BAGIC and BALIC, the stand-alone numbers reported below are based on non-Ind AS accounting standards as applicable to insurance companies. Now I will move on to give you an update on the performance. As you are aware, the market conditions continue to be tight. The GDP growth for Q1 came in much lower than expected. Auto sales are falling, and liquidity conditions continue to be tight, although the better-rated companies are able to raise money. Under these circumstances, we believe we have performed extremely well with significant increases in consolidated revenue and profit after tax. Coming to the 3 companies, BFL, BAGIC and BALIC, all 3 have recorded strong growth in revenues and premiums. BFL continued its stellar performance. It has recorded highest-ever quarterly consolidated profit once again boosted by strong growth and solid operating performance. BFL profit growth was also aided by the lower corporate tax rate. Despite higher claim ratios, including losses from the floods in Kerala and Maharashtra affecting the underwriting results for the quarter, BAGIC's profit after tax has recorded strong growth aided by higher profit on sale of investments and a lower corporate tax rate. BALIC too recorded growth in profit after tax. It was also aided by profit on sale of investments and some realignment of provision for impairment consequent to partial recovery against previously impaired investments. During the quarter, BALIC has signed a corporate agency agreement with Axis Bank Limited as their third life insurance partner. Our overall consolidated total income was up 47% year-on-year for the quarter. The consolidated profit after tax for the quarter was up 71% at INR 1,204 crores as against INR 704 crores. Bajaj Finance consolidated profit after tax was up 63% at INR 1,506 crores versus INR 923 crores, and the General Insurance profit after tax was up 62% at INR 294 crores versus INR 182 crores. The Life Insurance shareholders' profit after tax was INR 207 crores versus INR 132 crores with an increase of 57%. In the last -- previous calls, people have requested for an update on the investments and we have provided in the investor presentation, which has been uploaded on the website on Wednesday, a summary of the downgraded investments. These means investments, which have been downgraded by external credit rating agencies since Q2 of FY '19. This will also include securities which still have a high investment-grade rating because the qualifying criteria is that it should have been downgraded after purchase. Further actions taken to strengthen the investment management are being initiated as follows in the quarter: We have strengthened the internal credit appraisal to include proprietary appraisal models as well in addition to credit ratings; regular monitoring and interaction with fixed income investees in the corporate bond segment; we have redefined the fixed income universe with fewer qualifying securities in respect of new investments; we have redefined exposure limits for each segment of policyholder funds and shareholder funds separately; we have increased the frequency of review of asset allocation, exposures and internal as well as external ratings; and we have a special weekly monitoring team across the group to check up to review all investments, which are being downgraded since purchase. With these short comments, I would just like to add that we have uploaded these opening remarks on our website as well, so many of you may have gone through those. For those who haven't, they'll have access to that. I will now open the floor for questions and answers. Thank you.
[Operator Instructions] The first question is from the line of Hitesh Gulati from Haitong Securities.
Just one question on the general insurance business. What is the quantum of advance premium from long-term motor policies for us as of September?
Milind, would you like to take it or Tapan?
Yes. I do not have the exact figures. It is around INR 600 crores. To be precise, INR 575 crores, which is by way of advance premiums.
Okay. And sir, we have seen good traction here, right, because from March to June, I think, it moved from INR 300 crores to INR 400 crores and now I think it has sort increased a little bit more. So any positive trends that you're seeing on more people opting for longer-term OD as well, something like that?
I think I would like to mention here that compared to last year, we are seeing some changes as far as overall trends in -- people opting for either 5 by 5 or 1 by 5 and then 3 by 3 or 1 by 3. Okay. So we are seeing a lower percentage of people who are opting for a complete 5 by 5 or 3 by 3 in both cars as well as 2-wheelers.
And sir, just one last one, can you give a split of motor third-party on car, CVs and 2-wheelers?
Can you repeat the question, please?
Yes, sir. My question is, on the motor third-party piece, what is the split between cars, 2-wheelers and CVs, some indicative numbers there?
Okay. I think as far as the overall breakup is concerned, around 60% is coming from motor TP, while around 40% is coming from motor OD, okay? And out of the overall TP component as such, more is coming from the CV portion. So almost, I would say 60% is coming through the TP -- CV portion and the rest is coming from 4-wheelers and 2-wheelers.
Sir on the ODPs, is the mix similar because I think what I recall is that...
I think we're getting too granular into the operational numbers. Broadly, if you have a question, it would be better.
Next question is from the line of Ravi Srivastava from Bay Capital.
Congratulations on a great set of numbers. My question was also on BAGIC. Why are we sort of pushing so much on the crop side? Last time when we spoke about sort of maintaining your market share in crop, but this quarter and maybe in the last year, we've gone overboard and have written a lot more. So what are we sort -- what's the sort of thinking there? Why are we taking so much exposure in crop?
Okay. Like, if you look at crop that we do has -- always been close to our market share, no? So when you made the statement that we have gone overboard, in a quarter, it looks overboard because then in the entire year if you look at, the total crop this year would be around INR 28,000 crores, no? In INR 28,000 crores, if you write about what INR 2,000 crores, it is close to our market share, which is 8% or 9%, no? Where have we gone overboard?
But I would assume that this is the largest quarter...
It will come in one quarter, no? Crop is not like a retail business, which comes every month. So crop is spread over the years. So let's say, we write in this quarter, but the entire year, this is how it will get build up, no? For total portfolio of crop, this is the percentage. So it is equivalent to more or less close to our market share, so it is not overboard.
The other thing, I just wanted to get a heads-up on is that we are writing -- when we are writing crop insurance of such a significant size, we are also writing sort of combined ratios, which are over 100% in that -- higher claim ratios, sorry, claim ratios of over 100%. So why are we sort of taking that exposure? How do we make money out of it? Just I couldn't understand this segment.
Yes, so if you look at crop business, no, the way you should look at it is, pick up the crop business for, let's say, 10 years' time. The best would be to pick up the total crop by segment-wise business for 10 years' time. Over a significant number of years, you make money. Some years you'll lose money. So if you look at our performance also in the past, let's say, 4 or 5 years, we have made good money in about 3, 4 years. Some years you lose some money. So that is the nature of this business. Crop business is not like a retail motor business in which you would know the margins as it progresses on a quarter-to-quarter basis. In the business of crop, if you enter into crop, there are years in which you'll make good profit, there are years in which you'll not make good profit. But if you look at a 10-year period, there are more years in which you make profit compared to years in which you don't make profit. That is how the crop business is seen.
Great. Just Tapan, just, again, asking you -- alluding to it more is, it seems like there are some years where you make profit or some years which you don't, it seems like it's sort of a coin toss in a way. Why do we want to be in that space?
See, it is driven largely by reinsurers. So if you look at, let's say, GIC is the major reinsurer here. And that is why when you have -- when you write businesses like this, you have to have good reinsurance support. So because then what happens is, you even out the losses. So let us say what companies do is they take an excess of loss cover. So let's say loss exceeds, let's say, 120%, 130%, then the companies won't bear the loss. It goes to a reinsurer, again, okay? Then they have a quota share, in which, let us say, the company has a loss, certain amount of loss is taken by reinsurer also. So across the world, when you write businesses like this, if you look at a P&C company and if you read about it, let us say in U.S., you have these hurricanes coming in, you have these cyclones coming in, so there are years in which there are huge cyclones in which the property loss goes up, there are years in which there are no cyclones and no property loss. Nature of P&C business is when you're a big company, you're exposed to catastrophic losses, you're exposed to different kind of losses. This is what -- otherwise, why would you take a cover? So let us say, if you don't have even out monsoon every year, why would you take a cover? Even the economic policy, the government also consider the monsoons, no? There are good monsoons and bad monsoons. So if you look at it, that's the nature of P&C business. It is not a business in which you can predict every quarter how it goes. That's why reinsurers are coming into play, that's why they're large segments. Does it answer your question? Does it give you clarity on how to look at this?
Yes. Some understanding. Just that -- sorry to harp on this, again, is that my only thing is that even though -- so when we speak to reinsurers, they are sort of also firming up their rates. On the other side, the -- here, the major payment comes from government which tends to be -- so sometimes it may have paid on the time, sometimes it may delay the payment. That...
Now if you look at -- good, so ask as much question you want on crop because I think it should be very clear to you. I'm very happy that you are asking questions. So just look at the crop business with government delaying premium, now as the nature of the contract awarded by government it says that till you receive premium, you don't pay claims. Now let's say, the government delays the premium, the claim does not get paid for that, no? So it is not that you're paying claims and you're not receiving money. The contractual nature of crop insurance defined by government is such that till the government pays money, you don't play claims.
But how do you generate float then?
No, but crop -- see the float is not to be generated on businesses like crop. Float is generated -- typically, let's look at the float of the Indian insurance business. Most float is generated by the motor third-party business, which is there in the insurance portfolio, right, because of the nature of claims settlement. It takes years to settle a claim because of the way it is constructed today. Now if you look at the coming Motor Vehicle Act, in which they have seen 6 months to do claims, also floats on GI business would disappear. So float generation or creation happens only in businesses like motor third party, yes, long-tail businesses. A float will not get generated, let's say, in GMC, a float will not get generated, let's say, in a crop. So fundamentally to understand float also, you have to look at long-tail businesses to get that. So crop is not the place where you generate float, no?
So basically here what we're thinking is that there is a good chance that in some years, we'll have 120% and there is a very good chance that in some years we'll have 80% claim ratio.
Yes, and then that is why you have reinsurers to look at...
Reinsurers [indiscernible]
Reinsurers are hardening the rate does not mean that they are not covering. So most companies would have good reinsurance cover, which would be the quota share of a good -- or 80%, 85% of it and there will be a stop-loss cover over on top of it. So fundamentally, the vagaries of nature can be controlled by these things and that is the nature of P&C business. This is for most businesses and let's say, property also, if you look at all the floods happening, the property losses would have moved up for the industry. There are years in which you will have floods, there are years in which you will not have floods. So there are years in which the property loss ratio will be lower, there will be years in which property loss ratio will be higher, it's not only for crop. If you look at the car loss ratios also, automobile loss ratios, the places where you have floods, automobile loss ratios have moved up. The places where you don't have floods, automobile loss ratio is down. So this impact is there for all lines of businesses. And if you study it more at a minute level, you'll find that it moves up and down depending on how the nature goes. That is why people insure. If you had 100% guarantee of no losses throughout, why would you insure?
Got it. That is very, very useful, sir. One more question on the life side. This is regarding the recent news and not on the quarter is that, there was a trade that was done on BALIC between for -- on the Indiabulls owners with Deutsche. What is the -- what really happened there? And why is...
I will take that question. We are not commenting on any individual security or any individual investments. We have given an update as of 30th September of all our investments. So we don't like to comment on this.
They have dragged us into court, so that's the only reason I am asking?
No. As of this date, we have no further information to communicate on that.
Next question is from the line of Sunil Kothari from Unique Investment Corporation.
Sir, as a investor, long-term investor, I wanted to understand in this falling interest rate scenario, we being the insurance company, general and life, basically we also make money on float and long term, that is also a very sustainable, good -- which is sustainable and regular. So in this scenario, how you -- how normally insurance company behaves? What is your thought process for, say, next -- each -- during last 3, 5 years, interest rates have also fallen? So how it affects our overall earnings? Basically, if you can little bit in a simple language you can explain?
I will do that. Firstly, our investment income comes from 2 sources. One is that how much of AUM you have, how much float you generate, which will add to the AUM. And we[Audio Gap] yield you get on those investments. Clearly, as interest rates are cyclical, so there are times when interest rates will be low. There are times when it could be higher as well. As we position ourselves, as we've seen this quarter, we have taken profits on sale of investments. As the interest rates were lower, the bonds do tend to give higher yield. There is also regulatory restriction on where you can invest in terms of the type of asset classes, there's a minimum amount to be invested in government, in housing, in infrastructure and that a certain amount is allowed to be invested outside of all these. So given all these constraints, it will be our endeavor to work on both fronts. Firstly, to have a business which generates float. Historically, in BAGIC, we now hold approximately INR 19,000 crores of float and we have invested only INR 280 crores as share capital and we have a net worth of about INR 5,700 crores. So we have almost INR 13,000 crores of float we have generated in the business. The float continues to grow and we will continue to focus on growing the denominator. Clearly, our insurance business is full of risks, there are risks related to underwriting, there are risks related to reinsurance; therefore, we consciously monitor the sources of profit, what is sustainable, what is recurring and there will always be opportunities for you to take onetime gains. So that mix is something we track regularly. And historically, we have been there. Our investment leverage, which we have mentioned in our investor presentation, is 3.2x, that means for every INR 100 of net worth, we still continue to hold INR 320 of investment float. Obviously, if the yields are a bit lower, the investment income will be lower, but we have other levers. We have our underwriting business, we have our product mix, we have our expense management, and all these put together, we hope we will continue to deliver a superior ROE. Does that answer your question?
Yes.
Next question is from the line of Madhukar Ladha from HDFC Securities.
Again, on the agri business, can you explain a little bit about how you are hedging that business in terms -- you mentioned that you have an excess of loss cover and you'll have some knockouts. So what can be the maximum kind of loss in this business if you can give some color on that?
I'll speak first before I pass it on to Tapan. If you see in the last 4 years, majority of the large catastrophic losses have not come from agri insurance. They have come from J&K floods, they have come from Kerala floods, they have come from cyclones like Hudhud and Fani. They have come from floods in Chennai, Bombay. So, therefore, insurance is about managing the catastrophic risk. There are multiple layers of excess of loss cover for different lines of business. Agri business is a unique business because it is short term. It is for one season. The claims do get determined quite fast. Weather is one of the important factors, which determines claims ratio because it's yield-based insurance. It may not be because of weather. The farmers are not required to prove why the yield was lower. However, given that, we have a separate program for agricultural insurance, which has a quota share. It does not have loss limits. We have a retention, which Milind can confirm the number. And in addition to that, we have got some excess of loss cover at 130% loss ratio. Milind, can you confirm that?
20% retention and 130% is our stop-loss limit. We pay our premium. Obviously, that gets charged to our crop P&L.
Understood. Understood. And so on the motor business, what are the early trends on the new motor vehicle act? Are we seeing -- how is our TP renewal looking like? Are people coming up and renewing or buying TP-only policies? And also it has been a year since we sold 1 plus 3 and 1 plus 5 policies. So how is the renewal of the OD-only portion on those policies?
Milind, would you like to take it or Tapan?
Tapan, you want to...
Yes. So if you look at the -- when the fines became steep initially, I think the premium for motor 2-wheeler went up TP significantly for the industry. Now the point here is if you look at the most uninsured vehicle in the road is 2-wheelers. Over 70% 2-wheelers are uninsured, while the 4-wheelers is about 20% is uninsured and the commercial vehicles about 30% uninsured. And this is founded by the IIV data and the [indiscernible] data and we're matching it together. That is how the numbers comes to.So obviously, when the fines were announced, there was a steep increase in the 2-wheeler insurance premiums, specifically the third-party part of it, which happened. But then I think slowly the state governments diluted the stand on that and then there was a dip, but still higher compared to what it was. So about 15, 20 days, it moved up in the last month or so when the fines were announced.But my personal feeling has been, which I have said in a lot of forums is that steep fines are good. We did see a huge change of driving behavior on the road. And most of the road accidents happen because of irrational or speed driving and not I think pausing, jumping red lights. So it is good for the citizens. I think quite a few forums also took it up and they mentioned that, but fair enough. I think as it goes forward, I think I would be seeing a significant, in 2-wheelers, premium increase in the third-party part. That would definitely happen. 2-wheeler, I think it is less uninsured, so the impact will not be much.On the renewal of pure OD, it is much lower compared to if it has been full because the regulators allowed it in the terms of -- mentioned that you can take an OD cover separately and they allowed that in the relations now. And we have to mention the TP of the previous [indiscernible], but I would say it's too early to give this comment. I think when you have the next quarter review on, then we can give more conclusive numbers because -- so renewals also have a play of a month or so happening. So it is not very -- it's very early to say that how will it play out.
Right. So also in your helpline, we have seen a very steep growth in retail health. What are we doing different now? Or what's the philosophy over there?
If you look at retail health growth, it has always been on the number that you see today. It's a bit over, a bit down below this. But as you build up distribution, the retail health will keep on growing. In retail distribution, there are 2 or 3 major lines of products that get sold. One is motor. Second is retail. Third would be the smaller SMEs and mid package. So if you see because of our growth in distribution, there's a natural increase in the business also.
All right. And sir, finally any comments on the pricing of TP because given the Motor Vehicle Act should result in lower claims over a period of time, do we see -- how do we see pricing to move? Do you think -- IRDA...
Right now, more of the TP is governed by IRDA. It is [ their call ]. But at a personal level, are under national [ free ] pricing. I always believe the market should determine the price. That's my personal level. But that is something the IRDA to decide. I think this question has been there for many years now. I think the first time we raised it, especially I raised it about 4 to 5 years back, if I remember when I asked for free pricing of TP and everything else on street price. So it took 4 to 5 years, still we don't have any conclusion. So I cannot give a future date in which it can happen, but personally -- my personal feeling is, when we have free market, I think the price should be free from all lines of business. That's my personal feeling, which I have mentioned in a lot of places.
Next question is from the line of [indiscernible] from BNK Securities.
Sir, my question is with respect to the life insurance, particularly on the Axis Bank tie-up. What proportion of business comes through banca for us now? And what is our outlook on this new relationship we have with Axis Bank?
Raman or Tarun, would you like to take that?
Yes. Maybe I'll just slip in on that. See, our third-party and bank assurance business till last year first half was about -- just about 18%. And this year, it has gone up to 33%. And this is without actions because actions have not started yet.
And like what is our outlook there? I mean, on the banca we'll be targeting something close to 40%, 45% with taxes?
I don't think I can make a forward-looking statement on that as to how much we will be targeting. I think it's a healthy increase in individual premium. Here, we've had a good run, good start with Bandhan and we are now working with Axis and working our various pilots with them and putting together a business plan with them. And hopefully, it should be good for us in the coming years.
If I can just add to what Tarun says, if you look at the last 4,or 5 years, we have done a lot of work on individual distribution channels. We have rebuilt our agency. We have shown a lot of traction there. We have seen improvement in ticket size and persistency. We have also started building our proprietary sales force channels and we have reorganized our institutional business. We had a very skewed exposure to the RRBs and MFIs but by getting some new relationships such as Bandhan Bank and IPPB, and IPPB has not yet started, but we have a lot of SFBs. We have started rebuilding the banca channel. One of the drawbacks we had in our distribution, one of the gaps, I should say, was the fact that we didn't have a very large pan-India commercial bank other than Bandhan, which is a new age bank. Axis will help us fill that gap. As we work with them, we will figure out how much of the FI we can get. It's a fairly large size there. We are their third partner. But we think we have a fair shot at building a good quality individual rated premium business through Axis, which will be hopefully positive for us for growth as well as our NBV.
And do we have a different exposure on the retail terms side as of now because we don't have a banca partner? Is that affecting us in any way?
We've -- we spent last few years to make our claim processes because we are quite strong on the group term side. And that's given us a lot of experience on handling term claims, handling term processes. We will be launching our and I'd said that in the last call itself that we will be launching our term plan, retail term plan this quarter, which should help us get that up. But the way I will do it is I will take it gradually as one always here is particularly investor calls, a couple of positives on retail term plans and it is good. But if you do not have strong control mechanisms and support analytics, it can also backfire, so which is why we are starting off this quarter now with retail term.
Next question is from the line of Mayur Parkeria from Wealth Managers India Private Limited.
Just on the retail side, on the BALIC side, insti and other channels are contributing quite well on the growth side. Can you just add some color on -- so is it because of this Bandhan tie-ups and other which you just mentioned?
Before I pass it on to Tarun, I'll just broadly make a statement. I think one of the major pillars of our transformation, which we started 3, 4 years ago was to change the focus of our institutional business from an overweight group business perspective to individual rated premiums. So many of our existing tie-ups, which we're doing only group also, we have managed to start individual business. We have started individual business with Bajaj Finance, we have started with Bandhan. And even in our RRB, we have actually started doing business and predominantly doing individual business now. This we believe will add to our NBV and create a sustainable model and that now is playing out in some ways. Bandhan is obviously contributing to that. Tarun?
[indiscernible] is the one strong pillar right there. And just to add to that, last year same time, we used to have 73% business coming from agency, 18% coming from institutional clients and -- on the retail side and about 9% coming from proprietary sales force. Now this has incidentally moved quite well, so -- while agency has been quite steady, but has come down in market share because banca and third-party business has really picked up well. So agency is now under 60%. Institutional business is 33% now. So it's been -- the strategy has worked. We are not just trying to do only retail through RRBs now. Currently, we do have attached with Syndicate Bank. Of course, we have to see what happens with Syndicate post merger. We have Bandhan Bank. We have -- we are the biggest players in terms of number of partners in the SFB model. In the payment banks, we have India Post Payment Bank and that should start throwing up some numbers from next quarter, hopefully. There's a lot of work on tech integration happening. And now that Axis has [indiscernible] we do have a large commercial bank, which has a pan-India presence and the right kind of customer segments.
Sir, while the premium growth is looking impressive, will it also mean that -- and since our presence on the life insurance has been on the retail side a little late in that terms to say so, will it also mean that it will be a while before we see profitability coming on this and a new business stream will be much larger here for some -- for a lot of time?
If you -- it's a very good question. If you look at the agency channel, it is fundamentally a higher-cost channel anyways because the lot of fixed cost that goes in there, we have like the largest bank branch presence among the big companies and we have sometimes presence in areas where even LIC doesn't have a presence. So that has been our forte, but has therefore also had a cost at the end of it.When you tie this bank assurance, your variable costs may go up. You do, of course, make investments in tech and there is analytics, a lot of work happening on there, product development, which has to be done. So net-net, ultimately, the NBV will only benefit and that has only been positive for us because overall, it is a less fixed cost channel.
Okay. Sir, while at a conceptual level, this is right but has the improved operational performance started flowing on, on the VNB and EV?
We have published our EV once a year. We are seeing that margins are moving. Last year, for the first time, we have also after a few years reported positive margins after overruns. Our overruns, because -- partly because of growth and partly because of operational efficiencies, we have been able to control our overruns. And as we go forward, we hope to continue this trajectory. I can't give you a number what will happen in the future because a lot of it is also depend on volume and the external market conditions.Having said that, when you get something large like the Axis Bank tie-up, there will be some new business stream on the reported facts. So if your measure is NBV, clearly we will do business which we believe is NBV positive and it will help us on the overruns. But temporarily, there could be some impact on the reported statutory profit, but the quality of the business and the long-term sustainability of the business is what drives our thought.
But sir, given the base business which we have, now that is turning a little positive, so we should build in this year from the last year where we left little marginal profits, right?
We're already doing that. You see our growth has been in the first half and in the last quarter much higher than the market. We have brought in product mix change, which we believe is a differentiator for us. Now our traditional to ULIP mix is higher. And as Tarun pointed out, we did not have a competitive enough individual term life product that should soon be launched as soon as the approvals and the internal process is approved, but we have that. We will start to improve on the -- improving the share of protection on our business mix, hopefully. And we think this fine act of balancing the product mix will deliver to us what we want. On the channel side, we have now a fairly deep and broad distribution network. We will continue to build on that.
Sir, last question from my side is, on the investment side on both BAGIC and BALIC, is there anything -- impairment which you wrote back? But if you can give some color on is there any exceptional or should one look as to more [indiscernible] nonrecurring or more lumpy number, anything which we have booked on this side?
There is -- obviously because the yields are lower, there is an element of capital gains. Over a cycle, capital gains are part of your yield. That is why you invest. You can't make all the money on interest income alone. We have reported something higher this quarter than last year. Apart from that, we have that reversal on one provision we made in Q1 because we received part of the money.We still continue to hold 100% provision on our exposure to IL and FS and 60% on the Dewan Housing and Finance Corporation on our outstanding amount. We believe we are reasonably conservative in both as -- and we know that there are many other companies have invested from their public disclosures. And we are reasonably satisfied with the level of provisioning we have. We have given the details of all other downgraded investments in terms of what is performing and nonperforming, and you can see that our provisioning coverage ratio is fairly high.
Next question is from the line of Avinash Singh from SBICAP Securities.
Two questions. One each for BAGIC and BALIC. On BAGIC, again, on crop, you rightly said that, okay, crop business you have to look over the fine cycle and also you have to [indiscernible] requirement. So if you can just help me on this and currently for the Kharif season, in which states you were there? And on that, I mean, do you see -- I mean, particularly the post 30th September is still the odd season rain-related losses and that would have cost. So I mean are your current reserve for occurrences for the quarter taking into account of this sort of unforeseen event? Or you see the chances of this claims ratio going up? And on the pricing side, if I look the publicly available data, from last Kharif '18 to Kharif '19, we have seen kind of a premium -- direct premium to some of your ratio going up and kind of -- getting from 7%, 8% price hike this year So what has been your pricing experience? So these are the questions for BAGIC.And on BALIC, again, continuing on your new tie-up with Axis and considering it's a pretty big tie-up and definitely plugging the hole that you had in your business model, having a large retail bank and a distribution partner. But it will also entail accelerated investment for some time. So how do you see actual post-overrun margins for F '20 and going forward, directionally, if no exact numbers? I mean, is it going to sort of bring further some pressure on margins this year and then accelerating from next year? Or do you see that gradual improvement in margin continuing? So these are my 2 questions.
I will just broadly take the BALIC question first. As I mentioned before, with such a large tie-up like this, it is our intention to drive the right kind of product mix combined with volume. And we should be NBV positive, excluding the overrun. Yes, over the next 12 months, we will have to make significant investments because volumes are not going to come overnight. Therefore, there will be a bit of strain. But we will also understand that we are sitting on almost 800% solvency. And therefore, we have the capacity to invest that money in a relationship we believe is long term, sustainable and margin positive. Obviously, you cannot say no to such a relationship and all such relationship always come at a cost. And there is a cost of integration, there's a cost of manpower, and some of these costs are up-fronted. The business will come in due course. Now I will give it first to Tarun on that question and then later on to Tapan for the profit.
So I think Sreeni has addressed it. You've gotten this as well. Very clearly, we are intending to get our product mix right from day 1 with Axis and profitability is surely something we have on the top of our agenda. But having said that, there will be investment and productivity. Both will be something we'll have to account because we will start making investments in tech. We've already started this and we're still continuing. And even training, we're getting that right, putting in the support mechanism in terms of people with Axis. All that will, of course, have an impact, particularly in the [indiscernible]. The way I'm looking at NBV, so we have to become a meaningful size first. I mean we can get to be -- so looking at margins is one point, net margins. But I have to make these investments upfront. I would rather first look at even meaningful size. We already made the statement that ultimately this is variable cost, so it's lower cost in agency in any case. So that works well for the company. Also, as the number of policies increase, I can defray the cost over a larger base of customers. We normally write between 3 lakhs, 3.5 lakh policies, and that should go up. That should help us get more availabilities. But yes, a lot of this will happen in due course and it's not [indiscernible] started popping up in terms of significant NBV margin increase. But on a scale basis, I can sense that the NBV -- we will be writing only net NBV positive products will tend to go up.
Quickly, if I can just follow up on like first one. Again, you are looking at Axis Bank that has got 4,000-plus branches and it is almost 80% or many more branches having potential to [indiscernible]. So what kind of manpower addition you will be doing just to manage -- over the next 12 to 24 months to manage this as a fix channel. And also for consensus somehow we have been improving over year, but we are still not below the top peers. So how do you see, again, this improving further or like we are sitting is sort of a feeling?
Yes. I know I think that's a very good point you raised what will be. On the first one, let me just say that, at this point it's difficult to say how many people we will put because we are currently starting off pilots with -- at this point in time, there's one going on in Mumbai already. And these pilots will tell us how many people we're going to be putting and where we're going to be putting for support.Having said that, Axis itself has a very large base, one of the largest bases of SPs. These are the specified persons who themselves sell insurance and understand insurance very well, one of the largest in the country. That should help. Axis itself is -- if I would just account for Axis' top line, it would be the top 6 life insurance player already. So that makes us more keen to, therefore, make the investment. So whatever is required to be done from our side will be done.From your question of persistency, again, it is a very insightful point you raised. So there is one thing that you need to understand a little bit about BALIC, the fact is that we've not had bancassurance as a big channel of that. The fact is that we have been largely -- we're now moving to mass influence. The movement is underway. So those things don't improve overnight. If I take both these factors, the 1 big impact of persistency for these months particularly, so that is good for these. I mean they not take second premium, but 13 month is that people who are paying on the 12th and 13th month itself, the contractability has to be very strong. You have to have multiple adjustments sometimes, communication addresses. So usually, if you have a bancassurance partner, it's a lot easier to get. The payment mode should be direct. So in our case, it is a little bit more hard work we have to do to reach out to the customer to pay the second premium. As a result, what happens is when you just look at hard code 13th month payment of the [indiscernible], we will be a tad below the top quartile. But if you start looking at the 15th month and the 17th month and, therefore, the second premium, so if I look at the last year second premium, we're already close to 82%. But the money doesn't come on by 13th month because of the contractability being low, and therefore, it tends to drag on during the 14, 15, 17 months. And by the 17th month, we start getting the cost, which is closer to 81%, 82%. And I think at this point in time, given our product mix, 81%, 82% is a good one to go with. And as we get more bancassurance partners coming in with payment mechanisms, of course, India is doing quite well as payment banks are coming in as well. This should help us increase our 13th month itself. And then that sort of persistency needle will move substantially because India Post payment bank in the mass market is doing a lot better because there are debit mechanism that one can put. On the last mile, it's pretty strong. So we're very mindful whenever we're tying up with any relationship that the persistency doesn't suffer. Initially, RRB used to be a big part of it, and now, RRB and the percentage has dropped a lot. So that is also now helping us grow, and we will see this. Directionally, we'll only be in the top quartile among life insurance companies.
The next question is from the line of Dhaval Gada from DSP Mutual Fund.
A few questions. Firstly, for Tapan, few questions. Could you please remind on the philosophy that we've adopted on the Motor business? Do we look at OD profitability and TP profitability separately? Or we look at customer profitability? And in relation to that question is -- could you comment a little bit about Motor OD pricing environment and the outlook that you see at this point for maybe the next 9, 12 months on that? That's the first question. The second I had was on retail health business. Just wanted your thoughts, how do you see the ramp-up of this business over the last 12, 18 months? I mean your thoughts. I think it's a little slower than what we anticipated, but just wanted to hear your thoughts on that. And the third question I had was on the VSO bit. I think the ramp-up has been quite substantial over the last 3 years, now accounts to 10% of premium. Just wanted to understand quantitative benefits of having this channel. And how does the dynamics change if this number were to go to 15%, 20%? And that was the third question.
Tapan?
Yes. So let me start -- sorry, yes go ahead Sreeni.
No, no. I was just asking you to respond.
Okay. Thanks. So let me start first with the motor. I think motor, health and the VSO, 3 of those questions that you have. So first on Motor, now if you look at Motor, in the PNC business, one should look at digital property overall for any business. Trying to subsidize from the other does not play out in the long run. And in that also, there are a lot of subsections. So some subsections which TP is still all good, there are some section in which TP is bad, no, and there it plays out well. So to make a general comment on how it is done it would not be appropriate because Motor is a very broad classification. You have so many subclassification in Motor and each has a different play altogether, how it gets done. But predominantly, the philosophy, we would like to look at profitability on an individual basis, OD separately and TP separately. And depending on how it plays out, there would be some places in which if you have good environment, there would be some subsidy happening, but that will be a one-off or on a small segment of the basis. But overall, the philosophy, we would like to look at it separately. Does it answer your question on Motor?
Yes. And just your thoughts on pricing given -- I mean since you look at it separately in most subsegments, I mean, the environment? And how do you see that sort of changing over the next 1 year or so?
If you look at the pricing, for that, you should look at how the industry is behaving. And that would give you the answer on the pricing part. If you look at the -- I think, well run companies would be a very small segment of the overall industry, no? That's why the combined ratio of industries is being close to 120% for quite a long period of time. So it fluctuates between 115%, 120% for a long period of time, which means that overall, the industry pricing is not up to the level where it should be. It has not been good. That's why most players have a combined ratio, which is way above 100. And that shows the pricing is not in the right place as it should be, and that's a fact. But there are companies that are well run also, and if we look at their combined ratios are very close to 100, no? So there would be -- big pricing, which would be appropriate and they would be segmenting, which should be appropriate, and that is why their combined ratio is [indiscernible]. But overall, the market pricing is not where it should be.
And do you think it will remain around these levels for the next foreseeable future?
But if you look at historically, this is the longest run any country has had. Free pricing happened near 2007, this is '19, 12 years. The market pricing has not corrected. Even, let's say, if we look at some examples, like Korea and all, in 7 years' time, they corrected the pricing. It was -- in fact, it was much better than when the free pricing started. In India, it has not happened, and that is why you see the stress on most companies in the generation of business. Because it has been known for a very long time. So very difficult to predict as to when would we get done, but I think the question is that we will have companies that are well run in terms of them getting the pricing right, close to where it should be. It will be a very welcome move. But I can't predict how other companies' behaviors. I wouldn't know. But there is definitely a stress.
Dhaval, I had a point. You see Motor insurance is the most visible and the one which any new company will start attracting. Therefore, there are times in the market when there is excessive or what I would call irrationality in the market. It all depends on the availability of capital. If that capital cap that accounts for the smaller competitors, then you would find that prices will harden because they would find it difficult to continuously report losses on a segment by cutting prices. So eventually, our company has been one of the most solvent. We have sufficient net worth and capital. Smaller companies will find it difficult to get into lines like corporate, which requires a significant reinsurance support. And reinsurance, again, is a function of capital. Therefore, we believe in times like this, people who hold their prudence to or the right balance between growth and profitability and focus on various segments as Tapan mentioned, within the Motor segment, there are profit pools, there are loss pools, and they keep changing depending on the pricing. And as long as you have a dynamic system of monitoring it, we think we should be ahead of the pack. Overall, we have disclosed our loss ratios. You see they're pretty good even after all this price correction. In Motor OD, it is still about 64%, 65%, and in TP also, we have a significantly good loss ratio. So we will try to be better than the market, significantly better than the market if we can, and then we will see how it goes. But at some point, it has to correct. When does it occur, in 1 year or 3 years? It would be difficult to say. I'm going to hand it over back.
Yes. Thank you. Yes, so the next question you had was on health. Dhaval, you were saying that the growth is not up to a level where it should be. Now let's look at the retail health history to understand how this moves. So if you look at -- I think the first health policy, if I remember right, was issued in the year 1986, which was -- and from there till about 2005-'06, there was hardly any shift in the retail health portfolio or [indiscernible] industry. Then '06 -- '05 or '06, you were not getting out, and I think the advent of standard health companies also give it a good boost along with the healthcare expenditure, which is happening now in the country. So it also moved up significantly. Now to get treated in a good hospital is really costing some good money. I think combination of this awareness level, disposable income, standard health companies, gave a boost to retail health segment as such. And it did pick up very well. And now government intervention has come also in terms of what we see in the National Health Scheme, which has come in now covering quite a bit of the population, operational beds, hospitals. So I think the health portfolio is moving in a scenario where you have this early good growth, but interest of all stakeholders is very high, and I think the ratios are all moving. It will even out at some time and then keep on moving as it progresses. So if you look at the way it is moving, I would say it is in the right direction. But I think if we see the trend, it is not going lower or much higher. The initial spurt of growth has happened because that is where the market really opened up to the health industry. As you see in the government intervention in hospitals, they have come out and the private stand-alone companies also, so all that gave a good boost, growing at the level of the public at large. So health would continue, in my view. For the next at least minimum 10, 15 years, there will be always a double-digit growth happening. And I think the government also would have a lot of cleanness in terms of looking at health for the overall public at large.
Do you think it can see 20% plus compounded growth for this 10-, 15-year period?
No. Not 20%, that will difficult. It will come down. It will not be 20% as such, it comes down to highest like 17% -- 16%, 17%, possibly 18%. That is where it will come in at best.
Sure, yes. The third one on VSO.
So if you look at VSO, as such, it is just a distribution mechanism in tier 2, tier 3 terms. So If you look at VSO typically for us, it does -- it will be -- it does Motor dealer, it does -- it's like a small office setup, which we actually set up and we are the pioneers of this. We were the first to set this up. Now I think a lot of our competitors are doing it, which is a good sign because it improves penetration for the country and it's good for the customer at large. The idea was that how can we set up operations at low cost without setting up physical offices, and so the distribution using technology and the network connectivity is there and how we service the customer the best, that was the initial concept. And we did set it up pretty well. We spread all across Tier 2, Tier 3 cities and we have -- so we are doing all lines of businesses and looking at all channels of businesses. So it's like any normal office. The growth from that segment is a good growth to have. It means that they're eventually moving to smaller locations. And as time to -- this is why we see more business opportunities, we will keep on expanding and looking at more expansions to this. So I didn't get -- quite get your question, the worry on VSO. VSO is just like a -- no, it's a good segment to penetrate insurance in areas which are not very penetrated areas.
Question was actually, what is the quantitative benefit of the channel? Let's say today, it is 10%. If it goes to 15%, 20%, I mean, is there a cost/benefit or a sort of renewal recurring? So what's the economic benefit at [indiscernible]?
So if you look at it, no, VSO typically is like an office. So as you open offices all across, in VSO we don't have a physical office, that's the only difference. I think there's no other difference. So it is just like any [indiscernible]. Yes, exactly. We keep on opening office depending on where are the opportunities. And if you look at India also, let's say you take India 20 years back, the combination of wealth in the urban Tier 1, Tier 2 was much more compared to Tier 3, 4 or lower below. Today, if we look at the purchasing behavior, if we look at the definition of purchase, it is fairly distributed across. So that is how I think our VSO is a very good move from the company to get into places in which we were not present earlier.
VSO is only a way to expand the footprint. The product we are still selling or as you sell more, yes, there has -- they will sell properties, personal lines more because the kinds of the market is -- I mean the types of people who live in these locations are from rural and rural backgrounds. But otherwise, it is only an expansion of footprint and diversification of geographical mix.
Understood. Just one more question for Tarun this time. So just on the product innovation, I just wanted to understand what is the sort of experience on return of mortality charges product that we launched last year? And sort of the size of that product? And the second question I had was on the proprietary sales force that we sort of built. I think one of the sort of objectives was to upsell to the customer base, database that we have within the groups. So just any metric around where we have sort of reached in that journey? So those are the two questions.
I'm really happy with the quality of questions, honestly. So to the RONC, this segment has been the lead segment for the online [indiscernible] plans particularly. So if you just go back in history and look at the online we have been planned, there is [indiscernible] we've had 3 years back, 4 years, 5 years back, introduced no charges, 0 charges within fund management charges as a mean of getting innovation. And that's why the sector grew, if I remember, the number is 20%, 22% on the online sales. And since we brought in the RONC concept, we find that customers are finding it a lot easier to buy products online, a, because there some of that mortality charges are not going to be -- it is difficult to understand mortality charges. So something that they find difficult to understand, we return back to them. So there is insurance -- life insurance particularly gets this stigma that they have a lot of, what should I say, nontransparent charges. So this becomes -- increases the level of transparency. And since then, the online sales have gone up by CSVR of 40% for the sector, and it could be higher than that. But if I remember, the number is broadly upwards of 40% CSVR for the last 2.5 years. So that market has now become more like INR 100,000, INR 200,000, INR 300 crore market for the sector. And this is [indiscernible], it's one of the fastest-growing segments. And RONC, what I find is now, suddenly, people have come to me, I've also come on the RONC products. So what we've done is we've, since then, widened our product states. We've come up with the product lifelong goals which means that a product segment for the pension -- pensioners as well. As you realize, when somebody is roughly 45, they start worrying about underwriting charges, and underwriting charges below that age are meaningless to us now. So this is why, ULIP market was losing that customer segment to the mutual fund states. Now what we have done is that we've introduced this product online, we returned mortality charges to pensioners every 10 years. So we've got a 20-year policy, every 10 years, we return the mortality charges. And that feature is also a unique one. We focus on early retirement [indiscernible], we have been able to open that space for us. And I think more and more insurance getting and money getting pulled into this space should help us take the pensioner space also into consideration. And these are really long-term contracts. Essentially, a contract -- right now, we're talking 30- or 40-year contracts including amortization. So that really works very well for us. The persistency in those RONC contracts is doing better as well. So overall, we are quite happy with that strategy. It's growing quite well. On the process, it is already contributing upwards of 10% of our business. I think that's a metric to look at. Conversion ratios are good. It depends upon how we can use the group data that we have. These are currently underway. And usually, these filers require a lot of profiling and analytics, understanding of what to pitch, where, because it's not that we sell a lot of policies, unlike other insurance companies. We sell just products that we [ like ], right? So therefore, even if I was able to do these 10,000 policies through the group, I'm kind of happy because these are of very high ticket size usually. So that is underway. The channels today, we have expanded the number of cities we are present in, and this is only going to increase as we go.
Understood. Just sorry, one data point that I needed was on the group protection premium of about INR 427 crores that we have. The split between the GPI and credit protect. And related question is on NBFC share now that we have versus maybe what we had last year.
Sorry. I'll tell you the H1 numbers. We have INR 826 crores of group credit protection all in -- put together, of which about INR 450 crores from the MFI space and the balance is from banks and NBFCs. Of this, about INR 170-odd crores is from the debt finance.
And what was this last year?
So all the segments are growing at about 33%, 35% growth rate. So it is an equal amount of growth in all the segments, so whether it's MFI or banks and NBFC, they all are growing at a similar pace.
Next question is from the line of [ Joseph Gojavas ] from Investec Capital.
Sir, as you mentioned at the start of the call, the -- and our agency is -- the share of fixed is high, and under banker, the share of variable is high. Just want to understand, what is the incremental investments needed in both these channel? Number one. And number two, if, say for example, syndicated bank moves out due to merger or any other reason, what will be the impact on the persistency and the cost because of any particular channel?
Yes. Very good questions. Let me take the second one first, and then I will come back to the first one. So we last year had a similar situation where Dena Bank merged into Bank of Baroda. And at that time, the decision taken was Bank of Baroda had its own subsidiary to just work with 1 partner. Now we have just 2 banks merging with Canara, so Syndicate is one of them. So we are, of course, being cautious in terms of the amount of investments we are making in this channel. And [indiscernible] will do a set of numbers, which will be not very significant [indiscernible] that the moment the merger goes through, people get so busy in their internal bits that are changing [indiscernible] of the banks that this momentum gets lost. And we're very cautious in making investments in Syndicate Bank. So we will, of course, await to hear more about what Canara's plans are going to be. Does that open a channel for us or not? [indiscernible]. And having the experience of Dena, now we are a little bit better placed. We did make continuous investments, and it is only at the end of March we really got to know what the Bank of Baroda decision was. So here, having gone through this, we have a little better place for an allocation. In terms of investments, we made in axis, it is a question from earlier as well, so the answer doesn't change really because we are doing a lot of pilots, and -- some initiated, some yet to be initiated. And it is a very interesting space for us now to get in because it is our biggest [indiscernible] footprint. Now what is that going to be is a little early to say. But needless to say that we will keep a hawk's eye on NBV. Having turned NBV positive last year, we are ensuring that all channels remain and get to NBV positive. And as far as that is concerned, we separately are making sure that axis is going to remain NBV positive. Of course, that could be a hit on TAT, Sreeni has already mentioned that, for the future. But I think the metric to look at for life insurance is more NBV, and that we will only grow in scale.
Sir, and how would the persistency impact, if any channel like syndicate or any other channel moves out of that?
Not much really, not much. Because, I mean, we're really monitoring all this effort. It's almost like [ helping out ] have people who are monitoring jobs externally. But having said that, it was not going to be significant. Its locations where Dena also happened last year, and we started the channel only in September, October. So it won't be same thing for Syndicate. So we are -- these are not very large outsiders to me. Of course, given the fact that they are bancassurance channels, communication address is in place, and so it becomes a little bit easier to contact the customer. And with Dena, we had assured them, and similarly Syndicate, no matter what happens later, in the short term, we will continue reaching out and servicing these customers. And the banks have been quite supportive on this. Overall, given the fact that we've got experience of working on noncontractable databases, which is what has been our strength for a long time because we didn't have then. We are only better for this because their contractibility [indiscernible] with updated stuff is a lot easily available.
Sure. Sir, just a couple of questions on the [indiscernible] insurance side. If you look at the loss ratios under the fire segment, that has been a little volatile. And there has been price increase recently in the fire and other corporate segments. How do you see the loss ratios move up for the full year? And second question is with respect to the growth. As you mentioned at the start, crop is a seasonal business. But on a full year basis, how do you see the full year growth? And which are segments you expect to drive it? Because Motor already -- the sales are weaker. So just want to understand these 2 pieces.
Yes, yes. I've already answered that question initially in that we never predict loss ratios in the DI business. We are in the business of ensuring other people grow, so we never know. Especially catastrophe and property and things like that, we never know. So obviously, there are seasons, not only the monsoon season. In Pune, where we are, now the monsoon has not stopped since July. It's still raining like mad. We are in the end of October now. So that is something where we'd like to see how it goes. The only thing is, we have underwriting history. We have a track record of underwriting. We have a strong underwriting team. We have reinsurance arrangements in place. We have capital to support the business, and we are generating float from a variety of businesses. Does that answer your question?
Sure. And how was the guidance for growth this year?
Tapan?
We don't -- we can't predict growth but new auto sales are down. There is heavy competition for existing auto sales. We have seen traction in certain segments like 2-wheelers. Our retail health is growing at 20%. Property premiums, there have been some correction early on, but that's only in case of large [indiscernible]. Our bancassurance, we have a large number of relationships. They have all started producing results, and we have strong growth from that channel. Obviously, bancassurance also brings you more exposure to mid-sized catastrophe-type of widespread losses. But the long-run, it is a profit and growth engine. So it is actually a combination of multiple levers. There is an external market, there is a certain amount of asset creation happening in the market, which currently is quite low. There are also new businesses, which we are tracking. We are building multiple channels. So the combination of all that, we are very hopeful that we'll continue to deliver on or above industry growth for the next year.
Next question is from the line of Nischint Chawathe from Kotak Securities.
This is Nischint here. Just one clarification. Most of the questions are done for my side. You've given the breakup of your investment book, this is on September 30. Any material change that we should be thinking about in terms of addition of any more stressed loans? Or anything that you had sold off between then and now?
As of now there is nothing that we would think. They are not -- I mean we are not calling them stressed assets, they are called performing and nonperforming assets. And the nonperforming assets, BHFL, as you know, there is a resolution plan, which is yet to be signed. If that resolution plan goes ahead, we think our provision is more than adequate. [ IL&FS ], we do not know because we are holding on secured paper. The rest of them for us is business as usual. We are not adding to any more stressed assets. As I mentioned in my opening remarks that we have a list of approved fixed-income investments that we will be going with. And we have increased our credit appraisal internally. We also have an internal stress forum where we discuss any stress in the market every week, mainly for information for people to take the profits.
Sure. And anything that you would've sold from this?
That would've happened in the normal course of business. I do not have the data as of now.
Next question is from the line of Adarsh from Nomura. We will move to the next participant. And the next question is from the line of Avinash Singh from SBICAP Securities.
So continuing, I got disconnected. So my question is on crop particularly. So what kind of a price increase your portfolio has seen from price 2018 to price 2019? And secondly, with regards to this late-season rain that you just mentioned, do you see a sort of a upside risk to what you have built into your crop place ratios results? So these are the two questions.
Tapan?
Okay. First and foremost, if you look at, overall, the -- as was already mentioned, the price increased happened for crop, and that's the point I said earlier also. See the way DI business operates is as the loss ratio moves, the price correction keeps on happening. And I think as you listened to the call, quite a few have mentioned there's a correction in the fire prices, there's correction in the crop new price, so which is a fact. So as the price inflation happens, it happens for us also because we are part of the larger segment. It is not that we would be a very different from the market. Second, if you look at the crop cover mostly is yield based. Yield based means that if the crop comes up, it is good. Now you also read somewhere that quite a few times, there's a mention that the monsoon has been good for the crops in a lot of places which are there. I believe rain necessarily do not mean into loss of yield. Flood compared to a drought is better for crops, that is how it is. Unless the flood is so significant that it completely destroys the crop. But we have to see how the pattern moves on going forward. So we still have to wait for results because it is on the crop cutting that you decide on that basis. But to give you a flavor of it, I think that drought is worse, flood is better in the crop business.
Okay. Yes. So just to follow up, how geographically you were distributed in this current 2019?
Again, if you look at the crop business, no? To think that we can do just a small business in crop does not play off because then it is gambling. If you just pick up one state and do a small figure of crop, then you're just gambling because then it's either good or bad. So to do crop like any other business in GI, you have to be widespread. So we're also widespread. We have a presence in the North, we have presence in central, a bit in the South. So that is how we have spread our risks. That is like all businesses, we do that, and that is why you have to have certain skills to do crop business. You just can't pick up one skill and think that you can do this.
And how was your experience in this season as far as the government subsidy is concerned, particularly of state? Have you seen facilities from all the state governments from current 2019? Or not yet?
I think I answered this question earlier. I think the way the crop business construction is that till we receive the premium, we don't pay claims. That's how the product construct is from the government itself. So I think that is not a -- sorry?
If that stops [indiscernible].
Yes. So when it comes, we pay that claim. I think that's just something how it is constructed.
The next question is from the line of Dhaval Gada from DSP Mutual Fund.
Sorry, just -- Tapan, I missed one question. I just want to understand the experience and the traction that you're seeing on the small-ticket insurance products that you had innovated and come out. And so what's the traction and experience like?And the second was on fintech partnerships again. Just what's the sort of experience out there?
Yes. So again, a very interesting question. I can probably give you how it will move on in the industry. So if you look at it, I think the fintechs or the small ticket sizes, which I said [indiscernible] as we call it, are a new partnership coming in, which is built up for speed in the past 1 year or so because the distribution of fintech or e-commerce would be like this. I think I answered previously also to look at traditional businesses that are distributed on platforms like e-commerce or fintech will not happen because, they are a bit more complex in nature. With a simple sachet, this point would get slow. So let us say if I look at something like Indian Railways, so now we are doing a lot of business with IRCTC. There, we, again, have a very simple product we can install. Or you also look at, let's say, the mobile insurance over e-commerce platforms that we have a large segment of business, which also gets sold through the e-commerce and a sachet-based 2 products and a simple cover and easy to pay claims. My personal feeling is that in times to come, this would become a good chunk of business. Right now, it is at a very early stage, but speaking of -- people are seeing the value in this product, people are seeing the value in this partnership.
Any number that you have in mind? I mean 5 years from now, what kind of size, absolute size that this channel or this product can...
I cannot give you exact numbers right now, but this channel will pick up and it'll create a new segment for itself. So the point of what I'm trying to say here is that to think that our traditional lines of business will get sold on these lines significantly, I don't think that is going to happen. This segment is going to create its own products for itself. It'll create its own niche customer and service parameters. That's the nature of this business. So the e-commerce business is something which is sold over our platform. It is something which is sold over the net. You don't have distribution networks or physical offices all across. So I would say a distribution like this will create different products and different customer segments, and this will also build up well because customers are showing traction for these products. They are showing more and they're getting claims and they're getting serviced well. In fact, in the interest for one of my e-commerce partners [indiscernible] is over 90%. Customer is really super delighted of the services that we've been offering to them from our platform. So as these starts moving, customers actually value it, the traction should happen good, is what I feel.
[Operator Instructions] The next question is from the line of Mayur Parkeria from Wealth Managers India Private Limited.
Just one understanding on the crop side. You said we have 130% loss. So how does this work? Like, so we have written in INR 1,700 crores worth of premium. So is it like to say that the maximum loss would be around INR 2,300 crores. Is it like -- does it work like that?
No. There is a contractual agreement. We retain about 20%, 80% is [indiscernible] under the product set. And this 130% will apply on the net returns.
[Foreign Language] 130% will be apply on the 80% of the...
On 20%.
Yes. Okay.
Correct me if that's wrong.
Yes. That's right.
Next question is from the line of [ Ratik Porda ] from [ Nippon Indian Mutual ] Fund.
Sir, just one question on Axis Bank. Could you just talk about when do we move from pilot stage to commercial states? What is the time line for the movement? And what are your market share aspirations?
See, as of now, we have just signed a corporate agency agreement. Typically, in any large relationship like this, there is a period of 120 to 180 days of discussion on business plans, on the way forward. They already have existing partners, so we will be discussing all these issues as to what it is. There is a large element of deploying manpower as well as technology, which will also come out of this business plan. So at this stage, we would not -- obviously, it will -- should increase our market share because absolute size of Axis Premium is very significant. And even if we get as a third partner a reasonable share of that, it should improve our market share. That is all we can say at this stage.
Any time line for maturity, like generally? It's such a big relationship for you and such a significant one. What's the time line, generally? Should we look at 3 years, 4 years?
As we can see, a corporate agency agreement regulation is for 3 years but renewable. But obviously, you don't get a relationship like this and make investments upfront with the hope that with [indiscernible] in 3 years, they will go away. There is no real question the relationship will be for longer term. Our relationships in the past, in BAGIC, for example for the last 19 years, where some of them have very recently or till now, maybe not even have looked at second partners. So the way you nurture and handle it is what [indiscernible] they have enough firepower and management bandwidth to be able to continue to meet the expectations of our partners.I think we should stop now.
As there are no further questions, I will now turn the conference over to Ms. Bunny Babjee for closing comments.
On behalf of JM Financial, I would like to thank Mr. Sreenivasan and the senior management team and all the participants for joining us on the call today. Thank you.
Thank you.
Happy Diwali.
On behalf of JM Financial Limited, that concludes this conference. Thank you for joining us, you may now disconnect your lines. Thank you.