Bajaj Finserv Ltd

NSE:BAJAJFINSV

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Results Conference Call of Bajaj Finserv Limited, hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sameer Bhise from JM Financial. Thank you, and over to you, sir.

[Sameer Bhise, analyst]

Thank you, Rituja. Good morning, everyone, and welcome to the earnings conference call of Bajaj Finserv. First of all, I would like to thank the management team at Bajaj Finserv for giving us this opportunity to host the call. From the management team, we have Mr. Sreenivasan, Chief Financial Officer, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance; Mr. Ramandeep Singh Sahni, CFO of Baja Allianz General Insurance; and Mr. Kalsi, CFO of Baja Allianz Life.

I would like to now transfer the call to Mr. Sreenivasan for his opening comments, post which we will open for Q&A. Thank you, and over to you, sir.

[S. Sreenivasan, executive]

Thank you. Thank you. Good morning, everybody. I would welcome everyone to the conference call to discuss the results of Bajaj Finserv Limited, BFS for Q4 FY '22 and the year ended 31st March 2022. 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, BFS. Bajaj Finance Limited, 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 company, except to state that there is no change as compared to the end of the previous quarter.

Any statements that may look like forward-looking statements are just estimates or qualitative commentaries and do not constitute an assurance or indication of any future performance result. While BFS prepares its financials in compliance with Ind AS, the Indian accounting standards, 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 would be reported below based on the Indian GAAP as applicable to insurance companies. Our results, the press release accompanying the results and our investor deck have been uploaded on our website on 28th of April.

Coming to the performance for Q4, I think business conditions overall improved significantly in Q4, but they were volatile due to the outbreak of war in Ukraine. The lower sales of automobiles due to supply chain problems affected the general insurance business, but however, the overall environment was conducive to growth and all our businesses recorded excellent growth. Let me touch upon each of our businesses, starting with BAGIC. For the quarter, BAGIC reported a growth of 17.8% in gross domestic premium income, GDPI. GDPI as compared to GWP, excludes inward facultative business, which many GI companies do to a small extent. Industry growth was just 7.8%. But if you exclude the tender-driven businesses, which are crop and government health scheme, the GDPI growth for the quarter was 6%, and that for the full year is 9.1%.

In BAGIC, as we mentioned earlier, we continue our approach to calibrated growth, seeking to grow in preferred segments, which are predominantly retail lines, private cars, 2-wheelers and retail health and commercial lines, while remaining cautious as opportunistic on health, particularly group health. To add some more detail, while growth was just 6%, excluding crop and government health, BAGIC recorded excellent growth in commercial and corporate lines, fire 11%, engineering 16%, marine 23%, and liability 23%. During the quarter, the sales of new private cars and 2-wheelers was -- again, we witnessed a continuation of the slowdown, particularly in motor OD policies.

The commercial vehicle segment was a -- it was under strain, to grow for much of FY '21 and the early part of FY '22 continues to recover and barring any significant impact from any future wave of COVID, we see it improving towards pre-pandemic levels in the coming financial year. Overall, BAGIC had a motor growth of 2.5%, which was lower than the industry growth of 4%. Let me touch upon the growth in commercial lines, which is Day 1 of BAGIC's strong points. It was aided by BAGIC strong bancassurance network and agency channel, supported by its underwriting and reinsurance capacity for covering large risks.

BAGIC continued its strong performance across retail, commercial and industrial risk categories. Fire and Marine segments continued their growth momentum. Engineering liability lines have also shown strong growth, continuing the momentum of the previous quarter. Overall, commercial lines continued to do better than the industry with Q4 FY '22 and FY '22 growth of 14.4% and 16.5%, respectively as against industry growth of just 9% and 12.6%.

On the claims end, the experience in Q4 has further improved over Q3 and is significantly better than the first 2 quarters of FY '22, which had been negatively impacted by higher claims for the second wave of COVID and the higher claims in the Kharif season of crop. There was quarter-on-quarter reduction in COVID-19 claims, but severity of non-COVID health claims was still relatively high as compared to pre-COVID levels. All these factors did impact results for the quarter, but notwithstanding this, the combined ratio increased only marginally to 98.3% as against 96.6% in Q4 of FY '21 on account of lower expenses. In a market which is intensely price competitive, this result, we believe, is very satisfactory as most companies have combined ratios well in excess of 100%.

Let me touch upon the general insurance industry as a whole. The year FY '22 has been a challenging one, as everybody is aware. If you were to go by the 9-month FY '22 results for the industry, the underwriting loss reported by the top 5 companies was well over INR3,000 crores, while BAGIC managed to remain marginally profitable. The impact of COVID claims has been severe not only in terms of losses, but also in challenging the claim settlement capabilities of a large number of insurance. The results of BAGIC and its excellent claims settlement record have to be seen in this light.

In the last 21 years after privatization, there have been only about 4 years or so when the industry's premium growth has been less than 10%. FY '21 was one such. FY '22 was one such as well. As we begin the new year, we see headwinds in terms of inflation and its impact on claims cost, uncertainty over growth in auto sales and slowing capital investment by private sector, while the tailwinds are an economy that is growing, a strong labor market, indicating higher disposable incomes and a government budget focused on CapEx. In these circumstances, BAGIC will continue to focus on profitable growth, but will accelerate expansion while seeking to further improve customer experience. BAGIC did indeed maintain its market position, notwithstanding the fact that there have been a couple of acquisitions in the industry, will further improve -- try to improve efficiency and customer experience.

Maintaining underwriting discipline in this difficult environment is very critical for GI business and BAGIC will continue to do so. Therefore, while being optimistic, we will also be somewhat cautious, especially in the first half of the year. One of the issues with GI business is that as growth returns, initially, there could be some strain on reported profits because the earned premiums may lag GWP at least for a couple of quarters. In summary, a tough quarter for the GI industry in which BAGIC has held its own.

Let me move to the life insurance business. Overall, the life insurance continues to deliver solid growth driven by private players. During the quarter, while few private players have slowed down in their growth as compared to the previous year, BALIC continued its month-on-month growth trajectory and reported an industry building individual rated premium growth of 36% as against the industry and private players growth of 9%. In fact, in Q4 FY '22, BALIC was the fastest-growing life insurer among the top 10 private players on the individual rated premium basis.

Similarly, on a full year basis, among the top 10 private players, BALIC's IRNB growth of 49% was again the fastest against the industry growth of 16%. The private players growth was 22%. So basically, BALIC has been growing more than twice the rate of the private industry. BALIC has also registered strong NOP, number of policies growth of 11% in FY '22 versus the industry and private players growth of just 3% and 2%, respectively.

On the product front, the annuity product launched by BALIC in Q4 of FY '21 continues to be well received in the market. During FY '22, 11% of the rated business was from the annuity segment. In line with the industry, demand for retail protection continues to be sluggish and BALIC's contribution was just 2% and 3% of the product mix in Q4 FY '22 and FY -- all of FY '22, respectively. I must hasten to add here that the term insurance business was the one most affected by COVID claims, which, of course, is not included in the NBV numbers because this is a variance from the previously reported NBVs.

BALIC continues to seek a balance in its product mix. BALIC's unit contribution to product mix was 36% in the quarter versus 44% in Q4 FY '21. While the contribution has come down in absolute terms, the ULIP-rated business has grown 10% during the quarter. Guaranteed non-par savings contribution has increased to 33% from 24% in Q4 FY '22 as compared to the same quarter of last year. The annuity line of business is part of the non-par savings. And post inclusion of annuity, the non-par savings growth was 42% versus 28% in Q4 FY '21. This has been the overall NBV improvement albeit with higher risk. It can be seen that while most lines, except retail term has shown solid growth, the business mix changes reflect relative differences in growth and it's not a matter that we are concerned within the short run.

Group Protection also saw revival after a difficult year in FY '21. Q-o-Q growth of 1% in -- INR739 crores, Q-o-Q growth in Q4 of FY '22, but the whole of FY '22, we are seeing a growth of 21%. Group Protection, as you know, is largely led by lending of banks and NBFCs, which was at a very low ebb in FY '21, and that has improved and this reflects that as well. All our channels, agency, institutional business and BALIC Direct grew well. Agency grew at 12%, Institutional business at 64% and BALIC Direct at 13%. For the full year, Agency grew at 36%, Institutional business, 68% and BALIC Direct, 29%. Another point I would like to highlight is a strong year-on-year increase in persistency across vintages, especially in the later buckets. At a 49th month persistency increased by 8% to 62% and 61st month persistency increased by 6% to 48%. In fact, I would rate persistency increase as a significant win for BALIC in FY '22.

On the claims front, the COVID Wave 2 and 3 impact is largely settled and the impact of COVID-19 claims was marginal in Q4 FY '22. The new business value net of expense overruns, the key metric of profitability increased by 40% from -- in Q4 FY '22 from INR219 crores to INR308 crores. For the 12 months ended 31st March '22, the NBV was INR621 crores as against INR361 crores for the 12 months ended 31st March 2021, which is a growth of 72%.

BALIC's profit after tax for Q4 was INR48 crores against INR234 crores, impacted mainly due to lower investment income and mostly by higher new business strain arising out of more-than-expected business growth. BALIC starts FY '23 on the back of 2 years of solid growth. While the higher base and the impact due to higher inflation, which could be a headwind is not clear yet, other conditions like strong labor market, higher disposable income are tailwinds. The company is optimistic about its prospects for FY '23. Overall, another very good quarter for BALIC.

Finally, both the insurance companies continued to be financially strong and among the most solvent, BALIC with 581% solvency and BAGIC with 344%. And hence, are well poised to weather any external adversities. Both companies have paid an interim dividend, a final dividend and a special dividend to its shareholders, given the excess solvency. All our businesses had further augmented their digital capabilities, which along with greater digital acceptance by customers, should we hope help create the foundation to deliver a strong performance in FY '23. Further details regarding BAGIC and BALIC's digital capability are covered in the investor deck uploaded on the website.

Finally, a short word about our lending businesses, BFL and BHFL. BFL has already had its investor call and we'll only broadly touch upon BFL results. Both Q4 and the full year of FY '22 was excellent for BFL as the company delivered on all its long-term financial guidance metrics; AUM, profit growth, return on assets, return on equity, as well as gross and net NPA. Continuing its growth story, BFL acquired 2.2 million customers in Q4 and 9 million new customers in FY '22, the highest ever increase in customer franchise in a year for the company. The number of new loan books increased to 6.2 million in Q4 as against 5.47 million in Q4 FY '21. And this is now back to pre-COVID levels.

The company's diversified business model has enabled to record strong AUM growth as seen from the total AUM standing at INR1,97,452 crores as of 31st March 2022 versus INR1,52,900 crores as on 31st March 2021. We have seen very good improvement in debt management efficiencies, especially collection efficiencies and is better than pre-COVID levels across most businesses. BFL has made loan loss provisions on expected credit loss basis, which is required under Ind AS. And it continues to carry a management overlay.

The management overlay as of 31st March 2022, is about INR1,059 crores. Gross and net NPA continued to be under control. Gross NPA of 1.60% and 0.68%, respectively. We ended the year with a PAT of INR2,420 crores, which was 80% more than the Q4 FY '21 PAT of INR1,347 crores. Capital adequacy ratio is strong with 24.75% Tier 1 capital and 27% Tier 2 capital, both combined capital. BHFL also had the 100% mortgage.

BFL also continues to do well. AUM grew 37% during the year. Profit after tax grew 11% to INR198 crores in Q4 and on account of significant investment to pay for the next level of growth. For the full year, PAT grew 57% to INR710 crores. Capital adequacy stood at 19.7%. Finally, BFL has infused share capital of INR2,500 crores in the housing finance company just after the end of the year on 5th April and INR400 crores in Bajaj Financial Securities Limited to support their capital needs for the next 2 years.

To summarize, our consolidated total income recorded a 23% increase in Q4 from INR15,387 crores to INR18,862 crores. Consolidated profit after tax grew by 37% from INR979 crores to INR1,346 crores. The consolidated profit after tax includes an unrealized mark-to-market gains on loss on investments, arising out of the insurance companies. And if you were to exclude the effect of that, the Q4 profit would [ be a bit ] higher by 27 -- 46%.

On the ESG front, we have made -- started taking significant steps. We now have a clear 3, 5-year road map on improving our ESG disclosures and we have taken a lot of steps during the year. The mega vaccination drive where over 1 million doses of COVID-19 vaccine were distributed across Pune and Aurangabad by Bajaj Group. As committed in FY '21, BFL opened 50 financial inclusion branches in rural and backward areas. BAGIC and BALIC continued to be very strong on the rural and social segment, significantly in excess of the required exposure.

We did voluntary third-party assessments for 19 CSR partners organizations. And via our flagship program, this Certificate Program in Banking, Finance and Insurance, which is now getting excellent traction had so far enrolled more than 20,000 students. These are programs for financial skilling of people from rural and poorer financial backgrounds. And during the year FY '22, we added more than 10,000 students to that. It is -- people are getting recruited across the financial sector and we have a high representation of females in this. I think more than 65% are women of the pass-out from the CPBFI program.

With this, I conclude my opening remarks, and I would now invite the audience to come out with any questions or clarifications they need. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Bharat Shah from ASK Investment Managers.

[Bharat Shah, analyst]

One question, which links both BAGIC and BALIC businesses. So fundamentally, our strategy has been very clear and sound that we want to focus on quality business and not all businesses and growth for the sake of growth can be injurious rather than actually value creating. So, that is an absolutely sound and very comfort giving focus. BAGIC has always been very strong on that and qualitatively very prudent.

BALIC has been materially and rapidly improving in terms of the character in the strength of the life insurance business from where it was a few years back to where it is today, there is a consistent improvement we've been seeing. Now given all of that absolutely, correct first on qualitatively sound business, self-chosen restraint to do only the right thing rather than everything, given that compass and correct compass, what else can be done or what should be done, a, for BAGIC to make it larger or much larger business than what it is today? And b, while BALIC has been rapidly growing, both are some of the things that we still need to do to become much more meaningfully larger player than where we are? And what are the steps that we are taking.

[S. Sreenivasan, executive]

Thank you, Bharat. I would request Tapan to take this question.

[Tapan Singhel, executive]

Thank you, Sreeni. Thank you, Mr. Bharat. I think when you look at value, Mr. Bharat, if you see, we would be among the large -- this year results, we already ahead of a PSU and very close to 1 more PSU. So, our ranking keeps on moving up in terms of, so now we're going to be ahead of at least a couple of PSUs also as we progress further. And if you look at our competitors also, I think we have been ahead of them. So, it's not that we are not a large player even today. We are a large player.

Now growth, if you look at is also a bit above the market. So, we don't lose market share. While we do focus on underwriting profit, because we believe that is required for a very good customer experience, innovation and keep on redefining the industry, which we have been doing so. Over time, we look at our grievance ratio on IRDA website, it's one of the lowest -- it's the lowest in fact in the industry. If we look at our claims general ratio, one of best in the industry. If we look at our NPS scores, it is one of the best in the industry.

So, in terms of the obsession that we have for our customers, it's always there. We believe that only a company with a strong balance sheet and good underwriting discipline can deliver to the customers beyond the expectation in terms of delivery. That we have been doing consistently. In terms of our expansion in business, if you look at like Sreeni mentioned in his opening remarks, be it commercial lines of businesses, be it retail, be it any line of business, you'll see us among the top players in every line of business in the country, which would be them. So, the strategy we have is very simple, that we have to keep on expanding our footprint in the country.

We have to keep on each and every line of business, we are able to do well. We have to keep on opening new product lines that we came out with pet insurance. We were the first in the industry to do so. We came out with the cyber insurance, retail cyber insurance, the first industry to do so. So, we keep out coming with a relevant product for the customers and keep on expansion our distribution network. And that is how we should be able to maintain and keep on increasing our position in the industry in terms of where we are positioned in terms of the top players in the industry.

I hope I was able to answer your question Mr. Bharat.

[Bharat Shah, analyst]

Yes. But why we are meaningfully large player in general insurance and we maintain or inched up our market share. That was not my comment. I mean the size of the business is not merely related. It is also attributing the context of the size of opportunity, not merely how others do in the industry or the competitors do in the industry. So, one comparison benchmark, but compared to both the size of opportunities, how can we get meaningfully larger? That's one. And as a leader, there is a responsibility for us to create industry and to enhance the character and the size of opportunity so that it is in our interest to keep getting bigger. So, it was more from that context.

[S. Sreenivasan, executive]

Bharat, if I can take before I hand it over to Tapan, see if you look at in the last 20 years of privatization, the penetration of general insurance as a percentage of GDP or even the density has not really taken off. It is still probably a little over 1%, if I'm not mistaken, obviously, with a lot of private companies. So, there is always in a market like this, there is one has to fight for market share because it is an annually renewable product. Every policy comes up a renewal every year and there is one which is the fight for market share. That means you have a risk-focused company like ours will also weed out some unprofitable accounts at the same time, try to gain market share.

Secondly, we have to continuously develop new product markets, new geographies and unlike, say, lending business or something where one may want to be more careful about who to lend money to, here, one has to create the demand and it is across all segments. We do mass, we do mass affluent, we do middle class, the entire segment of [indiscernible]. So, it is not just restricted to the affluent and above.

So there, I think the industry as a whole has some way to go, but there is also an element that insurance is still an expense. And therefore, everybody is fighting for the same wallet. We are fighting with the customers need to go to malls or spend on entertainment or transport or various other things, clothing or whatever. So, it takes time. And the per capita income, I mean, there were some studies earlier which says that in real terms, with some base reference if the per capita increases to beyond $3,000, then normally, general insurance will see an exponential growth. We have not reached that at least in India because it is still concentrated in select segments. So, that's where we are. And I think BAGIC is trying.

I think Tapan can you...

[Tapan Singhel, executive]

Yes. So, let me answer this. But initially, you really summed it very beautiful. But let me answer Mr. Bharat's question in a different perspective. If we look at general insurance business across the world, Mr. Bharat, you will find that most of this business, like Sreeni mentioned, it is not the highest priority of any customer to go and buy general insurance business. It's among the least priority, least means, lowest priority.

And I ask this question all of us in this call, who actually has got up to buy general insurance product in the entire life, my answer, which I get every time there is nobody, so it's one of the least priority in a customer's mind to buy this product. But then if you look at what products do get sold in general insurance, most of it is mandated by the government. So, let's say, motor insurance in India has high penetration. Private 4-wheeler has a penetration of over 80% in India. Commercial vehicles close to 60%, 70%. Now why is it so? Because if you don't have a valid insurance, you can't drive on the road. So, that is why it's high. In countries where it's not mandated to have motor insurance, there the penetration is 20%, 25%.

Now, if we look at in countries where it's mandatory to have home insurance, like a player U.S., 95% penetration is there. In India is less than 1% in penetration of home insurance. I think most of us in the call also, ask the question how many of us actually have a home insurance. The answer would be very, very low. While the products are very good. If I were to recommend people should buy all insurance, they're actually very, very good. The challenge is how do you get to the next level. As an industry leader, we are working closely in trying to push this concept that government and insurance companies together make a huge impact on society. And let me put our case in the point, that government health insurance, which has covered like 40 crore in insurance.

So, while if you look at in the statistic perspective that the penetration of insurance by density has not moved up, it's close to 1%. But then if you look at the number of lives covered, has moved up significantly from what it was compared to what it was. And If I look at today, what -- if I just add up about 60 crores, 70 crores of Indians are covered by general insurance. So, it's not a small amount of people are covered. The ticket size is low, and because of pre-pricing, the prices fell down, and that is why it has reached at 1%, now moved to 2%, otherwise, the pre-pricing not happen in 2017. Maybe the numbers statistically would have looked at 2%, but that's a difference to you all together.

To answer your question, Mr. Bharat. As industry leader, we will be working very closely with the government authorities with the regulator in seeing how we open up new avenues. Right now, we are working on -- there has to be a protection against catastrophic losses. If you look at the losses that are happening because of frequent floods happening across the country and the solutions which are there and it tries to come through in some -- at least one state government, put forward and went had with it. We're trying to see how most state government will come. That will increase the number of lives covered again exponentially in the country from where it was there.

So, a lot of work we are doing with the government and the regulator to see how do we take it to the next level. But to your point, India has to reach a 2% penetration level, and that is the ambition which our industry would be having Mr. Bharat. It's a very good question, but it has its own way of moving forward. And government and insurance companies across the world you look at where the penetration is high, you will find that they work together to make the lives better of citizens of the country, which is them. And that is what our ambition would be needed to take it forward to that level.

[Bharat Shah, analyst]

And any comments on the debit part where, of course, qualitatively, in terms of the character of the business, diversity and resilience of the portfolio and a rapid growth. So, all these have been underpinning BAGIC growth in last few years from where it was to where it is today. But we still are a fairly small player there. And I just wanted to understand the ambition for the kind of a meaningful share there? And are we in sectors that we needs to do or we are inhibiting? And what are we doing about it?

[S. Sreenivasan, executive]

Tarun?

[Tarun Chugh, executive]

Yes, Sreeni. So, Bharat, always you are the ones that kind of -- your question is always the one which help us in thinking more and putting things in the right perspective. See, the way I'm looking at it, the industry itself is growing and we've had 2 years of industry growth, which has not been there in most sectors. So, I think that's been a good facet of life insurance. The needle is moving towards a little bit more desire or want of life insurance as a product category to come in. And we are right up there to take benefit of that.

Globally answering that question, we took the stand of being a life goal enabler for the entire sector. And we are engineered like that. It's like what should I say? It's like almost plumbing, our plumbing is around that level, and we will go deeper and deeper in trying to get a life goal enabler image and effort and visibility in front of the customer. And that is the one which is going to work for us as a strategy. I'm very happy to see that a few other players, including some really meaningfully large players have also started copying this call. In fact, we took this call about 5 years back. So, that is on a very global scale.

The things that we are otherwise working on is there's a lot of potential. And I think you've correctly said, we materially moved. Yes, so the shape of the ball is now getting to be rounded. It was full of dense earlier. So, we do look like a robust business. But there is so much still to be done within that. And if I was to just quickly rattle out some stuff is we've now at least got partners in the institutional business side, where we have all kinds of banking partners. We earlier had only lower middle-income customer base partners. So, that has really moved the needle for us. Of course, the move with Axis, IDFC, RBL, this is KVB and so on and so forth has been quite good. That has helped us. But this gives us also a very large talent to dig deeper, get productivities, work with banks, and that will keep unfurling for the next few years. And -- but we don't want to elongate it. We want to prepone it as much as we can. So, the banks see our impact as well.

Broadly in the adviser business, the agency business, there is a huge untapped potential still. And we believe clearly that while this debate of bancassurance and agency which is going to be the key business by which customers will reach out to life insurance companies, we believe it will be a clear mix and it will be a little difficult to suddenly just cut and say, metros will be this and smaller towns will be the other because banks are moving into tertiaries and secondary towns and agency is getting stronger and there's a lot more to move into metro. So, I actually believe that agency is now going to start seeing the upswing in the retail business and particularly in metros in the private sector. And I think with the listing of LIC that should give more and more flip to this for the private sector as well because if LIC benefits, we benefit with its listing.

The other piece, which is particularly, I'd say, not entirely holistically circular yet in terms of the shape of the company is our presence. To an extent, Tapan talked about the focus of BAGIC getting larger and larger in various spaces, where even we intend to, of course, go. But we have a clear, lot of action and work yet to be done in the South markets and other than Delhi in a lot of the North market. So even the state capitals and the secondary towns, we aren't as strong.

So, I think very clearly, our focus is underweight where in the Bangalore, Chennai, Hyderabad, Coimbatore, et cetera, we get bigger and bigger. And we're minuscule in these. But we are very strong in the West and the East. And particularly now in the East with our banking partners as well. So, there is a lot of work that's needed to be done. We will be working a lot on upselling to our existing customers at the same time, so using profiling, a lot of data analytics, hopefully, the account aggregator should come in good. At the same time, adding more customers because BALIC still, as you said, materially has a lot more to do. So, this is broadly from a company perspective, where we as a sum of parts help the industry.

On the other piece on the product side, the risk buckets, particularly on the term side, we had taken a step back last year because of the huge issues around the reinsurance side, which are now seemingly settled. I think they will play out in the next couple of years and they'll kind of be a lot better for us. So, we intend to write that. Even on the annuity side, while we were the innovators and we brought in the regular pay annuity product, deferred annuity product, what we've seen is that lots of other companies have followed us, including the large ones, and they are -- they've got similar products. Usually, in a situation like this, the first mover does get the advantage, and we hope to get more and more of that. Although, it's a price-sensitive market, but we have to go with the -- we've moved on the quality side, and that's exactly where we intend to move there as well.

There's no education, more effort required in hence, increasing the size of the pie for the life insurance sector. And we are very hopeful with the new Chairman of IRDA, there's a lot of freshness that is getting to be seen. We shall, of course, work with our IRDA to expand the opportunity size of the life insurance sector as well.

[Bharat Shah, analyst]

Sure. No, that's very, very helpful. Both, Tarun and Tapan, always enjoy getting those responses in very granular and strategic terms. Thank you for that. Just one last question, on brief comments on the health of the investment portfolio, both on BAGIC as well as BALIC side on the fixed income as well as on the equity side? Just wanted to hear comments on the health of the investment portfolio.

[S. Sreenivasan, executive]

Bharat, Raman, you want to take it?

[Unknown Executive]

So thank you, Bharat. [ Bharat Desai ]. See, with respect to the overall health of the investment portfolio, there is nothing that significantly changes today in terms of the overall investment portfolio because the debt market, obviously, as the market has gone up, there has been a change in the unrealized part of it. But anyway, this is mainly the held-to-maturity portfolio, and this is well kind of linked to the respective funds. So, whether it is parked on where we are trying to manage the PRE or whether it is a guaranteed fund where the wheels are locked in and it is meant for a held-to-maturity portfolio to meet the guarantee.

So, we haven't seen anything significantly. What is happening overall as we are -- we are also looking at actively managing our debt portfolio given there has been a sharp increase in the yield. As part of the active management on the debt side, we are the usual way of taking calls to keep maybe something on the money market and maybe redeploy that at the higher yields. That active management, which is our GIO is responsible is being done regularly. But other than that, there is nothing significant, which has drastically changed on the fund management side.

[Bharat Shah, analyst]

And the quality of the portfolio, suppose continues to remain at a top notch?

[S. Sreenivasan, executive]

Yes, yes. What we have done after the events of 2018 when we had a couple of exposures is on the debt side that we have now a defined list of credits. And that we over every 3 -- 2 weeks or so across the group, we have a stress investment [indiscernible] where all the credits are aggregated because we need to do that for regulatory purpose as well. And from the group risk side, there is a call in which everybody share their views on new credits coming in the market, how it is changing. So overall, the discipline towards credit is significantly better now. We have credit analysts in each of our companies. And there is no significant corporate bond credit risk in our portfolio anymore. Of course, most of them are PSUs and the bond market continues to be shallow in that sense. But overall, they are on a good wicket both for BAGIC and BALIC.

Only thing is when we have -- whatever equity we have invested in BAGIC Bai and BALIC, the profit can be booked into the P&L only when realized. And therefore, the unrealized gain in our par portfolio, for example, we have a significant unrealized gain on equities. We have some unrealized gain on the shareholders' portfolio in both BAGIC and BALIC. However, given the volatility in the markets, we tend to keep that and because growing the overall size of the pie is more important than realizing the profit, which is more of an accounting exercise.

[Operator]

The next question is from the line of Ashish Sharma from ENAM Asset Management.

[Ashish Sharma, analyst]

2 questions, one on BALIC and BAGIC. So, first on BAGIC. I mean, in terms of combined ratio, what's the outlook? And if you can touch upon also on the competitive intensity for the industry. I mean, one that would be the question on BAGIC. And on BALIC, if you can comment that we have done well on the VNB margin. So I mean, what's the next leg of journey in terms of VNB margins? I mean some comment on that would be helpful, sir.

[S. Sreenivasan, executive]

Yes. Bharat, would you like to start with BALIC?

[Bharat Kalsi, executive]

Yes, I can start. Thank you.

[S. Sreenivasan, executive]

We don't give a forward-looking view on what the NBV or the combined ratio will be like, but you can give a general approach.

[Bharat Kalsi, executive]

Thank you, Sreeni. So see, as you've seen our number in terms of the overall VNB growth has been very strong at 72% and margins, we are now at around 14% or so. So I think overall, year-on-year, you've been seeing that we are improving by say, 1.5% or 2% kind of a number. And our intent is that we continue to look forward to those efficiencies, better product mix and expanding the business and even coming up with all those white spaces, which were not there in our business, like recently, we launched our new product called AWG.

Last time we launched annuity, this time, we launched a non-par saving, AWG. So, the idea is to be efficient, provide more products, customer choices and drive those business growth. And that leads to directionally a positive growth in the VNB is what we are looking at. Having said that, as Sreeni said, we do not provide any forward-looking guidance, but the intent is to move further upwards from here.

[S. Sreenivasan, executive]

Raman?

[Ramandeep Sahni, executive]

Yes. On the combined ratio, I think, as we've seen in the past, we've been able to deliver sub 100%, while we don't make forward-looking statements, but at least our experience and our past results obviously indicate that this is something which we would want to sustain. Given the competitive environment, like you said, the competition is getting fiercer day by day, especially if you look at the large segments like motor, where we know that the more profitable the new car sales is impacted due to the semiconductor issues and Maruti, for example, has gone to the marketplace. So, the competition is only getting intense day by day. But our endeavor is obviously to identify newer pools of business, newer profit pools and continue to sustain delivery of sub 100% combined ratio. So, that's where I'll leave that.

[Ashish Sharma, analyst]

And have we taken any price hikes in the OD business?

[Ramandeep Sahni, executive]

In the OD business, nothing significant.

[S. Sreenivasan, executive]

See, the OD business, if I were to add to what Raman said, there is no such thing as a fixed price. It's a market price. And therefore, BAGIC has always followed a segmented pricing. It depends on the customer, the channel, the geography, so many factors which go into pricing. And there is a whole amount of flexibility. For example, customers who are already customers, customers who are new to us, customers who are rolling over from other insurance companies, we have different approaches to each of these.

So this is one of BAGIC's strengths actually. But in a condition like this, when new addition to assets is low, existing assets are depreciating and therefore, some insureds are falling, I think this is the time when one has to focus on maintaining the strength of the balance sheet, as Tapan said earlier. And that's what we have been doing. As growth comes back, we will obviously change gear, we already change gear actually. And we will see as it comes, we will -- see how it pans out.

[Operator]

The next question is from the line of Chirag Kumar Jain from Magma HDI General Insurance.

[Chirag Kumar Jain;Magma HDI General Insurance Company Limited;Senior Business Manager, analyst]

My question is to Mr. Tapan. Actually, I'm happy that I heard a year back in a forum that you were talking about cyber insurance, and now you have launched it. And I've also seen in a couple of forums that you talk about this flood and catastrophic event and I'm sure that BAGIC will lead the way. My question is related to health insurance. So, if I've heard it right that non-COVID claims have also gone up like pre-COVID era, it was told. So, I want to understand that why claims have gone up, whether it is a particular geography, segment in health insurance? And what is your perspective on health insurance for FY '23 and going forward, retail health insurance, specifically?

[Tapan Singhel, executive]

Thank you. It's a very good question. See, if you look at health insurance and look at COVID, what actually happened was in COVID time, a lot of fear of people going to hospital. So that time, the non-COVID claims actually dropped. But you can't hold for long. If you're ill, you have to go to the hospital. So, moment there was some kind of wave coming down, I think people who were holding on, decided to go into hospitals, so the hospital cases started moving up.

Now more than that, what happened was now the hospitals have take out a precaution because of COVID. So, they have to take all those tests, the RT-PCR test and the kits and all have to be taken care of. So, the per patient cost has moved up because of the precautions. It didn't matter whether the patient is a COVID patient or non-COVID patient. But the per patient cost has moved up rightly so because hospital should take precautions to that people should not get infected.

So, I think post-COVID, the era for hospitalization is very, very different from that perspective. Also, you have medical inflation, which keeps on going. Unfortunately, in the country, we don't have a health regulator. So, you have a lot of variance in price between different hospitals because there's no regulation happening and the inflation in hospitals would vary because they would move the price up and down depending on what it is. Not all hospitals, but some hospitals we will start doing that. And that leads to an unreasonable increase of price compared to what it should happen in difficult times like this, which is there.

But all that impacts on the claim ratio of insurance companies. And obviously, the claim ratios of the insurance company goes up, their price hike happens for insurance companies. But there the problem is for 3 years, insurance company can't increase the price hike for retail insurance because that is what the regulation should simplify. And that is why when you see the loss ratios in the industry for health, it's very, very high because these combinations is there.

Now, let's look at what would actually change in the times to come. From a health inflation perspective, I don't think that will change. The expenses on taking protocols for COVID will remain. So, the claim ratio on that is going to be higher on that side. From an insurance company's perspective, I think there are 2, 3, which I'm seeing in the industry, some people are getting very strict -- stiff on claims. But our belief has been that we have been a very customer-centric company.

So, from a claims perspective, we have always been in the front. Even when COVID claims and this cost tail drug was there initially some companies were refusing, we went ahead and paid that also. So, the customer service and obsession to take your customers should be at the focal point of any company ought to believe, and we actually do that.

So, held to your point, I think it will be in doldrums in terms of the property for another 1 or 2 years. But the regulator also is aware of these things, and they are looking at how do we correct this scenario. And I think demand for hospital regulator has been very intense in the industry. So, I think that should actually bring in some semblance. But it will take a couple of years to settle down, if that was your question.

[Chirag Kumar Jain;Magma HDI General Insurance Company Limited;Senior Business Manager, analyst]

Tapan, another thing you had told in a couple of forums also like now also, you have mentioned about health inflation, health regulatory you wanted. So, any work BAGIC has done with regulator on this? Any means, start of the work or this to pressurize -- yes?

[Tapan Singhel, executive]

Nobody can pressure the regulator, regulators are the ones who control everything. The only point here is that as an industry leader, I think we have been -- and you have seen us, we have been very vocal about our views at all places along with our regulator. And we have ensured that we had talk with them and put our points forward. And I'm sure the regulator will look at the industry and the customer and they are the custodian of the policyholders in terms of the protection that they have to provide and try and come out with solutions for this. But I think we have been very clear about it.

We also represented with ministry in terms of a regulator for the hospitals which is there. So, that we do an as industry leader, along with the industry bodies that we have, we do represent and we're very clear and vocal about our views. I don't think that we change our stance or views. What is relevant for the industry, we actually try and put it up at all points.

[Operator]

The next question is from the line of Sanketh Godha from Spark Capital.

[Sanketh Godha, analyst]

A couple of questions on BAGIC and BALC. Just on BAGIC, just wanted to understand what exactly we will be looking at the government health business? The business has grown almost 5x in the current year compared to last year. So, just wanted to understand the broader strategy, how you will approach this business? It will be more tactical? And how do you see this business happening? And second on group health, just wanted to understand that we might have slowed down that business in the current year. But we believe -- we understand that the pricing has substantially improved in the current fiscal year. So, whether how you are going to approach that particular business in the current year? So, just the questions on BAGIC.

On BALIC, larger question is on the bancassurance premium. Just wanted to understand how much is Axis and non-Axis? So, to understand which channel almost contributed to the growth? And the second point is that within credit like we see a bit of moderation in the fourth quarter. So, any specific reason on quarter-on-quarter moderation in the credit life business? And how do you play out going ahead? So, these are the 2 questions. And finally, if Sreeni, sir can give some update on Bajaj Finserv Marketplace, Bajaj Finserv Health and AMC business? That will be useful.

[S. Sreenivasan, executive]

I'll take the last question first because that is directly related to BFS. In terms of Bajaj Finserv markets, I think we are having good traction between us and BFL. We have now capitalized that company well going forward for the next 2 years. We have now multiple partners for lending. It is an open architecture platform, as you know. We have more than 100 financial products available on the app. If anybody has used the app, you can see we have now multiple versions of the upgrades on the app already launched.

So -- and on the insurance side, we have now 8 partners. There, it follows actually our primary focus was to establish the lending platform and the credit card platform. And they are now getting good traction, actually. We are now -- the cards platform now, for example, is live with 5 card insurance if you have seen the app, RBL, SBI, Axis, ICICI and Citi. And we will continue to keep looking for people who are aligned with us.

Only thing is they need to have the straight through apps and with your -- customer-focused quick decision-making and underwriting. I think it is still early days for that business. It will take another couple of years more for it to reach a real traction. But the way it has been growing in terms of traction on number of users, the number of conversions, the rating on the Google Play store, on the App Store, I think it is here to stay and it's doing quite well.

Coming to the Bajaj Finserv Health business, that again is gaining good traction. I think we have, as you know, multiple -- it's one of its kind in a way because we have the one is the B2C business where we offer a complete suite of healthcare solutions. Apps were required by an insurance product from BAGIC and our financing from BFL. But predominantly, it covers OPD, it covers telemedicine. It covers a whole lot of lab test at home and a whole lot of services all on a single app. The app has got a good rating.

We have got a good traction on hiring of doctors. We have apps for doctors where we stimulate -- I mean, where we encourage them to use the app more and more, and we are seeing good traction on the utilization of the doctor app for servicing appointments. Overall -- and we are now a wave 1 partner for the national of the national United Health interface of the Ayushman Bharat Digital Mission. So that, again, still more work to do, I think, next year and the following year, are very critical in terms of getting more services on to our app. Today, we don't, for example, do drugs or pharmacies. We need more hospital tie-ups. We need to hire more doctors. And through them, we need to get traction. But so far, we are quite satisfied. And we have -- we will continue -- we will be continuing to support that from BFS.

In terms of the mutual fund, it's early days yet. We have finished preparing. We have got our CIO in place. We have got our initial team in place, Mr. Ganesh Mohan, who was Head of Strategy in BFS is taking over as the CEO of that, has already taken over. But there is a process from SEBI, they have to come and inspect, see that we have all the requirements in place to launch the funds. We think by second half of this year, we would have launched our first set of funds. Broadly, we are still working on our strategy as to how we will differentiate in the market, which is already well penetrated and where the top players are controlling significant market share. But I think we will come out with a reasonably strong offering there.

I'll pass it on to Tapan, to handle the question on government health and group health.

[Tapan Singhel, executive]

Thank you, Sreeni. I think it's a very interesting question. But to understand the government health business, let's understand that as a group, we are not only focused on doing business in big cities, but we -- on a [indiscernible] work very closely to see how do we expand our things for all of us. On government health business, we have been a strong supporter because we strongly feel that this helps increase the longevity of Indian in terms of the average life span is moving up because when it's catering at the lowest rung and doing it well there.

So from very early on, if you see, we did Jammu & Kashmir also, we have been investing in terms of looking at the business and doing it well. I'm happy to say that I think in states where we have done this business, we have been able to deliver pretty well on the ground in terms of the customers, which is there and build a network there because it's high intense and hard work, like you have to be there in the ground and building up together.

But if a country like India, if you're not able to handle government health business, you're not able to handle crop insurance business, you're not able to handle to the hinterlands, then you would remain a very, very niche player in the top cities only. To be a large player, you have to be into all markets, into all lines of business, and you should be able to do it well. And you should be able to service the customers well. I think that's been a philosophy and that's why in that philosophy government health business, crop, all the business comes into perspective, and we have been doing it pretty sincerely under pressure.

On a group health basis, if you look at for us, at the price that we serve the customers well, we're very happy to pick up business. We don't slow down or go aggressive in terms of business, which will be there. We do business at our price that we feel we service the customer very well. And as you mentioned, if it's hardening and the price is at our comfort level in which we can give extraordinary service to our customers, we'll be very happy to keep expanding it. So, we don't try to limit our business, any kind of business, go overboard any business. We just look at the right price at which we'll service the customers well, and at that price we're able to do any kind of business and we do it well. That's our philosophy.

[Sanketh Godha, analyst]

But just on the government health, just wanted to understand in the current year, whether it is combined positive? And other than Gujarat, which was the other state, we have done that business in?

[Tapan Singhel, executive]

We did Jammu & Kashmir, before that we've done West Bengal, then Mizoram, we have done quite a few states over time.

[Sanketh Godha, analyst]

And whether it is combined positive, sir?

[Tapan Singhel, executive]

Yes. If you look at -- it is.

[Sanketh Godha, analyst]

Okay. Got it. And yes, on BALIC, please.

[S. Sreenivasan, executive]

Your question on BALIC was on the group credit protection, why there was a slowdown in Q4.

[Tarun Chugh, executive]

There were 2 questions. One was the channel-wise and one was the group, so I'll answer the channel-wise first. See, the Axis has grown, of course, fastest among all businesses. It now contributes to about 1/4 of the company's business. And at the same time, I must say everything that we have been doing in various channels has actually worked quite well. Our agency has grown almost by 36%.

BALIC Direct has gone by almost 30%. The effort is to ensure that while Axis, of course, the base effect of a lower base last year kicking in, that all businesses really grow with the right quality focus and that's the imperative in front of us. We would not want like the -- to land up like large companies to have a dependency on one large bank only. And I'm sure the bank also would not want it that way. So, that is a mutual interest, and we will be ensuring that other businesses do keep growing, and that effort is on.

On the credit life business, yes, very interesting that you noticed this. See, the last year Q4 growth is was -- Q4 this year versus Q4 last year, there is a base effect that has kicked in because last year, Q4, as the market had opened up, a lot of lending did happen, and that is what has kicked in. But if I look at the pre-COVID levels, we've had a 9% CAGR in our credit life portfolio over a 2-year period. I think that's a better math to use because this was volatile last year, particularly. And it pretty much is in keeping with the credit growth in the market.

What we do keep on ensuring is that till BALIC about 5 years back was very skewed towards the MFI business. Now that's not the case going forward, and we have been able to use COVID well and rebalance this to consumer durables, mortgage and MFI as well. So, that will remain as a strategy to discuss and not have any dependencies on either a geography or a product mix. Does that answer your question?

[Sanketh Godha, analyst]

Yes, sir. But it will be great if you are comfortable to share what is the mix of credit life currently in terms of mortgage and consumer durables and MFI? And so that's one thing. And just on this Axis Bank, so is it safe to assume that we are closer to 25% to 30% market share of what we -- what you are of Axis as a whole?

[Tarun Chugh, executive]

Yes. So see, the first, the credit portfolio, we don't really disclose. It's something that we want -- it's a competitive advantage we want to keep to ourselves. And so hence, I will not be able to disclose that. It does impede me in the market if I was to share that data. So, I would not be able to do that. In the Axis, no, we are nowhere near the 25% yet. So, I think we have comfortably worth still with enough headroom available. And -- but it is -- yes, it is not too far as well. And you should expect that Axis will grow next year by a business itself.

[S. Sreenivasan, executive]

Sanketh, just to add to what Tarun said, if your question was is the institutional business driven only by growth in Axis. I think almost all our segments of institutional business have shown very strong growth, be it Bandhan. And then we have a whole lot of emerging banks like Dhanlaxmi or some of the newer relationships like IDFC First Bank, RBL, KVB, most of them have shown significant growth in FY '22 and in Q4.

However, the base for many of them are small, so we don't want to talk much about the growth in those segments. There were some segments like SFBs and all where growth has been affected post COVID, but they are also starting to pick up now. So overall, it is not -- I mean, growth has been fairly across the board, both on BALIC Direct, agency and IB, and IB, the growth has been higher. The actions has been high, but many of our emerging bancassurance have also done excellent growth.

[Operator]

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Sameer Bhise for closing comments.

[Sameer Bhise, analyst]

Thank you. Thank you, everyone, today for joining us on this call, and thank you to the team of Bajaj Finserv for giving us the opportunity to host. Thank you, everyone.

[S. Sreenivasan, executive]

Thank you, everyone. Thank you.

[Operator]

Thank you. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.