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Bajaj Finserv Ltd
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Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Q2 FY '21 Earning Conference Call, hosted by JM Financial Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference to Ms. Bunny Babjee from JM Financial Securities Limited. Thank you, and over to you, ma'am.
Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss the second quarter FY '21 results. To discuss the same, we have on the call Mr. Sreenivasan, CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance; Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz General Insurance; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance; and Mr. Bharat Kalsi, 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. As usual, it's our pleasure to have all of you to attend this conference call to discuss the results of Bajaj Finserv Limited for Q2 of FY 2021 and the half year ended on September 30, 2020.As before 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, BAGIC; and Bajaj Allianz Life Insurance, BALIC, and where material, the stand-alone results of our company. BFL, Bajaj Finance, which is another major subsidiary of ours, has already had its conference call. However, if there are any high-level questions on BFL, 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 companies. The status has remained the same as at the end of the previous quarter, and there is no change there.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. A few remarks on Ind AS, as required by regulation, BFS has adopted the Indian accounting standards from FY '19. 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, stand-alone numbers reported below are based on non-Ind accounting standards, what we call Indian GAAP as applicable to insurance companies. Our results, the press release accompanying the results, and our investor's deck has already been uploaded on our website yesterday evening.Now I'll come to the update on the performance for the quarter and the half year. With lockdowns gradually being lifted towards the end of Q1, economic activity slowly started getting traction in Q2, as indicated by many high-frequency indicators. Since then, each of our businesses has experienced a month-on-month growth in the areas they chose to grow, while the risk levels remain elevated. In general insurance, post the lockdown, compact car sales have seen an uptake, leading to growth in 4-wheeler sales almost after a few quarters. During the quarter, BAGIC has gained ground in this segment. BAGIC has, however, been conservative in the high-end car segment as pricing is very poor. A large part of BAGIC's motor degrowth is from the commercial vehicle segment, where BAGIC has been more active in the passenger carrying vehicles, which is seen as more profitable. Production and sales of passenger carrying vehicles, as you may be aware, is well below normal.The demand for retail health insurance continues to be high for the industry. BAGIC reported 39% growth in Q2, which is well above the industry. On the other hand, BAGIC continues to be conservative on employer/employee group health business due to excessive price competition leading to high loss ratios and the potential impact of COVID claims. Among the commercial lines, property fire continues to drive the growth for the industry on the back of IIB-based claims. However, rate increases have been higher for riskier segments, while the more profitable segments have seen lower increases and in some cases, reduction in rates as well. BAGIC has always been focused on the more profitable segments.In the case of life insurance, given the uncertainties due to pandemic and the resultant volatility in the equity markets, we continue to see negative growth for the industry. Recovery in capital markets from March 22 -- 2020 levels have helped equity market-linked business like ULIP to some extent. In addition to pandemic-related uncertainty, lower interest rates and risk aversion among retail consumers continue to drive the demand for guaranteed products and protection products.Pure term products, which saw a strong pickup in Q1, has seen moderation in Q2 as the mortality rates in COVID have dropped across the country and on the back of rate increases by most major players in the market. I must also add that in terms of the group protection business, Q2 was better than Q1. However, as you may be aware, the group protection business is largely dependent on disbursements by banks and NBFCs and that is still below pre-COVID levels.Despite these circumstances, BALIC has done very well, recording a growth in individual rated NB of 19% in Q2 as against flat growth for the market, while the private players actually degrew by 3%. For H1 too, BALIC's growth is well above the market. Both BAGIC and BALIC continue to utilize their digital properties to harness the best possible under the current situation, where customers are restricting branch visits and limiting the face-to-face interaction. All our partners, individual agents, retail brokers and point-of-sale personnel are being supported with updated digital tools and are being provided with virtual training wherever needed.We have seen a substantial increase in digital penetration across several parts of our distribution and service chain across both our insurance businesses. Further details regarding BAGIC and BALIC's digital capability are covered in the investor deck uploaded on our website yesterday.Overall, both companies' digital foresight will, we hope, help them navigate through any difficulty, and will help them to continue the momentum picked up during Q2. Both companies have been able to recruit agents and POSP personnel in fairly large numbers in this quarter. BALIC recruited 2,428 ICs or agents and 11,000 plus POSP during the first half of the year, while BAGIC has also recruited approximately 6,000 -- a little under 6,000 agents and POSP personnel.A short brief on BFL. During Q2, we could see month-on-month growth in various businesses. And as of the end of Q2, businesses -- business has restarted across all verticals except the EMI cards and wallets, which are on hold till early Q4 till we get all the credit bureau data fully updated.The focus of BFL was on, a, restarting all businesses, refining lost estimates -- the loss estimates using granular models, creating back-to-growth plans, augmenting collection capacity and implementing business transformation. BFL is optimistic of growth prospects for H2 and expects to end the year with positive growth better than H1. BFL has also provided an additional INR 1,370 crore for expected credit losses in the quarter, and the company has retained its estimate for the full year credit cost at INR 6,000 to INR 6,300 of credit costs. At the end of Q3, the company expects to have a clearer picture.I must hasten to add that being an NBFC and covered under Ind AS, we provide expected credit loss based on financial models. And these are expected credit losses across the completion of each of the loan books. The company has very strong liquidity surplus of INR 24,775 crores. Additionally, they also hold INR 2,582 crores of SLR. As growth evolves in Q2, BFL will be slowly reviewing its liquidity buffer with the intention of dialing down.I will now come to the highlights of our financial results. Coming to Q2 of FY '21 versus Q2 FY '20, our consolidated total income was INR 15,050 crores as against INR 14,224 crores in the previous year's Q2. Consolidated profit after tax was INR 986 crores versus INR 1,204 crore in the previous -- same quarter of the previous year. And more about it a bit later.Bajaj Finance consolidated profit after tax was INR 965 crores versus INR 1,506 crores. General insurance profit after tax was INR 332 crores versus INR 294 crores, an increase of 13%. And the life insurance shareholders' profit after tax was INR 98 crores versus INR 207 crores. Coming to the first half, H1 of FY '21 versus H1 FY '20. The consolidated operating income was up at INR 29,244 crores versus INR 26,496 crore; consolidated profit after tax INR 2,201 crore versus INR 2,049 crores; Bajaj Finance consolidated profit after tax INR 1,927 crore versus INR 2,702 crore; general insurance profit after tax INR 727 crore versus INR 504 crore; and life insurance profit after tax INR 228 crore versus INR 269 crore.Now coming to a note on the consolidated profit after tax. The consolidated profit figures for the current quarter and the half year may not be directly comparable with those of the corresponding previous periods for the reasons mentioned below. Firstly, under Ind AS, equity securities held by BAGIC and BALIC, are classified as fair value through profit and loss account. Hence, they are required to be mark-to-market for the purpose of consolidation. While in Q4 of FY '20, this has resulted in a post-tax negative impact of INR 451 crores in the consolidated PAT. In Q2 FY '21 and H1 FY '21, it has seen a positive impact of INR 182 crore and INR 512 crore, respectively, in the consolidated PAT. Effectively, the provision made in Q4 for a valuation loss of MTM securities has mostly been recovered at the end of H1.In Q2, consequent to the ongoing pandemic, BFL has further increased its provisions on Stage 1 and Stage 2 assets by INR 1,370 crore pretax, which negatively impacted the consolidated profit after tax by INR 541 crores.The combined effect of these adjustments in the BFL books is the result of these in BFS' consolidated profit after tax is INR 359 crore in FY '21 and INR 603 crore in H1 FY '21.Now let me come to the performance of major subsidiaries. While detailed performance of the subsidiaries is covered in the press release and the investor presentation, I would like to highlight a few major points for each of the subsidiaries. For BFL, while BFL dispersed fewer loans in Q2 FY '21 as compared to Q2 FY '20, it more than doubled the new loans booked in Q2 FY '21 versus the previous quarter, which is Q1 FY '21. That is 3.62 million versus 1.75 million on the back of improved market conditions post unlocking. Overall, PAT for Q2 FY '21 for BFL was lower than Q2 FY '20 because of the additional provision as mentioned above of INR 1,370 crores. I must stress here that the pre-provision operating profit continued to show strong growth and is more than adequate to cover the excess provisions or NPAs that we are required to make. Gross NPA and net NPA, ECL Stage 3, recognized as per extant RBI prudential norms and provisioned applying the ECL method prescribed in Ind AS, as of September 30, 2020, stood at 1.03% and 0.37%, respectively. Standard assets provisioning ECL Stage 1 and 2 stood at 3.69%. This includes the additional provisions that we have made based on the ECL models. Without considering the Honorable Supreme Court's interim order of not classifying customers at NPA after 31st of August, gross NPA and net NPA ratio would have been 1.34% and 0.56%, respectively. Capital adequacy ratio, including Tier 2 capital as of September 30, 2020, stood at 26.6%. The Tier 1 capital stood at 23%.For Bajaj Housing Finance, a 100% mortgage subsidiary of BFL, the capital adequacy ratio, including Tier 2 capital stood at 25.97%.Coming to BAGIC. BAGIC reported an excellent combined ratio of 97.4% in Q2 FY '21 versus 102.7% in Q2 FY '20. And in turn, reported profit after tax of INR 727 crores in H1 FY '21. This is the highest ever first half PAT that BAGIC has reported in its history.The claim ratio reduced to 74.2% in Q2 FY '21 versus 75% in Q1 FY '20 -- Q2 FY '20. Overall, claims experience was mixed during the quarter, with higher claims in health insurance, including COVID-19 claims and property due to heavy rainfall, compensated by lower claims in motor own damage segment.While there were lower claims reported in some segments like motor OD, the uncertainty over ultimate losses is quite high for the following reasons. Most of these I must hasten to add are industry level issues. Motor OD claim frequencies though lower than previous year average but we have seen is -- are inching closer towards pre-COVID levels, and we can see month-on-month increases.In respect of motor third party, MACT and other courts have been at very low activity. And it is possible that when the orders are finalized, there could be an interest impact for this period during which they have not emerged. Thirdly, reporting of many nonemergency and elective health insurance treatments are still below pre-COVID levels, and there is a risk of higher frequencies when the pandemic subsides.Uncertainty on the quantum of COVID claims as many nations across the globe are experiencing a second wave of COVID-19. Approximately 3.5 lakh COVID claims have been reported across the industry, and BAGIC share of the same is sub 4%, in line with its market share of the health segment. Overall, the average claim size for COVID claims is about 75% higher than non-COVID claims.BAGIC has, based on actuarial models and keeping all the above factors in mind, sought to increase the margin for adverse deviation in its ultimate expected loss provisioning for motor TP while making provision for COVID claims as well. Coming to BALIC. BALIC's AUM represented by total investments crossed INR 64,000 crores as on September 30, 2020, again, a historic high. New business premium grew by 11% from INR 1,235 crores in FY -- Q2 FY '20 to INR 1,372 in Q2 FY '21. The performance was aided by institutional business side as bancassurance partners, Axis Bank, Bandhan Bank, RBI and India Post started contributing. During the quarter, another significant event was the commencement of operations with Karur Vysya Bank and IDFC First Bank. BALIC has recorded over 30% growth in renewal premiums. Although there was some pressure on 13-month persistency, BALIC persistency has improved in the longer vintages. Net NBV reported strong growth in H1 FY '21, growing at 103%, INR 61 crore versus INR 30 crore in H1 FY '20. This is after absorbing all cost overruns. During the quarter, BALIC also undertook forward-rate agreements to protect its liabilities and the guaranteed products, mainly in the nonparticipating segment. On the investment side, most of the stressed investments reported in the past have either been sold or have been adequately provided for. We do not see any stress at the moment on any of our fixed income holdings. And going forward, we may stop reporting specific cases unless there is a reason to do so.Finally, both the insurance companies are financially among the most solvent, BALIC with 730% solvency and BAGIC with 307%, and both are financially very well placed.As indicated in an earlier call, we have started reporting MCEV, a new business value of BALIC on a half yearly basis starting this quarter, and you will find the details in our investor deck uploaded in our website yesterday after our board meeting.Overall, the company and its subsidiaries are navigating through this challenge with focus on profitability over growth. We are conserving cash, borrowing long-term where possible, strengthening collections and reducing overheads. This is a period when we have been focusing on strengthening the balance sheet. And I'm glad to say that all our companies have responded very well to this. As a result, all our operating companies have strong solvency well above the required capital while maintaining excellent liquidity. The growth prospects for H2 looking better than H1, all our companies are looking forward to some growth in H2.With this, I conclude my opening remarks and open the floor for questions and answers. Thank you.
[Operator Instructions] The first question is from the line of Dhaval Gada from DSP Mutual Fund.
Yes. I had 3 questions. First is, could you talk -- on the BAGIC side, could you talk a little bit around the crop claims ratio? And overall, given the sort of sentiments being positive on crop yields this year, how -- when should we see the benefit of the kharif underwriting that we've done? And any initial expectations around that? So that is the first question around crop.The second is related to health. Sreeni, you mentioned around the frequency and our market share in COVID-related claims. I just want to understand while sort of providing the sort of extra claims provision, what is the kind of assumption that we have made and till what point we are covered? If you could give some broad indication just to monitor the sort of trends on that part, that will be quite useful. So that is on health.And then coming to the group level, just wanted to hear some of the broad strategy plans around finserv health and the mutual funds business and the amount of capital that these 2 businesses are going to take. And overall, if you could share some broad targets and broad time [Foreign Language] some more detail around these 2 businesses, that would be useful. Yes. So those are the 3 things.
Dhaval, I will broadly take the first question on crop. Typically, Q2 is a kharif season when the sowing and the harvesting happens, but the claims determination usually happens in Q3. We are generally quite conservative in Q2. Based on the data available, we tend to be a bit conservative in provisioning based on data available. As of now, I would leave it to Tapan and the team to answer that question later on. And if at all, there is any final adjustment that will happen in Q3.The second question was on COVID claims that I would let Raman handle this after that or Tapan as how they have approached the provisioning issue on COVID claims.The third question, which is at the BFS level, you have asked about the eBH and the mutual fund business. As we mentioned in the last investor call, in our press release, we had identified that the board had approved setting up an AMC. And in this quarter, we have applied for an AMC. At this stage, we have nothing further to communicate. We are working on what kind of AMC we would like and what approach we want to take on the AMC. The process of licensing is likely to take some time. And by the time, we would have better clarity on exactly how we want to do it. At this moment, we do not have anything. We are still working out the strategies. At this moment, I have nothing further to communicate.And for our health business, as of now, our capital commitment is a little over INR 100 crores. And we will continue monitoring it. The business is just getting built. We have launched the company, and the new product, the Aarogya Care app. It is a platform, which will connect the users of health care systems with the providers of health care, providers of health care like you have doctors, you have pharmacies, you have diagnostic centers, you have clinics. All of them will get access through this platform, a fully digitized online platform. And on the other hand, you have customers wanting to travel the entire health care spectrum from finding a doctor, getting treated, outpatient treatment. And this company will also provide insurance as part of the customers' health care journey. We will also have a data focus on that, allowing customers to store their medical records and subject to, obviously, the entire legal -- law on data protection and privacy. So as we go forward, over the next few quarters, we will get better picture on how this is evolving. Our initial pilots have indicated there is a very strong market for this. And our companies have been working over the last 1.5 years in building the right kind of platforms, and now we have launched our product.Now I'll hand it over to Tapan and Raman to handle the question on crop and the COVID claims.
Okay. This is Tapan here. So first and foremost, let's look at the crop business. I think I've maintained over now quite some time that as a company, we work on all businesses. We learn, we work hard, and we ensure that we are able to understand the business and do well. So we have been doing crop from the very beginning from when the government started it. And we've been consistent about it. And we try to keep our crop portfolio up to the market share of the company that we have. So we don't try to be overweight or underweight in it. That is a strategy we've been following consistently.On the loss ratios of kharif, like Sreeni mentioned, this develops in the third quarter, when it comes through. So the -- if the year is good, then we obviously make much more profit and that gets reflected in the third quarter when it comes through. If it's not been that good, then obviously, that reflection comes in the third quarter results, which would be coming over. That would be on the crop business.If you look at our reserving, I think what we did was very early on realizes 2 things is going to happen. Initial euphoria that the industry had of low loss ratios in motor and health was as per us, not the right euphoria to have for 2 reasons. If you look at the study of COVID claims and we had thought about the buildup, as we tried building up. And we also looked at the SARS study in Hong Kong. We can always go back to history and see what has happened in the previous era when things like this happened. So when SARS happened in Hong Kong, the initial hospitalization dipped and then it peaked up again because all people who had to go to the hospital had been avoiding it, but the moment they get comfortable, they start going again. So claim ratio starts moving up. So just because there is initial dip, one should not take it as the profit with the industry is building upon.If you look at motor also, on the own damage part, there would be a drop in frequency in initial stages. When you look at the courts are closed. So TP claim settlement is not happening. And when we look at TP claim settlement, they also allow for provision of interest on the delay of what happens in terms of settlement. Which means that when the claims get settled for TP claims, the quantum would be much higher compared to normal times. Now all that is getting built up in claims, which, obviously, at the initial stage also we thought through. And that is why we increased the severity, and we have total provision over INR 300 crores, which, as of now, we feel is sufficient for these 2 instances to play out on. And as they play out on, we would be -- because we've built it in that shock we will be able to absorb. So that is why the company, we have been very clear that these are going to play out, and we actually see the play out happening now.If you look at the health claims, they have -- the hospitalization has increased. And if you look at newspaper reports, I think hospitals have started asking for non-COVID beds now because they have started seeing that. If you look at motor claims also that are moving up. And TP claims also settlement is happening, of whatever little is happening is with the interest part of the delay. The court is not condoning that. So in a way, they are also charging and paying for interest on the month that has got delayed there. So I think our prediction was right there. And as of now, we feel that we have been providing sufficient for these cases, and we should be comfortable on that basis. I hope it answers your question.
And just 1 follow-up. Is there -- on the COVID claims and -- any sort of a broad indication you -- that Sreeni mentioned around 4% -- sub 4% kind of share. So till what level are we covered any sort of broad estimates around this to just monitor this whether it goes out of control or any broad better marker?
So if you look at our market share of our company, it's close to 7%, and the health market share is close to 4%. That is what Sreeni was mentioning. And our COVID claims overall, if the industry is 4% to that. So in a way, if we look at from an industry perspective, since our health market share is lower compared to overall market share and our COVID market share exactly what our health market share is, the flow will be determined on that basis.Now can somebody predict how it goes? Can you tell me will we have a second wave? When will we have a second wave? No. It's very difficult to predict like that. That is why we have this conservatism building in reserves to see how it woes and that's what we have done, and we'll see how it progresses. Like I think it's very, very difficult to predict how COVID goes. If second wave happens, how does it behaved out? The world is still grappling with that. So to make a assumption that this is exactly how it's going to go, I think it would not be right from my perspective.
The next question is from the line of Sanketh Godha from Spark Capital.
Yes. I had just 1 question on health insurance and on the OpEx. So, sir, when I see the combined ratio, the combined ratio improvement is largely driven by the OpEx ratio. And if I break down that OpEx into commissions and the regular OpEx, the -- I see the total OpEx has declined almost by 23 percentage year-on-year. So do you think this OpEx cut what we have taken is it sustainable and continue to support our combined ratios? Or maybe over a period of time, maybe by end of the year, it will normalize? That's my first question.And second question is on COVID claims again. So maybe you will -- if I look at the -- your publicly disclosed data, the total COVID claim -- total health insurance claims paid were around INR 320 crores, which is significantly lower than INR 511 crores what you paid in last year. And we still see you ended up providing significantly higher. Sir, so just wanted to understand that is it largely towards COVID or second wave, which probably you think could come and probably effect the numbers? Or is it because of the bunching of electives you have provided significantly higher on the health insurance claim?And finally, on life insurance. Just want to understand that given non-PAR business has grown almost like 1 -- non-PAR 150 percentage year-on-year in the second quarter, just wanted to understand how much of that business is backed by FRA and how much of the business is backed by partly paid?
Okay. Thank you, Sanketh. I think there are 3 questions that you have asked. One is on the health claims. One is on how much of the non-PAR portfolio is protected under FRAs. And the first question was on?
OpEx, sir. which...
Right. OpEx, is it sustainable and will we see a rise in OpEx as growth comes back? So first, I'll tell Tapan to take on the BAGIC questions and Raman, and followed by Tarun and Bharat to take the question on FRAs.
So let's look at the health claims, since it's been asked again. Now health claims has 2 components right now. One is non-COVID claims and others is COVID claims. If we look at COVID claims, and you'll have the industry data, it is moving up exponentially, and the non-COVID claims has actually come down significantly. Now this is a play of these 2 together. So you have to watch the trend to be able to figure out how things are moving.So if you look at the COVID claims and look at, let's say, the past month compared to, let's say, the month of May, you will see a significant difference. Look at non-COVID claims also, now it starts moving up. So when you do a kind of assessment of losses and you make reserves, it's based on this trend analysis and the way you see how things are moving up. So non-COVID claims also start moving up now. COVID claims obviously have moved up exponentially. And that is what we have analyzed, and that is how we have put this reserving, which would be there. Because if you look at -- and as I mentioned in my previous conversation also that if we look at now non-COVID claims also have started moving up because people have started going to hospital now. And you watch, this is a general trend, which is there. And people were very afraid to go hospital let's say 2, 3 months back, but not fully as yet. Our expectation is that as COVID is behind us, the hospitalization is going to, again, shoot up, the non-COVID ones also as COVID comes down. So the play of these 2 is what you will see as it progresses.Other part that you see overall is lower is because GMC, we have played less. We have a degrowth in GMC because our personal belief was that GMC is a 1-year contract. And renewal is not certain here. While in retail policies, renewal is there. So even if let's say 1 year, you have losses due to COVID next year, third year, fourth is still better. While GMC, if you write, 1 year you write, and if you have this COVID impact, another impact happening on that, next year, not certain how do you get that basis. So if I play out these 3 together, what you see in the results, that is coming through, and that is what we have been thinking to. Coming on the expense part of it. So yes, the expense overall for the industry, if you look at, would be down because of the travel is not happening now, which would be a major component, and there would be there. But as a company, we have -- and as we mentioned this before COVID also, we have been working on our expense. We invested on IT. And it's good that we invest in IT because we have moved our core to the cloud also. And we see now that it is paying out in terms of our service parameter. In terms of we are delivering a large transactional business. So that is investment we did of shifting the core, and we're still continuing doing that, and we'll do that. But the other expenses like travel and all has definitely come down. That's why for the entire industry, you see this phenomena of this coming down. As the BAGIC, we have always been an underwriting company, and that is what we always talked about. And our combined ratio has always been significantly better than the industry. The impact of expenses of -- the COVID-related expenses because of this is there for the industry and the industry combined ratio also has come down. And that -- to that level, it will again move up for the industry and for BAGIC also. But in terms of underwriting, in terms of our loss ratio, in terms of what we've always done, that will continue, which is there. So that is what we have always been focused upon.
Just to add to what Tapan said on the expenses, all our companies, BFL, BAGIC and BALIC I have been looking at structurally at the cost structures and this year actually gives us an opportunity to prepare ourselves for the next 5 years. Digital transformation, work from home, variety of these are at play. And we have segregated cost into 3 things waste, which has to be eliminated immediately; cost, which has to be controlled and where productivities have to improve over time; and lastly, investment, on which we will not dial down. Our relevant investments required in technology, in digitization, in customer experience, in CRM, all that, we will continue to invest.
Okay. But the bulk of that OpEx gain came from the employee cost. That's the reason I was asking that it is sustainable or not? Because last year, we had an employee cost of INR 250 odd crores, now it is 190...
We can't hear you clearly. Sorry.
Yes, your audio is not very clear, sir.
Is it better now and am I audible?
[Operator Instructions]
Can you hear me now? Is it better?
Yes, sir. Yes.
And sir, I'm asking this question because the bulk of the savings in the cost came from the employee cost, the INR 254 crores was the number in last quarter same year and -- sorry, same quarter last year. And now it is INR 195 crores. Sir, so just wanted to see that the saving with respect to employee cost is sustainable or not? That's why -- that's the reason I asked that question.
Yes. I think if you look at the makeup of cost, I think more than 65% of the costs are employee costs. Then, there will be an element of IT cost, there is an element of infrastructure cost, which is related to your rent and your offices and things like that.As far as the infrastructure costs, over time, we expect that will come down. IT cost may not increase in proportion to business, but we'll continue making investments in IT. So those costs, especially in both companies, as we have mentioned before, are engaged in a complete transformation of their core systems, that is already a contracted amount, and we do not see significant increase in that element of cost. But otherwise, we will be investing in digitization. And lastly, employee cost is not a conscious effort to actually reduce the number of employees, but largely the result of better productivity. As we get more businesses -- for example, on the bancassurance channel, because of the mergers of public sector banks, we have added a large number, more than 10,000 branches of public sector branch to our kitty in BAGIC. Clearly, we are not going to invest in more people proportionately to tackle that, and existing people will handle more business, and that is how the productivity will improve -- will increase.Similarly, in the case of BALIC, in terms of agency, we are now working on variabilized cost structures. We are using POSP. We are using a variety of models, which has resulted in better productivity overall, and that is why costs have come down. Some of this, we believe, will be structural. What could happen in growth returns is that the acquisition costs, which are variable to business. will continue to increase in proportion to the business.
Sreeni, let me just add to Sanketh's query. Right. So Sanketh, you're right. Some of it is the efficiencies, which we are seeing due to the productivity is moving up and there is a lot of work which we have done on rationalizing infra also given the way the world is moving towards digital. We thought this was the best time to actually propagate that and hence, some of these sales, like Sreeni highlighted, will be obviously there for the future. But some like Tapan highlighted are as a result of the lockdowns. So you can assume half of it is pertaining to the lockdowns, and the balance will sustain.
Okay. Perfect. Just on that life question of FRAs. I mean, the non-PAR growth?
Yes. So this is Tarun here. I will respond to an extent, and then I'll give it to Bharat to get good details. So we are 100% covered on all the guarantees that we have given on non-PAR. And we are using 2 instruments. One is the FRA and the other is partly paid. And through this, we've 100% covered ourselves. Bharat, can you share the percentage?
Yes. So basically, with the partly paid one, our total non-PAR book would be covered around 70%, 71%. And with FRA, we have covered the balance book. So the first transaction we entered in August, wherein first up to June 2020, we covered all the previous book. And now on a monthly basis or on a month and a 2-month basis, we continue to cover through the FRA as well as anywhere we get a partly paid the all opportunity, we buy that also. So Tarun covered both the things.
Got it. But given the yield curve might change the shape, do you think the guarantees what we are offering right now can be sustainable? Or are we already meaningful revising those rates?
Sreeni?
It's something we monitor every quarter and -- or more frequently if required. So it's not a call we can take at this time. There are other companies offering products. See, one thing we have to see is that whatever risk we take is also related to the capital that we hold. What do we do there? What do we use excess capital for? I think last 3, 4 years, you have seen how we have used it to build our distribution. Some part of it we will use to absorbing some guarantees. Now we have decided to protect ourselves in the guarantees as we have seen good traction in that business. And so we will continue monitoring on all these dynamics, which will drive the yield curve, the amount of guarantee we want to take, what is the on VAR on multiple periods. Based on all this, we have a very rigorous process of monitoring. Tarun, would you like to add something to it?
Yes. Yes. So I think what Sreeni said is perfect, we have multiple forums in which we have trigger rates and multiple committees in which we keep checking this. In any case, in August, we are one of the few players who actually brought down the guarantees we were offering. So we're already quite comfortably parked if that is anything, I think we are currently better placed than what we were placed earlier. So you'll see us only just being more agile in this. So every quarter, in any case, it could move, it could come down the guarantees we offer. But in average terms we are quite comfortable.
The next question is from the line of Bharat Sheth from ASK Investment.
It's Bharat Shah, not Bharat Sheth. Again, first and foremost, my compliments for the life insurance business. BAGIC has always been a very solid piece. But I'm really delighted progressively to see how BALIC is shaping up in terms of Banca distribution, product portfolio, protection, persistency balance of the product portfolio, all of the points. And first time the VNB reported. So I mean it is pretty delighted and not to see any further erosions due to any investments. One important issue. I think time has come to highlight embedded value in each own components, whether the value of new business or unwinding of past profits or in terms of salience of the assumptions made and benefits obtained or operating variance. All of these components, if you have highlighted. And then we work on operating profit, embedded value OP. That, I think, will give a very, very good sustainable long-term picture of how the business is shaping up.
Thank you, Bharat. Thank you for the compliment. And I think you have hit it spot on. Both our businesses, BAGIC always has been on top, BALIC did undergo some tough time. But last 3 years, whatever they promised or delivering on the transformation, the Phase 1 is over, the company is now well poised to participate in the growth of the economy and the savings pool.As far as embedded value is concerned, we have consciously taken a decision to report it once a year till last year. The reason was the business is very much back-ended, and the expenses are -- in the second half is where more of the NBV gets reported. However, this time, based on various feedbacks we have received from investors, we decided to start reporting the NBV and the EV. We note your point regarding the granular waterfall of EV to be disclosed. We do that -- we did that in March. But from next time onwards, we will be publishing that on a half yearly basis as well.
Sreeni, because that will give a bit more near-term kind of a view. So that will help. My second point I just wanted to understand. Currently the pocket insurance service or micro insurance, which is being kind of being addressed and digital and technology, you say is at the forefront in making it scalable and efficient. Any thoughts around that? Plus the new life simple policy, which has been announced by the regulator, though the amount unveiled is seems to be rather low at INR 25 lakhs, but any thoughts there as to what do you think is it and what it can be?
I'll take a high-level answer first. Pocket insurance largely is suited for people who have either not insured. Or depending on the type of pocket insurance, people who do not want to burn their existing sum assured because of some specific event. For example, if people take vector diseases like dengue, chikungunya or when they take a COVID-specific cover, some of them take it because they feel a higher risk at that time, and therefore, they take it for a short term. But some of them do not want to take full-fledged health insurance policy either because they can't afford it, depending on the customer segment. The second segment is people who feel they have a sum insured, which they have reserved for certain major ailments, but the smaller ailments actually take up most of the sum insured, so they want to take pocket insurance. To a large extent, pocket insurance in premium terms may not amount to much. It brings in a lot of customers, it is sold by a variety of distributors. And basically, it's a customer acquisition engine. And people who have not tasted health insurance, most of them will end up being a high-frequency cover, which means that people tend to experience the claims faster. For example, last year, when we launched with Flipkart the mobile All Risk Policy, I think the frequency of claims was very large, and customers really appreciate the service through these products. So they play these 3, 4 kind of roles as acquiring customers, providing them with the taste of what claims are like. So they're able to distinguish between the companies which settle claims better and the others are not. Because in the traditional indemnity policy is more like what if something happens in future. Maybe it never happens, which is good for the customer, but that is the kind of risk they cover. I can now hand over to Tapan and Tarun to add more to this.
Just 1 point Sreeni before that.
Yes.
In pocket insurance, I see it similar to like sachets being introduced in it increasing the decades bait. It was small and numerous is to be sold and pinch taking over a period of time, but that is based a whole new plus of customers in FMCG and they've graduated to the bigger perks and sampling and testing. So in some sense, I think that some kind of a shadow of that sachet packing in FMCG industry?
Yes, it is. But you can't build a business only out of sachet because sachet is only an entry door because you showcase the variety of products that you can have, you help them experience claim. That's the point I'm trying to make. But in terms of premium amounts, the amounts are very small, and many of them are very specific hours. Some of them may not get sold at all, but major -- a lot of them may get sold for specific segments of customers. So it help us identify customers, their behavior, segmented, trying to offer more segmented products, things like that. Tapan, would you like to add to that?
Yes. So if you look at it internationally also, some companies, they went all out on pocket or packet or sachet insurance, as you called it. But in terms of their balance sheet, it did not do very good for them. And now they are shifting towards more traditional lines of products also to give an overall balance. And this is why what Sreeni mentioned is right. One, it does a behavioral change. Like, if you look at BAGIC, we have done a good amount of sachet insurance. If you look at mobile insurances, Flipkart is one of our agents and most mobiles sold had our insurance there. And we were always able to service them well. Our score on -- in terms of NPS was over 90%, the way we service those insurance claims also across the country, remotely, which we did using digital methodology. If you look at maybe railways, you have a cover there, which again, BAGIC is one of the key providers there. So if you look at quite a lot of sachet and insurances, we do, but they cannot be in its own way, a business build up. Yes, they get people used to insurance, they get people to understand the beauty of having an insurance cover it pays off. And that awareness building happens, which obviously later on leads on to more insurances being taken. Right now, as Sreeni mentioned, if I look at the vector-borne diseases or the COVID cover, which is there, people are buying it. Now but if they go and buy a regular health policy after that, yes, they understood the benefit of having an insurance coverage, they don't, then obviously it's just as one more thing that we do. But as a company, we are doing it. It is not that we're not doing it. And we'll be on the forefronts of doing these kind of insurances across different distribution and different segments, and we're seeing how it plays out and where does it take us, but a very good question on that basis. Thank you.
And on the second part, the new standard claims un-jar licenses and...
[Operator Instructions]
On the new policy, which is suggested by IRDA and like a standard vanilla life insurance product, any thoughts around that?
Tarun? This can be on the pricing and the risk because fraud is very high on low ticket. Tarun, would you like to take it?
Yes, yes, just coming. So Bharat, 3 things. First of all, thank you for acknowledging the turnaround in BALIC. As Sreeni said, if we have now got the foundation in place, and we are now ready to get to the next phase of -- and I like the way you put it, participating in the economy because at that point in time we were really just restructuring and getting things right. But thank you so much. It really is very meaningful when the senior analyst from the market acknowledge this as well. I'll first take -- yes, I'll first take the sachet question because I know a part of it was on life insurance when you talked about it. So see, sachets in life insurance have taken off in the telecom sector and in the e-commerce side. The natural deterrent for sachet for life is a little lesser than the general side. On the BAGIC side, it will be higher. So we were a little vary and careful of this. And I think till now, we've been right in not entering that market. Most of these groups, this is largely group insurance, but most of these groups have actually bleeded and bled significantly and continue to bleed at this point in time. When actually put it, it can be a very good engine to get data understand and to an extent we would want to participate for sure. But we want to participate with the right partners and we have one such relationship already we are seeking to begin in the last quarter of this year. But we will be careful of the way we are going about this because the premium that you collate is very less and the claims can be far higher. So that's on that. On Saral Jeevan Bima, which is the IRDA product. I think it's a very good move from IRDA. They've made it a very standardized and a very simple product to be offered. It's not bulk business, but a simple term cover. Yes, it starts at a very low cover size and it goes up to a certain level, which can be higher as well. It goes back to postings that we have let the pricing being handled by the life companies itself. So can be correctly said that this is a segment most people are vary, for example, today, our life cover starts only INR 50 lakh and up. But we will be entering this as a -- the lower cover segment through Saral Jeevan Bima. But in terms of pricing, all companies are priced based on their own data. So that comfort is there, and there will be good numbers coming in. So a good amount of cover coming in. And I think 2, 3 benefits of that. One is the share is spread. Second, the fact that given pricing, we can hopefully be -- we can price in the risk well, but structure is currently still underway. The third bit is IRDA itself getting to see directly what volume can come in life insurance -- term insurance, which is not really such a big component, as you know, of the life sector as of now, plus the role of reinsurers as well. So it is good that IRDA is directly taken interest. Till now, it was left to the companies. Hence, there will be -- it will be a good learning experience for the regulator for the reinsurers and for all life companies and because now we are in it together with our end of the business here. So I think a lot more to be still read. From BALIC side, we'll be very careful of the way we price it, as we've always been. And we will, of course, will not just want to be the first one to just plunge into it, but take baby steps first and then move in with rigor later.
The next question is from the line of [ Hasmukh Gala from Finvest Advisors ].
Sree, yes, really good set of results in these trying times. I just wanted to have a very broad question that yesterday in Bajaj Finance conference call, they said that they have taken off about INR 400 crores worth of operating expenses structural changes. Can we have some fortification for BALIC and BAGIC on this?
Okay. Raman, Bharat, would you like to take it or Tapan, Tarun? Hello?
Yes, Sreeni...
Yes, Raman, you can go ahead on this one.
And the question is that Bajaj Finance has reported substantially lower operating expenses through their zero-based budgeting exercise. We have also taken a lot of steps in BAGIC and BALIC. So he wants to know what have we done there in terms of structural changes and business transformation.
Yes. So I'll talk about it for BAGIC. So BAGIC, I'll just give you the numbers first. Our cost ratio for H1 last year, it used to be about 29%, which is now down into 26%, 25.7% to be precise. Now like I said earlier, this is outcome of 2 reasons. One is, obviously, the expenses were in quarter 1 on the lower side because of things like travel, et cetera, not happening due to the lockdown. So some benefit we got from that, but there are some which were structural in nature, which we started working on much before the pandemic hit us. And to just highlight a few of them, one was -- see, you have to understand the 2 big heads for our insurance companies are essentially infrastructure and manpower. On manpower, we have been investing, like Sreeni said earlier, because of the new partnerships we've been getting, and we've also been expanding through the length and breadth of the country, and hence, we were adding people. And hence, our ratios were a little on the higher side for the last few quarters. But from last -- H2 actually of last year, we started working on rationalizing the manpower, largely focusing on enhancing productivity and enhancing spans of the managerial career of people. And the third thing which we did was we moved our entire organization on quarterly incentives rather than annual bonuses, so which ends up creating a high-performance culture is what we believe. So a result of all this, we actually ended up saving about 17% to 18% on the wage bill versus H1 of last year. The second piece, like I said, is infrastructure. We had at the -- I think, 2 quarters back, we had about 170-odd branches. We gave a hard look at each one of them in terms of the way we run the infrastructure. Do we need 4,000, 5,000 square feet office? Do we need people to come to office every day? Because as an organization, we are trying to move towards digital. And hence, we took a call on multiple aspects. One was we said in multi-city -- sorry, in multi-branch cities, which means in a city where we have multiple branches, we try to rationalize a few offices there. The second was our office size. We said, given the current situation and given the way we are moving towards our digital endeavor, we said let's start focusing on operating most of the things we do from tablets or portable devices. And hence, let's not have the need for people to come to office. And hence, we started rationalizing the size of the offices also. And we ended up reducing already the size of about 30-odd offices, and that process is ongoing. And as and when the leases keep coming up for renewal, that process will continue to happen. So -- and the third one was on that, we went and renegotiated the rentals with most of the landlords because the rentals across the country had anyways fallen. So as a result of that, we've been able to save a lot of cost, and our expense ratio is down by almost 300 bps from 29% to 26%.
So where do you see this 27% moving as we go ahead in the H2?
So very difficult to predict at this stage because it all depends on if there are any future lockdowns, there will be more sales coming from that. But like I said earlier, you can attribute half of these sales to structural in nature and half could be happening because of the environment. And yes so we believe this is an ongoing process, we will keep revisiting. Every 2 years, we keep revisiting our cost structures and take calls on rationalization. This was just one wave of it.
Okay. Fine. At BALIC, what is the story on the cost reduction side?
Yes. So on the BALIC side, also the story is on the similar line. So our overall OpEx for H1 is down by almost INR 110 crores compared to H1 of last year, which is down by 13% in absolute value. In terms of the OpEx ratio to total premium, it is also down by 400 basis points, 18% compared to 22% last year. Whatever Raman has also said broadly, we are also in the similar journey where we have actually relooked at all our branches. So as of 30th of -- 31st of March, we were at 550 branches. We are already at around 520, 2024, and there is another round of branch revisits both in terms of closure as well as short -- reducing the size of the branches. So we will continue with that. That is a structural phase. But there are a few timing-savings also is there terms of travel and training and all that stuff, which is not happening, but we have also renegotiated all our rental agreements. And this is despite the fact that we started our new channels, specifically more on the Axis Bank, IDFC First Bank, KVB, all in this. So it was at least not there in H1 of FY '20. Despite our significant investment there, our overall OpEx is down by INR 110 crore in H1 of FY '21.
Okay. Now sir, second question is...
Let me give an overall approach to cost...
Individual rated premium and group premium, we have got a ratio of about, say, 40, 60 types. Where do you see this ratio going? Like when will the improvement come in the individual premium products?
I think really, last 3 years, individual premium is what is being focused on. The group see there are 2 different types of customers. The customers who are on the loan book of bancassurance and NBFCs is largely where the group products are sold. Then you have the individual premium, which is sold by a whole lot of channels, bancassurance sells it to their asset book, the agency force sells it, the BALIC direct sells it. Similarly, in BAGIC as well, we have a variety of distributors selling these products. So it is a question of the type of channel and the type of distribution. And our job is to build up wide enough distribution, which can handle both. The mix will eventually be determined by that because group products are profitable. It is not that -- there are -- that you are doing group products is good or individual products is better. The question is the focus of getting customers and acquiring them. Tarun?
Yes. So, see, I don't think we manage it like a ratio the way you've looked at it. But if I was to -- I mean, I don't know the exact ratio. But I think the ratio for this year has already reversed in the way you are currently saying. Not thanks to us, but thanks to the market and not something that actually we like because the credit life business has come down. Now we are one of the larger players in the credit life side, and we spent quite a few years to understand and study because it's a multiyear project almost the MFI credit lines and how they behave and how do the lives there behave. And I think we've been an anchor in the industry for that segment. And I think it's very well structured now and the uprising is right and the industry has been following what we've been doing. The -- in fact, if anything we would like this to grow more and more, not at the expense. See, the problem would have been if this is -- one was at the expense of the other. These are 2 independent markets. Now within group, there are 2 lines of businesses. One is group risk and the other is group funds. If I just look at the percentage of group risk and group funds for the first half it is 35% group risk and 65% group funds. Last year, the same ratio was group funds was lower.
It was the other way around, correct.
Yes, so the other way around. But this is more because group risk hasn't come down. In the H2, we expect this to get sorted out, because we're seeing credit lines now begin from bank and from identifiers and I think the festival season is going to start kicking in now. But overall, our focus is on the baited premium, which you will always see in the retail side. And that is what we measure ourselves more by. So there is no confusion there. So pretty much like the next sector. We are focused on retail weighted premium as a company. Maybe almost 6, 7 years back, we were a little different but now we are quite rounded with everybody else. But just to close it again, we would like the credit line business to grow. It's quite profitable.
Okay. And sir, third question from my side is at the group level, do we have any thinking on when to convert Bajaj Finance into a bank? Like, what will be the right timing? What are the things we are looking at from the government?
On the call yesterday. As of now, we think we have enough scope to continue at this rate for at least 2 to 3x of our current volume. This is a matter we continue to evaluate. We will wait RBI's final guidelines -- revised guidelines, which is being talked about or if any other initiative comes in. But as of now, we are not seeing any particular need that we have to act very quickly.
The next question is from the line of [ Kishore Kaushal ], individual investor.
My question is for BALIC. My first question is your protection mix has moderated in Q2. What were the key reasons? And how do you see the mix to be trending in FY '21? And second question is agency has suffered for most players. What are the specific initiatives that you are driving in the agency? And then third question is, how has GLC (sic) [ GCL ] performed and when do you see the rival happening? And fourth question is, how many numbers of individual and group COVID claims we have got till now?
I didn't get your third question. What was the third question?
Yes. How has the GCL performed? And when do you see the rivals happening?
GCL? What is that? Group credit life?
Group credit life.
Yes. Okay, okay.
We call it by different names. Okay. So you asked 4 questions. I'll take a shot at all 4 and Bharat can jump in if possible. On the term life, see the term life is visibly down for the entire sector. If you noticed the first quarter, it was like a fire train because everybody knew that it was a matter of time the reinsurance price would get priced in and prices have since gone up. We have also increased prices almost by 25%, 30% in various segments and on other segments -- some of the segments are 40%. So I would actually take the first quarter for sector while we were all happy at that time and we'll be -- of course, it was -- we were not clear warned and you can't always spot where it is going to really end. But I think that was like a dream come true for the sector. I don't think you should expect that kind of a thing coming back for the sector, no matter what statements the rest of the people in the sector make. So this will get carried down. And we need to turn down the expectation in the sector in terms of what we will contribute to. Having said that, for us, it's every new percentage of term coming is a significant bit because till last year, we had near 0%, I would expect the second half to start getting a little better than Q2. But I wouldn't really hazard a guess on a significant improvement. But that having been said, the overall term year-on-year for the sector will go up. It is not that it is some dream come true and it will start suddenly switching on in a very big way, and we will see people bursting up term coverage. So I think that one should be very careful on forecasting that. If that happens, of course, it is great, but I don't think that's going to happen so quickly. Because all said and done India is a young country, those basics haven't changed. Indians, when we invest money, we do want need to come back in our lifetime. So those things, we'll have to see how the pandemic has structurally impacted that in the customer mindset. And I think that the jury is out. We don't really know that bit right now.On agency, the -- yes, you're right, almost entirely across the sector, agency has been hit. We have not been very different. The core reason, and I think it is good for you to know this, has been because of new advisers. See every year, a significant percentage of our business comes from the advisers that are hired during the year. But what has happened since March when the lockdown started and COVID began, is that people have been afraid of going for IRDA claims usually happened on a third-party space. And as a result, advisers onboarded have come down significantly for the entire sector. And we've not been any unique there. Where we've been unique is that when we saw this changing in the first 15 days of April itself, we were quite agile. And we said that, look, we will then move to POSPs in a big way. And as Sreeni highlighted, we have hired 11,000 POSPs in the first half. POSP is a model where the testing happens, as controlled by the company. So we have an app-based testing where a person can sit in the house and do the testing itself. So that has basically kind of helped us to some extent, prevent a significant deep loss in agency. So that's what we've been able to do to prevent it. But having said that now, the people are getting comfortable to do testing outside and go ahead and get their licenses. But at the same time, we have been pushing IRDA to also get an ECL to give us testing facilities, which are agile from homes of advisers. So that discussion is still on, let's see how that goes. IRDA has also made it a little bit more flexible that we can do this testing in bulk in our branches. So that is underway. And I expect that at the moment the stabilizes, the growth in agency should be back for everybody. So that's my response to second question. On the third one, group credit life, yes, it is down, as I explained earlier as well. Because it is entirely linked to credit lines that are being extended. We are -- we -- Q1, it was very badly affected. Q2, we have seen some come back in a positive territory. And Q3 onwards, we do expect that this will start coming back because we are seeing a lot of inquiries that banks are getting for loans. So that should help us particularly on the GCL, as we call it. GCL side.On the fourth question on COVID, we have put money aside also for claims. I will ask Bharat to give you more details on that. Bharat?
Thank you, Tarun. So as of 15th of October, we have got around 368 claims, which is, in value terms is around INR 26.7 crores, out of which, we have already settled 327 claims. So that is what our experience is on the COVID claims. And what we have done as a part of our prudence towards any unexpected claims coming from COVID, we have created a separate reserve of around INR 21 crores, which is an extra reserve and that varies at a individual line as well as the group line. So a total of another INR 21 crores has been created.
The next question is from the line of Ajox Frederick from B&K Securities.
Okay. Sir, just an extension of your earlier answer on protection. So are you seeing demand itself coming down and that's the reason why you are expecting protection to not grow as much? Or is it anything else you're seeing on ground, which is causing that protection to slow down?
See it's very difficult to do the line in the sand, how much is demand and how much is pushed from the distributor. So see, I think the way we have to see is that the first quarter, like I said, was a dream come true. The second quarter has -- is like a shock because oil prices have gone up everywhere. So there will be -- it will take some time for the system to absorb the price hikes at least mentally absorb the price hikes. And to an extent, I believe it's not really finished. There will be a few more price hikes by a few more players because some players, the smaller brands are trying to make hay, but they have realized soon that you can't really because there is a cycle to this. And I think from Q3, a little bit growth over Q2, you will start seeing. Because by that time, at least the excess, I would say, the pent-up demand, which we lapped up in Q1 and kind of more than updated that. And since then, a little bit of a shock from distributors, particularly on the price hike, has kind of been absorbed. So Q3 should see better with Q2. And of course, the second half is usually good. On the whole, very difficult to predict. But I do say that this year has been a threshold year for life insurance term plans at least. So you will see as a of the overall mix, the proportion of term covers to go up. How much will it be is very difficult to currently say, but you will see a trend towards people buying it. Inquiries on website have not necessarily come down significantly. They've been quite active. So there is a demand which is surely there. That kind of gives us comfort that there will be people, people who will come and buy it as well. Currently, an inquiry is an inquiry. You haven't really said that you want to buy. So there is an upward trend, but I would not read too much yet into it. I think Q3 will be a good test to see how the future is going to be.
Understood, sir. Sir, on Axis Bank...
See, you see -- I mean, this is intuitive. And is that insurance usually works when fear is high. Clearly, in first quarter, we found that mortality rates were much higher than now. Today, the mortality rates in COVID themselves have come down. And people are getting COVID and getting recovered at a much faster rate, particularly in India. And therefore, as it dies down, there is possibility that some people feel there's no urgency to take term protection immediately.
Understood, sir. Understood. Sir, on Axis Bank, what is our strategy? Are we specifically going to dial-in some products through Axis Bank? Or what's on the drawing board with respect to that distribution center?
Sorry, your question is that how much -- I didn't get that cam you say that again, please?
So are we planning any product-specific strategy to be pushed through Axis Bank? Or where are we with respect to Axis Bank as a distribution center?
Yes. So see, bancassurance is a very unique channel and every bank has its own persona. What our job is really to be able to meet the demands of its -- of the customers the way the banks use it. So our push is to extend the bank's channels are willing to accept and take. If you are talking about will it be very high ULIP or very high term. I mean, I'm just taking the 2 broad underline question. That's what your question -- the underlying question is. I think it's on either side skewed too much. It's quite a balanced product mix. But yes, there is a good amount of guaranteed products that are getting sold. And usually, Axis as a distribution does sell a lot more long-term products. It's a very good distributor for long-term products.
The next question is from the line of Nidhesh Jain from Investec Capital.
Sir, on the life insurance our persistency has dipped almost 300 basis point, sir, while as a group...
[Operator Instructions]
Hello? My question is that on the life insurance side, our persistency has dipped almost 300 basis points. So in which product segment we have seen or which channel we have seen this experience?
Yes. See, our persistency basically has been hit by about approximately 3% and which we had kind of talked about in the last quarter as well that we were expecting this to happen. Usually the decrease in depending upon what businesses you've been anywhere between 0% to 5% to 7% is there. For us, the impact has really been on the high ticket at this point in time, it is across all channels, but particularly in agency, high ticket, where people are trying to time the market to an extent. Because the markets are down, and we saw that markets -- people suddenly saw the market come up. And they've been maybe shocked by the rise. And so they're trying to time it. So we are seeing it more in agency. We're seeing more in high ticket. But the way I see it, unlike other large bank throughout the companies in our case, premiums tend to come -- the second premium tends to come a little later. So we hope to recover some of this. And we are, of course, very focused on trying to get persistency back to track.
The next question is from the line of Sachit Motwani from Param Capital.
Yes. I just had one question on your this new health platform. So you mentioned that you've commented INR 100 crores towards this. So can you elaborate more, you said your like initial pilot indicates a very strong market. So I just want to understand that you want to make this like a subscription-driven model? Like what is the customer profile you're targeting at? What kind of model you're creating essentially around this?
See broadly, I think there was a big launch function. It was fully explained by the CEO of that company, Devang Mody, a long experience with us in BFL as well. So the full nuances of that are available in that video. But more importantly -- I think basically, see you have entire -- we are trying to cover the entire spectrum of health care needs of the customer. Today, insurance is one big part of that puzzle, which covers the financial outlay because of unforeseen health care. But insurance cannot be a complete solution to that. So you have various health care providers, doctors, hospitals, pharmacies, and we will then provide this platform by which customers can handle all their health care requirements. There will be -- a major part of that will be subscription-based. So for a certain subscription, can -- the customer can get specific services like OPD treatment, tech lab services, like doctor appointments. And on top of that, they can also get insurance coverage. So in case they get hospitalized or insurance-covered illnesses, that will also kick in. The demand is very strong. I think overall, the gap between available health care and the demand for health care has been very clearly established after the pandemic across the world and in India as well. Secondly, health care is a population business, which means that every citizen of India will require the same amount of health care as everybody else. So therefore, it does not distinguish. But example, if you look at car insurance or things like that, it's only for people who buy cars. Or if you want to take a home loan, it's only people who can afford to buy a home who will need a home loan, whereas health insurance is health care is required for everybody. So our objective will only provide a digital platform. We have worked in partnerships with different providers. We worked with labs. We have worked with a few hospitals. We created co-branded products. We issue health cards of different layers, and that is the objective of this company.
Okay. Okay. And like Bajaj, BFL will also be like funding the treatments, is that right?
See, there are 3 elements to it. An insured coverage insurance will pay to the extent they have coverage. But many people may be underinsured, there could be expenses we go beyond their insurance. Many people do not have insurance, but suddenly, they are faced with health care. Depending on the customer and the risk metrics of BFL, BFL will end up advancing them amount to pay for the treatment, which is not insured or which they have to pay out of their pocket. And this will actually is not -- is the service. It is a subscription service, where people can access to all health care across variety of hospitals, doctors, pharmacies. Over time, we will have to build more and more partnerships to be able to provide that service. Today, it's just a start-up company. So it's too early to say.
Okay. And any idea on like what kind of subscription fees would be there? Or...
That is all, I think -- I mean the company will be putting up you can go to their website and check there are multiple services it is very difficult to say what kind of price it is. It is available and through an app. The entire thing will be through digital means.
The next question is from the line of Arjun N. from Spark Capital.
Could you please help us with the progress that we have made in Bajaj Financial Securities, the number of clients enrolled, what percentage are active and the packages that they have opted for whether it is beginners or professionals? And broadly, what is the outlook that you're seeing in this business here?
See Bajaj Financial Securities has reported a profit for this half year. They have started getting clients. At this stage, the objective of that company is to get more clients. It is one more door through which clients will come to us. Broking by itself is not a profitable business and nor our intention that we make a large amount of profit from that. Nevertheless, we will be investing in that business to provide a holistic financial services across our group. We provide lending. We provide insurance. We provide digital platforms to buy all kinds of financial products through Bajaj Finserv direct, we are now providing access to health care. And Bajaj Financial Securities will provide them access to stock market for people who want to invest. Secondly, I think it has also brought in a complete holistic platform to support the loan against property business of BFL as well. Financial securities, as you know, is a wholly owned subsidiary of Bajaj Finance, not of Bajaj Finserv directly. And now we have control on the DEMAT. So the whole process of lending and supporting loan against shares will be very seamlessly handled through this. So over time, we will build, we'll build traction. As of now, we are just building clientele. We are not in a position now to disclose how many clients, but the business is growing. It has started recording profit, and we will invest in technology and drive it from here.
The next question is from the line of Nischint Chawathe from Kotak Securities.
A couple of questions on BAGIC. I just wanted to understand the trend in sales ratio on one...
[Operator Instructions]
Yes, sure. This is on BAGIC. If you look at sales ratio is higher and motor OD. I'm just trying to meet the quarter-on-quarter trends, how should we represent it, I guess? So on the motor OD you said that sales have started increasing now as well. So your ratios have come down for the quarter. So how should we think about it? One is on the fire side just a amount of clarification.
See, on the fire side, before I pass it on to Tapan, fire side is not really related to -- it's not very high like high-frequency events. So these are more related to specific events that happen like floods, acts of God, and things like that. So that can vary across world. This year, we had Amphan and there was Nisarga, I think, another cyclone. Now we are having unseasonal rains across all of Telangana. So all this will have some impacts on the fire claims. Over -- so one has to see fire claims over a cycle of 3, 4 years, quarter-on-quarter, there can be big variances. Because floods, for example, happened in monsoon season, Southwest and Northeast, but then it tends to be low in Q4 and to some extent, in the early part of Q1. Motor OD claims, so far, the trend has been lower because we have cars on the road. But as we said earlier, it is picking up and reaching closer to pre-COVID levels is probably frequencies are about 85% to 90% of pre-COVID levels already. Tapan?
Yes. Thank you. So if you look at -- I'll answer this question from an industry basis because it's not fair to answer for company basis because a lot of other things play out on the motor OD loss ratio, how the company segments, what kind of vehicle it plays on, and how does it now go on forward. So on an industry basis, if you look at the initial months, the car claims was much lower because the OD loss ratio was pretty low. But now if I look at it, there is about 90% of pre-COVID level, the motor own damage part. The TP part, as I mentioned to you earlier, one, intimations are coming less because of 40% courts still closed and other courts also not operating up to the full level. And second, the settlement is happening less. So our expectation is that for the entire industry, if you look at the claims strength, as it progresses, you'll actually see the motor claims going up higher, the OD plus TP combined together compared to what it was in the pre-COVID times towards -- as we move towards more and more courts opening up. So when do the courts open up, when they are not performing at full capacity, when does the settlement start happening, that we have to see. But once you see that happening, now when the courts have opened up and settlements are happening, 2, 3 months from then, when you look at the loss ratio, you'll likely see a higher loss ratio in motor compared to what it was in pre-COVID times is our belief for the industry as a whole.
No. The motor OD losses I think came down, right, quarter-on-quarter?
Yes. It came down it's not moving away. I said 90% of what it was in the pre-COVID times the intimation will start happening now for motor OD.
Okay. So what you're saying is that a rise should be expected in the third quarter because which is what I really thought was the atonicities the economy is opening up and you would expect claims to kind of hang by this insurance on a sequential basis should start reaching out...
Your voice is not all very clear. I'm really straining myself to listen very carefully, but still I'm missing it.
The point I'm trying to make is that I might have expected that there is a sequential increase in claims ratio. The economic contrast, so.
No, no, the frequency increase in claims, if you watch, is already there now, but it is still the vehicle on the road. It's not just the level what it was in the COVID. It's simple thing is that as vehicles increase on the road, the frequency of the reach is where it was, because that is how the patents get done. So now if I look at the market, and 90%, I think people have started moving out, that is why you have reached 90% now. And as it progresses, it will reach 100%. So maybe another month or 2 months, to my belief is that, it will be -- and the OD loss ratios would be at 100%, what it was in pre-COVID times. It will reach there.
And on the channel mix, you have seen the share of direct going to around 20-odd percent. This is purely because of higher growth in health versus motor? And I guess, there is a reverse in that possibly happens, maybe the kind of benefits of that goes around again?
I didn't get the question, sorry?
So as I look at the channel share. The share of direct business is at around 20-odd percent right now. I think these all packet all some comes from 5% or so. Could we...
[Operator Instructions]
The big swing compared to -- because of the health business?
Are you talking about the direct business of BAGIC?
That's right.
I think, Sreeni, he is talking about our share. Our mix of direct going up. There should be a rise, that's because of motor going down and property showing a big growth, it's getting offset, and that's what's reflecting in the channel.
Let me add to this, Raman, this is not only for BAGIC this is an industry phenomenon. You'll watch that the fire growth is much higher than motor growth for entire industry. So this mix is sort of shift for entire industry. So the point you see that we look at numbers, first, we should look at the industry numbers, then the company numbers. That gives an idea how the industry is moving, how the company is moving. So this would happen for the entire industry. The direct side have moved up for the whole industry.
But having said that, there is a point here that it is a very large ticket business. Some companies want to participate, and it has happened to be direct or tender driven or something. Obviously, that has a big swing. For example, all of the crop business is done direct. Government health is done direct. So direct as an overall percentage has to be broken up into segments, retail direct is different. So that by itself can vary according to quarter-on-quarter, year-on-year.
And Sreeni here, actually, this shift has happened because of fall in the motor growth? What Raman mentioned.
It was intermediated, correct.
It is not that we have changed the shift in our business strategy. So that is what will happen for the tire industry, if we look at motor growths come down in the entire industry. So overall direct should look much bigger for the industry.
The next question is from the line of Vinod Rajamani from HSBC. [Operator Instructions]
Yes. Just had a -- 2 related questions on health. First is on the health claims. What proportion of that would be related to COVID? So just want -- just to find out so how much is the non-COVID claims? Because there's been some unreported evidence that people are not -- the noncritical care patients are not going to hospitals because of scare of catching COVID so they are postponing their hospitalizations, that is one. So for what proportion of claims as you reported. And also on health on retail side, what would be the split, say, indemnity and if is it 100% indemnity?
I think the first question, I will take that question. I think, overall, we are not giving that kind of granular information. But compared to last year, obviously, there are more COVID claims this time. The severity of COVID claims, as I already mentioned, is about 75% higher. The average claim size are 75% higher than non-COVID claims. Overall frequency of non-COVID claims is at about 90% of what it was just before COVID in January of last year -- this year.
Yes. And also on this...
Majority of our indemnity -- we have always done indemnity. We do a bit of benefit based products with specific intermediaries. But that is not -- I would presume that more than 80% of our business is indemnity. Raman? -- of the retail business.
About upwards of 90%, Sreeni.
90%. Yes.
Another point here is what you're asking. Let me -- if I got it right, is around COVID indemnity and benefit? Are you asking on that or are you asking overall health?
For overall retail health?
Overall, then I think that is what no answer is just...
Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Ms. Bunny Babjee for her closing comments.
I would like to thank Mr. Sreenivasan and the senior management team of the insurance businesses and all the participants joining us on the call today. Thank you, and have a good day.
Thank you.
Thank you. On behalf of JM Financial Securities Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.
Thank you.
Thank you.