Founded by K.K Bajaj in 1964, Bajaj Capital completes 50 years of journey in the financial advisory space. In an exclusive interview with Cafemutual, Rajiv Bajaj, Vice Chairman and Managing Director, Bajaj Capital recounts the origin, growth and the challenges faced by the company.
Bajaj Capital was started in 1964. What inspired your father to set up a business like this when there must have been zero awareness about financial advisory? What kind of challenges did the company face in the initial days?Bajaj Capital was started in 1964, a time when, except for a few individual stock broking firms, there were hardly any organized players in the field of investment advice. At that time, K.K Bajaj decided to enter this space to work and spread financial literacy in the country by providing professional guidance to investors on where, when and how to invest.
His mandate was clear. He wanted to build a nationwide advisory firm, comprising professional advisors, who would cater to the large investor community of India and help them understand the importance of investing in the right instruments. He started by setting up operations in Delhi and gradually opened branches in the other three metros as well. Unlike other players in the industry at that time, he did not want to operate from a single office, His vision was big and he wanted to scale up and reach different parts of the country to make people aware of the importance of investing in the right way.
Our initial success came from leveraging the growth of Unit Trust of India. US 64, the flagship fund of UTI, an open-ended balanced fund was launched around the same time and coincided with the birth of our company. We began by creating awareness for that scheme and it became a launch platform for us.
You launched the company fixed deposit of Oberoi Hotels in 1965. How was the investor response to company fixed deposits at that time? How has your fixed deposits business grown over the years?
The concept of company fixed deposits was started in India by Bajaj Capital, when we launched the first-ever fixed deposit for Oberoi Group's East India Hotels Ltd. It was a chance meeting between Rai Bahadur MS Oberoi, Founder and Chairman of Oberoi Hotels and K.K. Bajaj that changed the way we look at investment choices today. At that time, K.K. Bajaj and his brother used to raise funds for others, through promissory notes and hundis while MS Oberoi was looking to raise funds for completing his hotel project. This meeting between the two translated into an opportunity for both of them, when K.K. Bajaj guided and helped him to raise money from the public by way of corporate fixed deposits. This is how the investment instrument known today as the corporate fixed deposit which was inspired by the features and structure of a bank fixed deposit,was launched in the country.
Its overwhelming response prompted other private and public sector companies to start accepting deposits from the public. However, this market was not regulated at that time. It was in 1975 when it came under the purview of regulations with 'Acceptance of Deposits' Act under Section 58A. Reserve Bank of India, also took inputs from us when the rules were formalized.
For almost two decades, company fixed deposit was our main offering till we introduced other products like mutual funds, insurance in our portfolio. Contribution of fixed deposits to our business has gradually come down from 70-80% to 15-20% now, but it still remains one of the most sought after investment avenues.
When did you join Bajaj Capital? Did you always want to be in financial advisory/wealth management since your college days? What changes and initiatives did you bring about in the company?
I joined Bajaj Capital 25 years ago, in 1990, at a time when there was a lot of interest in stock market, just before the Harshad Mehta boom in 1992. We were also at an interesting cusp at that time, deciding on what direction to take for the organization.
Since Bajaj Capital has always had a goal-based approach towards investments, I decided to build on the same, while at the same time working on the growth plans for the company. We initially had just six offices in the country and were just beginning to experiment with our residential neighborhood investment center model. Fortunately, the model of opening branches in residential localities clicked well for us and we were successful in opening around 100 outlets across the country within a span of just 5-6 years. This fast unprecedented growth needed the support of an institutional framework which we developed by formalizing our functional groups into HR, training, IT, operations, marketing and support.
Around the same time, various public financial institutions were on the way to becoming more consumer-centric and had started adopting strong retail models. IDBI and ICICI decided to raise money from the market in the form of bonds. In fact, ICICI gave us the mandate to adopt villages and smaller towns in spreading awareness about them and their products. We can take modest credit for our role in spreading the name of ICICI and IDBI in such upcountry areas of the country. Bajaj Capital played a key role in helping these and other financial institutions to raise money from the Indian masses and also spreading awareness about their brand. This was a very important phase in the growth of financial distribution segment of India.
Tell us about your clientele, branches network, assets etc. How many families have enrolled for comprehensive financial planning with you? How many advisors work with you? What kind of support system do you provide them?
Many of us make our investments without a proper financial plan in place. We realized it early that it is not feasible for investors to create a plan by themselves. We, at Bajaj Capital have been the pioneers in bringing the concept of financial planning to India.
We devised a '360 degree financial planning assessment' which was launched with a slogan 'Give us 15 minutes, we will change your life'. This was developed completely inhouse after several inputs and deliberations keeping the Indian investor in mind. The investor gets a holistic view of his life long financial needs and a personalized investment solution to achieve them. This comprehensive financial planning process is available even for the masses as we wanted to demystify and simplify financial planning for the man on the street.
Right from its launch, it was well received by investors and became an instant success. Since then, more than one lakh investors across India have benefited from it. It’s more like a blue-print of their life goals and the plan with actual numbers and estimates to reach those goals. One common feedback shared by '360 degree financial planning assessment' users is that they are now in much better control of their financial goals. Once the investment portfolio is created, we make sure to go back to the clients to assess its performance. There is also a well-defined review process, where the relationship manager assigned to a specific client, would meet the client on regular basis for reviewing the portfolio and taking necessary action, if any. Today, we are conducting more than 15,000 portfolio reviews across the country each month.
We manage more than 1.2 million folios in mutual funds today, which after adjusting for duplicate folios would be close to a million. Our assets under advice are close to Rs. 12,000 crore. Moreover, we have around 650 financial advisors, who work on the payrolls of the company and over 10,000 independent advisors, who are empaneled with us through our associate network. We feel it’s the tip of the iceberg and as people become more financially aware and understand the importance of financial planning, the numbers will grow.
Are you looking at expanding your reach beyond top 15 cities, now that distributors get a higher incentive on these applications?
We already have a wide reach and presence even beyond the top 15 cities and today we have presence in more than 100 cities. Recently, number of folios of B15 cities surpassed that of T15 cities thus showing the rising interest of B15 investors. However, providing service at low cost by leveraging technology remains the key.
We realized that it is not economically viable for us to take a wide range of products to most of these cities due to the pricing structure in the industry. Therefore, in 50 out of these 100 cities, we offer only packaged insurance solutions to the investors, where we try to cover most of their financial needs like children's education, retirement, amongst others in one solution only. We have slowly added health insurance solutions in many of these smaller cities and plan to introduce mutual funds too.
With investor awareness campaigns in such cities, I see a situation where over the next five years, mutual funds will see a very good growth and penetration beyond the top 15 cities as well.
Many distributors have stopped servicing micro SIP clients (Rs. 500/1000 per month). Do you cater to very small retail investors?
Our belief is simple. Whatever is good for our clients is good for us. SIP is the best way for us to start a relationship and build trust with a young investor in his 20s and early 30s. For beginners and for those not having a lump sum to invest, the better alternative is to follow the SIP route.
For us, all clients are equal and we have never differentiated on the basis of their investment amount, whether they invest Rs.1,000 or Rs. 1 crore. The deep-rooted philosophy is to give equal importance to each and every client at all times. We have several clients who would have started with Rs. 1,000 of SIP but would now have accumulated crore as investible surplus.
What is your advice to distributors who wish to scale up their business and expand geographically? Is it feasible for IFAs to achieve scale in the current market environment?
Wealth management is a business that requires a lot of patience. It's all about building relationships one at a time. But, things are changing very fast with technology seeping into almost every walk-of-life. Some of the challenging questions that need to be addressed upfront are – How can we leverage technology to acquire clients and stay connected with them; How can we engage with our clients regularly using the digital space; how can we reduce our operating costs by upgrading to a superior technology platform.
Not all answers are on the table yet. We are still in the trial and error phase as an industry, no one knows which distribution entity succeeds in 3-5 years from now. However, one thing is certain – the most successful entities after 5 years may not be too many from the ones that are operating today, because this antiquated model of distribution is not likely to last very long. Hence, either the existing firms will have to re-invent themselves or some new ones would emerge which would be run by people coming from another space with a fresh mind-set. One thing is certain, technology has created a level playing field and hence a boutique IFA firm can also now aspire to build a large nationwide business. Such disruption has happened in stockbroking space. Why can’t it happen in the wealth management business?
What is your roadmap for Bajaj Capital for the next three years?
We believe India has entered into a fast growth and a more sustainable trajectory. We are going to see more secular growth in our economy in next 3-5 years. The financial sector is lifeline of any economy and this sector is probably going to witness growth which could be 3x of GDP. Household savings is increasing and these savings would come into financial products. There is big scope for one or more nationwide brands to come out in the forefront. We realize this opportunity and are pacing ourselves to grow faster. We are leveraging technology to further expand our reach among clients. To enhance client experience, we are investing both in front-end client facing technology as well as back-end systems. At this important milestone of our 50th year, you will see a new face of Bajaj Capital, which would be a much more vibrant, technology savvy and a brand that communicates transparency with its clients.
As in the past, we would continue with our goal-based approach with clients. Now, we have made the processes more formalized and going forward, this is going to the heart of our productivity enhancement initiative.
We are strengthening our associate network too. As an IFA, they stand to gain from our strength in providing them access to our comprehensive suite of financial planning tools, creating and reviewing client's portfolios online. We are more than happy to share our productivity enhancement tools with our IFA partners also and grow together with them.
This does not mean we need to change everything. We are very proud of our heritage and we intend to leverage that. The family-type relationship that we enjoy with our clients, employees, and partners will be cemented further.
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