Ladies and gentlemen, good day and welcome to Bajaj Finserv Limited Q2 FY 2026 Analyst Conference Call hosted by JM Financial Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. Now, I hand the conference over to Mr. Raghvesh from JM Financial. Thank you, and over to you, sir.
Thank you, Neelam. Good evening, everyone, and welcome to the Q2 FY 2026 earnings conference call of Bajaj Finserv Limited. First, I would like to thank the management of Bajaj Finserv for giving us the opportunity to host this call. As always, we'll have opening comments from the management team, post which we'll open the floor for Q&A. From the management side today, we have Mr. S. Sreenivasan, President, Insurance and Special Projects, Bajaj Finserv Limited; Mr. Ramandeep Sahni, CFO, Bajaj Finserv Limited; Mr. Tapan Singhel, MD and CEO, Bajaj General Insurance Limited; Mr. Tarun Chugh, MD and CEO, Bajaj Life Insurance Limited; Mr. Avais Karmali , CFO, Bajaj General Insurance; Mr. Vipin Bansal, CFO, Bajaj Life Insurance; Mr. Ashish Panchal, MD and CEO, Bajaj Finserv Direct Limited; Mr. Devang Mody, MD and CEO, Bajaj Finserv Health Limited; and Mr. Ganesh Mohan, MD, Bajaj Finserv Asset Management Limited.
With that, I would like to hand over the floor to Ramandeep, sir, for his opening comments. Thank you, and over to you, sir.
Good evening, everybody. We welcome everybody to the conference call to discuss the results of Bajaj Finserv Limited, BFS, for Q2 FY 2026. As before, in this call, we will largely be concentrating on the consolidated results of BFS, the results of our insurance operations through Bajaj General Insurance Limited and Bajaj Life Insurance Limited, our emerging companies, which include Bajaj Finserv Health, Bajaj Finserv Direct, and Bajaj Finserv Asset Management Company. Lastly, where material, the stand-alone results of Bajaj Finserv. Bajaj Finance, BFL, and Bajaj Housing Finance, BHFL, other major subsidiaries of ours, have already had their conference calls, and hence, we would pursue only very high-level questions on these two entities.
To start with a few hygiene points, as a word of caution, we affirm that any statements that may look forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. Let me also give you an update on the basis of accounting across our companies. As required by regulations, Bajaj Finserv prepares its financials in compliance with the Indian accounting standards, IND AS. However, the insurance companies are not covered under IND AS currently. They have hence prepared IND AS financials only for the purpose of consolidation. Accordingly, for Bajaj General and Bajaj Life, stand-alone numbers reported in our deck are based on non-IND AS accounting standards, Indian GAAP, as applicable to insurance companies today. We also confirm that our results, the press release accompanying the results, and our investor deck have been uploaded on our website within half an hour of our results.
Now, to just give an update on our joint venture with Allianz, I'm happy to confirm that necessary approvals for the acquisition have been received, namely from CCI, IRDAI, and also the approval for name changes of the two companies have been received from ROC. Post these approvals, the names of our two insurance companies have now been changed to Bajaj General Insurance Limited and Bajaj Life Insurance Limited. We are now preparing to conclude the acquisition of Allianz's stake in our insurance companies in the next few months. Let me now give you a high-level update on the consolidated financial results for Q2, which have been put up in a press release issued earlier today. The consolidated total income grew by 11% to about INR 37,400 crores versus about INR 33,700 crores for the same quarter last year.
Our consolidated profit after tax grew by 8% to INR 2,244 crore, up from INR 2,087 crore for the same quarter last year. As we know, this gets a little vitiated by the MTM gains and losses from the insurance subsidiaries, and hence, excluding the MTM movement of the insurance companies, if you look at the profit growth, as compared to the reported growth of 8%, the growth would be a healthy 12%. Let me now deep dive and give you further texture on the performance of each of our companies. To start with Bajaj General, as we know, effective 1st October 2024, as was mandated by IRDAI, premium on long-term products was to be accounted on one-by-end basis, where end is the contract duration. Hence, the Q2 FY 2026 numbers are not comparable with prior years.
The change in accounting, however, has no material bearing on the underwriting profits and profit after tax, but impacts the gross written premium and the combined ratio for the period. The gross written premium for Q2 for Bajaj increased by 9% to INR 6,413 crore versus INR 5,871 crore for the same period last year. However, excluding the one-off impact, the growth was a healthy 13.6%. In terms of GDPI, the growth was 9.3% and against the market growth of only 1.8%. We also disclose our numbers of GDPI, excluding the bulky tender-driven businesses. If you look at the growth of our company, excluding these bulky businesses, which is Crop and Government Health, and excluding the impact of one-off, the growth is healthy, 18%, as against the industry growth of 13.4%. Good for a half to 5% delta above the market in terms of GWP growth.
The GWP growth is largely driven by the profitable commercial lines, which include fire, marine, engineering, and liability, and also the motor and miscellaneous lines of business. Moving to the underwriting loss, the same stood at INR 92 crore for the quarter, as against INR 48 crore reported for the same period last year. The reported combined ratio stood at 102.3%, as against 101.4% for the same quarter last year. Excluding the impact of one-by-end regulations, the combined ratio for the quarter stood at 101.4%, flat compared to the same period last year. Underwriting losses, as indicated earlier, are little on the higher side, impacted by higher acquisition costs with the focus on writing preferred lines of business. While higher than 100%, we believe that the combined ratio for Bajaj General will still be amongst the lowest in the multi-line market, with the ROE reasonably above 20%, excluding the surplus capital.
The profit after tax for the quarter stood at INR 517 crore, as against INR 494 crore last year, an increase of 5%, as indicated earlier, impacted slightly by the higher acquisition cost during the quarter with the focus on preferred business segments. The AUM for the period ended 30th September 2025 stood at almost INR 35,000 crore versus close to INR 32,000 crore for the same period last year. In summary, in a market which is intensely price competitive, Bajaj General has once again been able to outperform the market both on top line and bottom line. This operating result, we believe, displays Bajaj General's commitment to a balanced and a profitable growth on the back of a deep and a broad distribution and prudent underwriting while focusing on best-in-class customer service. I'll now move to Bajaj Life.
Bajaj Life 2.0 was initiated in the second half of last year with focus on sustainable and profitable growth. We believe that the outcomes in Q2 are as expected, with top line flattish and VNB growth and NBM margin expansion in line with our plan, backed by changes in product structures, as was indicated earlier, and cost optimization. The impact of change in strategy is now reflected for the third quarter in a row, and Bajaj Life registered highest-ever reported VNB and NBM numbers for the quarter and for the half year. During the current quarter, the company's profitability was impacted by changes in the GST regulations applicable to all the retail life insurance products, particularly due to the loss of input tax credit. The VNB for Q2 is reported at INR 367 crore, as against INR 245 crore for the same period last year, a significant 50% increase versus last year.
The new business margins were up at 17.1% for the quarter, as against 10.8% reported for the same quarter last year. Retail protection grew at 71% with 8% contribution to the overall retail-weighted receipt premium, and the group protection grew 23%. On the back of continued strong renewal premium growth of 30%, Bajaj's GWP grew 28% during the quarter. There were some persistency dips observed across some cohorts in line with the industry, which is being worked upon by BALIC. On overall retail-weighted receipt premium, while the growth was flattish in line with our plan, the product mix for Q2 was well-balanced and stood at par with 21%, non-par savings at 20%, term at 8%, annuities at 9%, and ULIPs at 43%.
Bajaj Life has been increasing its focus on retail protection, which I indicated earlier, has grown at 71% to INR 1.44 billion for the quarter versus INR 840 million of premium for the same quarter last year. The profit after tax for the quarter stood at INR 130 million, as against INR 1.48 billion for the same period last year, largely on account of a steep pack down of INR 1.12 billion. Bajaj Life ended the quarter with the AUM of INR 1 lakh 32,060 crore. Overall, the quarter for Bajaj Life is in line with the expectation and on the right trajectory of sustainable and profitable growth. Finally, both the insurance companies are financially amongst the most solvent in the industry. Bajaj Life with 346% solvency, Bajaj General at 339%. Hence, we are well placed to weather any external adversity.
With respect to the two insurance companies, we welcome the government's landmark GST reform aimed at making life and health insurance affordable and accessible. We have ensured that the full benefit of the GST exemptions are passed on to the customers. While the withdrawal of input tax credit may create short-term pressure, we are confident of managing this in the next couple of quarters. We also believe that the GST exemption on retail life and health insurance premium is a tailwind for the industry in the medium to long term, as it makes insurance more affordable and accessible to all. We would also like to reiterate that insurance is a long-term business, and we remain steadfast in our commitment to drive profitable growth, create sustainable value, and always prioritize the interests of the policyholders. Let me now move to the lending businesses, BFL and BHFL.
For Bajaj Finance, a good quarter on volumes, AUM, OpEx, and profitability. Number of new loans booked in the quarter was at about 1.2 crore, as against 0.97 crore for the same period last year, a growth of 26%. The company's diversified business model has enabled it to record a strong AUM growth of 24% at INR 462,000 crore, as against INR 374,000 crore in the same period last year. Net total income grew by 20% to about INR 13,170 crore, as against INR 10,946 crore for the same period last year. Profit after tax grew at a healthy 23% during the quarter, up to INR 4,948 crore from INR 4,014 crore. OpEx to net total income improved to 32.6%, as against 33.2% in the previous year, with green shoots of AI initiatives now visible.
The net losses and provisions for the quarter were up 19%, and the credit costs remained elevated, largely due to the two and the three-wheeler segment and the MSME business. However, the company has cut about 25% of its unsecured MSME volumes, and thus the AUM growth for MSME lending will be close to about only 10%-12% for the full year, 2026. In terms of our gross and net NPAs, they stood at 1.24% and 0.6% respectively as of 30th September, as against 1.06% and 0.46% for the same period last year. We believe that we will continue to be amongst the lowest in the industry as far as NPAs are concerned. The capital adequacy remains strong at 21.22%. Moving to Bajaj Housing Finance, a stable quarter with AUM growth of 24% despite heightened competitive intensity and higher portfolio attrition.
Growth was very well distributed across all the business segments. Home loans AUM grew by 19%, loan against property by 29%, lease rental discounting by 35%, and developer finance by 25%. Net interest income grew 22% to about INR 1,097 crore, as against INR 897 crore for the same period last year. Operating efficiencies in terms of OpEx to net total income improved to a healthy 19.6%, as against 20.5% for the same period last year. Healthy asset quality was maintained with gross and net NPAs standing at 0.26% and 0.12% for 30th September, as against 0.29% and 0.12% for the same period last year, which we again believe is amongst the lowest in the industry. Profit after tax grew at a healthy 18% to INR 643 crore. Capital adequacy was at a healthy 26.12% for the period ended 30th September.
In summary, another very strong quarter for both our lending companies, Bajaj Finance and Bajaj Housing Finance Limited. Now, let me give you an update on our emerging companies. To start with, on Bajaj Finserv Health Limited, in quarter two, Bajaj Finserv Health did about 6.2 million health transactions versus about 2.4 million transactions for the same period last year, which were accelerated significantly through a few large government contracts and commencement of OPD business with few insurers. Bajaj Finserv Health continued its expansion of provider network, which includes about 133,000 doctors, about 5,700 lab touchpoints, and about 16,000 hospital tie-ups. Utilizing this network strength and its tech platform, Bajaj Finserv Health is able to offer integrated OPD, IPD, and wellness experience to both retail as well as corporate customers, which is a unique proposition in the market today.
During the quarter, the revenue from operations has grown at a healthy 22%. Moving to Bajaj Markets, during the quarter, the BFSI lending disbursements by Bajaj Markets stood at about INR 1,549 crore, as against INR 1,210 crore for the previous quarter, which is quarter one of financial year 2026. The company entered with a total unique partner count of 101. The top line for the company, however, has registered a planned degrowth from INR 164 crore last year's same period to about INR 90 crore for the quarter this year, which is attributable to decrease in loans and transacting customers during the quarter. The degrowth was planned due to a system migration for frontline sales, and the company is now migrating to SFDC as a tool for managing CRM for the frontline sales. There has been no capital infusion in the company since March 2022, showing capital efficacy of the company.
On Bajaj Finserv Asset Management Limited, the AMC company continued its good run, recording an AUM of INR 28,815 crores as of 30th September, moving to the 25th position amongst the 47 mutual fund companies in India in terms of AUM. As of date, the company has already crossed an AUM of INR 30,000 crores. The AUM grew by 15% from the immediately preceding quarter and 77% from the same period last year. We believe that Finserv AMC is the fastest to cross the INR 25,000 and the INR 30,000 mark in less than two full years of operations. The equity mix for the AMC companies stood at a healthy 52%, and the non-group share of AUM constitutes about 86% of the total AUM. That is from my side on the performance updates.
Before we open for questions, considering the paucity of time, I request the audience to keep their questions brief so that we can cover more queries during the call. With this, I invite questions from the audience.
Thank you very much. We'll now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from Mehak Rohra from Emkay Global. Please go ahead.
Yeah, hi. Thank you for the opportunity. So my question was on BALIC.
We just wanted to understand the breakup of this 140 basis points impact on NBM margin, which is on account of GST. If you could just help us with the breakup between the renewal and the business done after 22nd September, that was one. Secondly, how do you look to kind of mitigate the impact of GST ITC losses? Will you kind of revise these distributor commissions, or how do you plan to mitigate this impact? These are my two questions.
I'll just answer the quantitative bit for Vipin to handle, and then maybe I'll come to the qualitative one.
Yeah. On the H1 basis, we have 140 basis points impact on the NBM.
Sorry, it was sounding a little distant.
Okay. Is this better?
Yes, sir.
Yeah. On H1 basis, the impact on NBM is 140 basis points on account of GST.
50 basis points of this impact is backbook. That is for the business that was written from April to 21st of September, because on the renewal commissions that we will pay in future, we will not get ITC credit. So that is 50 basis points out of 140 basis points. Rest, 90 basis points is for the business that was written from 22nd September- 30th September. Now, while I will call this out, it is important to note that the business mix that was issued from 22nd September- 30th September was skewed towards non-ULIP because we had given an option to the customer that you could decide to have your policy issued immediately or wait for GST exemption to kick in. In the case of most non-ULIP customers, they chose to get it issued after 22nd September, which was logical because it was becoming GST exempt.
Hence, the 90 basis points that we are talking about is only reflected for that eight-day period, nine-day period, and that has a skew of, like I said, non-ULIP mix. If I was to annualize this, this is the mix that we typically operate, and if you were to do nothing on ITC or the GST, as you were saying, the impact should be about 450 basis points. Mehak, that helps?
Yeah, yeah, yeah. Perfect. Secondly, on how would you look to mitigate this whole impact?
Yeah. This is in the works. Mehak, some actions we have already taken on, and I must say that quite successfully. A lot of this has been in terms of product structures and product mixes, and that is something we shall keep working on for the next two quarters.
We are also in discussion with distribution on how to take this burden of GST, which overall, I think, other than the ITC part, the rest of GST has already helped in growth, and the tailwinds are setting in. It is quite obvious that customers are seeing prices are down. We are now working with distribution, and not just us, but the sector together on how we can share this ITC burden with our distributors, our vendors, and of course, how we can ourselves parry it down. We expect another two quarters for settling this entire process and taking all measures that we are intending to take. I guess by the end of that, we should be firmly placed.
Got it. Got it, sir. Thank you so much, Bajaj, for my time.
Thank you. Participants, you may press star and one to ask a question.
Next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.
Yeah. Thank you for the opportunity. So if I may get the impact of, say, 140 basis points of the VNB, then you almost reported maybe closer to 16% margin or more than 16% margin for 1HFY 2026 compared to 9.2%, what you reported last year. In the presentation, you mentioned that it is product mix, cost rationalization, and better product margins. If I want to break down this 7% delta improvement in the margin, if you can give a bit of color, how much was led by product mix, cost rationalization, and maybe better margin profile of the products, basically, just to understand a bit more whether this is sustainable or not. That's my first question. Second, on BALIC, it is largely on you will enter into a favorable base now from second half.
Can we expect growth to come back in teens for you in the second half, or will the disruptions with respect to GST renegotiating commissions have their own bearing, and therefore, growth for the full year can still be pretty muted or might be a little difficult even in the second half? These are the two questions I have.
On BALIC. Yeah. Sanketh, let me pick up broadly the walk of the margin that you spoke about. Look, we have mentioned in the past the cost optimization that we were doing. That is giving us anything between 100 -1 25 basis points of margin expansion. That is with respect to cost. If I have to give you a broad breakup on the mix, I think anything about 400 basis points is coming out of the mix.
Rest is coming out of product repricing, and then there'll be obviously some compensating items because, like everybody else, our credit protection business continues to see intensive competitive pricing pressure, and there we are seeing some margin compressions. That is offsetting. Our volumes are a little low, so cost absorption is making an impact there. Broadly, if you were to ask me, cost would be about 100-125 basis points. Product mix would be about 400 basis points. That is broadly, I could talk to you about 500-525 basis points. I think rest would be multiple line items there.
Understood. Understood.
Vipin, from the full year point of view, you think we will have this delta of 500-700 basis point net of earnings, not factoring the GST negative impact, will be hold up, or if I take an annualized impact of 450 basis point on the margin, is it safe to say that we will end up at a high-teen margin for the full year?
Let me break that into two parts. First, like Ramandeep said, look, we started this journey in the second half of last year, and March was the first full quarter where this entire change of Bajaj Life 2.0 was starting visible. March quarter was 4% margin expansion. June was 4.2%. This quarter, depending on whether you look gross or net of GST, we are upwards of 5.5%.
Having run that for three quarters, it does give us confidence that the journey that we took on margin expansion, we are on track. Now, I think at this point of time, I would not want to hazard a guess whether it will be 4%, 6%, or 7% margin expansion, but I think we are looking at a significant consistent margin expansion, and I think that strategy is working well for us. I mean, to call out, it is not only margin. Absolute VNB value is also growing. That gives us a lot of confidence that our strategy is working. Now, having said that, like Tarun also mentioned, I think probably two quarters, we will have this noise or impact of GST. It is a transient impact. We do believe over the next two quarters, we should be able to mitigate most of it.
I do not know if I could answer your question on full year basis for this year because there will be a noise around H2. Had that not been there, I think our confidence level in terms of margins that we have been saying that it should expand in the range of 4%-6% in this year would have definitely happened.
Understood. Understood. On the growth, the second question which I asked, given we will have VMIPS, yeah.
Yeah. I will just step in on that, Sanketh. Yeah, you have got it right. The studied strategy that we had on a flattish four quarters is over, and that ended September. Here on, you should see a significant trajectory on growth. I would, at this point, not hazard a guess, but it would be above the industry, but I would not be surprised if it is.
I think this is supported by the fact that the GST impact in terms of the tailwinds that it's giving will also be a significant part. We've already seen growth coming in the proprietary sales, in the bank assurance side. Agency, of course, some legs are still not steady, but bulk is under control. We expect that that is unfolding, and that will be more visible now in this coming quarter. Base effect, notwithstanding, it'll still be a favorably good quarter, I assume, in terms of the top line. No worries on that count.
Understood. Understood. Thanks for the answers. Now, just on Bajaj, a couple of questions, small questions. See, when I look at motor business, there seems to be a significant divergence when it comes to OD growth and TP growth.
Maybe you just wanted to understand this divergence will continue or how it will play out. Related to that, given the TP growth is very strong, no price hike, and this loss ratio, what you are reporting around 59% in TP is really sustainable or not is the question I had on motor. Second thing is that the group health, PA and retail health growth being muted in first half, with one by an accounting trading in second half, can we expect the growth to go back in high teens to 20s in two weeks?
Thank you for the question. I think first and foremost, if you have seen our philosophy for a long period of time, it is very simple. We try to maintain our market share in all lines of businesses and pick up good risks and serve the customer very well.
I think it's a very simple philosophy that we follow, which we have been doing for so many years. The question on TP, we look at our TP market share had become lower than what our OD market share was. If you currently see, and that's why you see this difference, we are trying to get that to be where it is. That, in a way, brings us to the place where it is. On the price hike of TP, for quite many years, it did not happen, which means that our belief is that it should happen very soon. Now, how soon will that be? That we can't tell because the government decides that. Because it's been overdue for quite some time, it should happen soon. That is why our belief is that this should play out well.
On the group health and PA perspective, see, if the market does not give an opportunity to pick up risk at our price, which we feel is right, so that we will serve the customer well, then we do not do that, which is how it is. When we see that opportunity, we do that. To tell that whether in the next half we will pick it up or not pick it up, it will all depend on the market and the pricing that we are comfortable with. The moment it reaches the range where we are comfortable with, then you see that we pick up the business which is there. That has been our consistent philosophy for many years, and we continue doing so.
Thank you for the question. Okay. Sanketh, I will just add to Tapan's point.
See, I'll just give an indication on where the TP growth is also coming from, and that also takes us to the point which I'm sure somebody will ask in due course on the higher acquisition cost. If you look at our two-wheeler new market share, as you recall, a few years back, it used to be at 3% levels. We had moved it up to about 8%-9% levels. For the quarter, it's hovering around 13.5%-14% levels. Because we end up paying commissions upfront for five years, that's why the acquisition cost has moved up. This also leads to your point on TP being higher. As we know, in two-wheeler, the proportion of TP is much higher, and that's why you're seeing TP growth also higher.
There are some segments which we know will deliver profits, and hence the focus is there. Like Tapan said, we will have to, while we are endeavoring to grow TP market share, where we were lagging, we will also have to see how we manage the profitability on that front. Also, on the point you made on health, see, there are two elements. One is you spoke about the government, sorry, the group health. Tapan answered the GMCPs. The other point which you said is true that from the base, now the 1.8 impact will get neutralized to some extent, so that we should start seeing some benefit of that in the reported numbers. However, anyways, we have been reporting growth excluding 1 by N, so anyways, we have been transparent on that.
To the other point on retail health, also, if you see, while our growth is looking muted, but that's also because of long-term business. While I think we reported muted growth of, I think, less than 1% for the quarter on retail health business, but if I exclude the impact of 1 by N, the growth is actually 11% for the quarter. In fact, if I see the growth for the month of October, it's about 15%. That's how the numbers are shaping up.
Thank you, Ramandeep. This is very useful. It clarifies my question.
Thank you very much.
Thank you. Next question is from Madhukar Ladha from Nuvama Wealth Management. Please go ahead.
Hi. Thank you for taking my question. First, congratulations on a very strong result in BALIC. We're seeing a very sharp increase in margins and VNB.
My question was more related towards the product mix. I think you've been able to change the product mix very successfully towards higher protection. Even on a quarter-on-quarter basis, we see protection has grown very strongly. And sort of non-PAR and annuity also, which are the higher margin segments, there also we're seeing a good pickup. I wanted to understand what is driving it and how sustainable, in your opinion, is this growth and protection. Obviously, I'm guessing there's also a tailwind on GST. Some comments around whether this has continued in October and how you would see this in the second half will be helpful for us to sort of judge what the margins can be for FY 2026 given the hit of ITC is also there, right? Some comments around that would be helpful. Thanks.
I got bulk of your question, Madhukar, and I'll attempt to answer that. If you feel that I haven't answered perfectly, you please append it. Thanks for acknowledging the fact that we've been able to get the product mix altered significantly. This is exactly what we told you a year back. The results have been a little better than what we expected, honestly, exactly as you are also kind of commenting. More and more, we've seen that we've still got significant room to move on the production side, and the story is still consistently there. For example, I'll just give you some, I'll just throw some data points. 33% of our customers are getting onboarded as protection term customers. 17% of our customers additional to this are getting added on some rider or the other.
Very clearly, 50% of the customer base has some element of protection easily in it. We did see an opportunity, and we did find an innovation opportunity on the annuity side, which was vacant, and we were the first ones to make the move. In fact, if I might so claim that on annuities too, we were the first one with the deferred annuities a few years back. Now we've been moving on the maybe short-term pay annuities, which has worked well, particularly in the 50-70 age band. In addition to it, about 10% of our high-assured units is about 8%-10% of our entire mix as well. The unit part has also moved. All of this was kind of mentioned to us and promised to all our stakeholders last year, and I think we've come alight on that.
There is innovation more so in term as well, which we've done, which maybe, as let it succeed, we shall disclose. This is already showing the good green shoots that you see, and I'll claim more when I've consistently got that experiment working on term, which is a different segment of approach. All this, I think, more to come as we go. I think we've been surprised and pleasantly surprised and are more bullish about the direction in which term plans can go. As you work on the Excel sheet, your second leg of your question, yes, we will be holding this product mix broadly in the medium term. Again, we don't have any worries on this. As last year, we had moved to BALIC 2.0, there were significant steps we took, not just on product mix and product structures, but also on cost optimization.
If I may, that cost optimization, there is still room in that direction, and you will see that in the next 18 months, more and more of that happening. Yes, the direction is positive. Have I answered your question, Madhukar, you believe?
Yeah, most of it. Just on protection, in the first half, I think the growth is almost 70% year-over- year. Some sense on what is driving it? Do you think it is initial sort of GST reduction, and it would sort of come off after some time, or is there something more to it?
I think in a growth, Madhukar, year -on- year is a difficult one because the base has already gone up. I think it's more to do with every channel basically picking it up significantly.
The GST impact, only we've just about seen how much, about a month of it, and October as you said. Yeah, less than that. Yeah, yeah. The GST impact, if any, the whole sector will still get the benefit of that for the future. We've been working on our underwriting analytics. I had talked about our analytics a few times earlier, profiling of customers, pre-profiling, democratizing it more in business channels, and I do see some headroom even more available there. The way we worked our term strategy, like we do any other strategy, is ground up, segmented, and not just one fit all. I think that's been working. Our processes with AI at the back end, digitization has worked out quite well. Like I said, we'll talk about more of this as the experiments go ahead. I think we've been working very effectively. Yeah.
Madhukar, I think two things here. If you look at the 70% output that you're talking about, I would just draw your attention to looking at this data for the last 18 to 24 months, and this retail protection growth has been largely consistent. I think that's point number one. It's not that it just came this quarter or this actual. It's been consistent for the last 18 to 24 months. I think point number one. Point number two, to what Tarun alluded, when we came in and talked about BALIC, Bajaj Life 2.0 last year, similar time, these were all conscious efforts, thought through with set-out actions that we had in our mind.
As we called out earlier, and as I did mention earlier, I think as we were executing this, it was all about what we had planned for and how do we execute them. I think we have been pretty successful in executing what we had planned for. We have said that in medium term, that is in about two to three years, our term protection share should be 10% odd. I think we are rightly headed in that direction.
Great. Congratulations and all the best.
Thanks. Madhukar, just to add, I think when you look at the life business, a very long-term business.
If you look at the history of BALIC, at least over the last seven or eight years when we started the transformation, I think 2018, without any external regulatory change or anything, we took a call that we want to reduce unit from 72% by taking a big jump onto the traditional business. It did result in one year of lower growth because ticket sizes for traditional business were much lower, but I think the team executed very well. The last three years, we have seen several headwinds. We had first the tax on unit and the tax on traditional and the surrender charges, and now the GST. Each of these really requires the company to review where it stands.
We have started BALIC 2.0 with a very clear intention that we want to focus on consolidating the growth that we achieved in BALIC 1.0 with a greater focus on profitability. I think at least the results so far this year indicate that BALIC is on the right track. The number of customers are growing. The percentage of customers who are going to be profitable in total mix are growing. We have cut out businesses which we believe will not give us profit. At least a small segment of customers who disproportionately contribute to the losses have been avoided. All this has come through a mix of product and distribution strategies. As we go forward, I think this will remain the principle of BALIC, and we will continue to focus on this. There are other headwinds as well.
For example, the yields coming off has taken a bit of a hit on the non-PAR guaranteed business because they're no more as attractive as they were till about a year and a half back. These things cyclically will play out. The question is how nimble you are in terms of your ability to adapt. Group protection is another one which is showing good growth of 23%. In the last two years, we have seen because it is based on the lending of the banks and NBFCs, it has been a bit volatile and patchy and not that great. Now it has started picking up. Our smaller banks, which we tied up the last few years, are growing significantly well, which is also adding to margins.
So I think overall, when I look at it long term, the company is positioning itself in the right manner in terms of product mix and the distribution mix.
Great. Thank you. All the best.
Thank you. Participants, you may press star and one to ask a question. Next question is from the line of Nidhesh J ain from Investec India. Please go ahead.
Thanks for the opportunity. First question is on listing of life insurance and general insurance business. Any plans to list these companies separately given that in the past we have heard that there is a regulatory push also to list larger life insurance and general insurance companies? In the last deal also, your promoter group has taken a stake in these companies. Any plans to simplify the structure or list these companies in the medium term?
I'll take that.
I think at the moment, our focus is on completing the acquisition while we have changed the brand and effectively are in control now. The transaction is not complete yet. It will get done over the next few months. At least a substantial portion of that will get concluded. That is the first step. We are also with a new brand in place for the next one year. We have to be very watchful in both the companies in terms of retaining the business and ensuring that we continue to grow and establish the Bajaj brand in a more firmer way. Not that it is not known, but I think it's a change of brand for the company. After that, we will have to review. It is something I don't think in the next two, three years we are seeing anything. We have other developments in the industry.
We have Ind AS coming up. We have RBC coming up, and IRDAI is making progress on that with successive interactions with the companies. I think in the next two to three years, they will all play out. They have a big impact on the way numbers are reported, how the profitability is measured, and it could have some tailwinds as well. At least our preliminary look at it seems to indicate there are some positives, especially for companies which have significant solvency. Therefore, we are positioning ourselves. Once that plays out, we will review it. We do have excess capital in both the companies. In the case of life, we are consuming it, and hopefully, we are consuming it very well for the right products and the right growth. In the case of non-life, we are generating capital. We will review that.
I think the boards of the companies will review it at the appropriate time. If you ask me, next two to three years, because of all these external developments, we also have the insurance bill, which may come up anytime, which has these changes in the insurance act with 100% FDI, potentially composite licenses, ecosystems, many things. All these have an impact on how we look at your long-term strategy. Therefore, we will wait for all these to play out before we take a view on what to do with this.
Sure. The second question is on Bajaj General Insurance. In Bajaj, we have been in the past, we have been operating at below 100% combined, but in the last couple of years, the combined ratio has been consistently above 100%.
What are the reasons for that, and how do you see the possibility of combined ratio below 100% over the medium term?
The point to be seen here is if you look at the industry combined ratio, it has been over 115%, between 115% and 120%. Bajaj has been beating the industry combined ratio by a full 15 percentage points. It is not percentage percentage, but a full 15 percentage points, and consistently for so many years. Even now, when you see the delta in combined ratio, and Ramandeep mentioned that in the opening speech, 1xN also pushes it up by at least a percentage point, which is up there. Secondly, when you acquire businesses which have acquisition costs being paid upfront, the accounting puts it like that.
That is why Sreenivasan was alluding to, if you look at the accounting system which is internationally followed, then the combined would be much below 100. It is there. When you are growing those kinds of businesses, the expense moves up because you are paying it upfront, and you account for it upfront. Also, 1 by N is also playing a bit of a role in that. Broadly, if you see our, I think, ambition has been to be close to 100 at all points of time, which we are doing. What you should be appreciative about is that this is one company which consistently for decades now has been outperforming the industry by a full 15-20 percentage points in combined ratio and still growing the number of customer base, still being like last year also picked up.
We have issued the largest number of policies in the industry. Nobody's even close to us. Growing the customer base, capturing market share, moving up the ladder, and maintaining this delta in combined ratio. This is what I'd be very surprised to find more companies which can deliver these kinds of results consistently for such a long period of time. That is why it is. It's not a question in which you should feel alarmed or something. It is just the way it is structured. If the new accounting system is for internationally, if you look at it, then the combined comes way below 100 when that comes into play. That's what Sreenivasan was alluding to when he spoke about what the regulator is looking at in terms of bringing those accounting systems, which is being followed internationally.
I think, Nidhesh, one more thing you had to notice is that in the long run, any P&L business like general insurance is an ROE business.
Nidhesh, do you have a question? Sreenivasan, what's your question?
Yeah. I think what Sreenivasan is also alluding to is that if you look at, and if you bring the capital, though requirement is 150 for solvency, even if you take it at 200, and Ramandeep, correct me if I am wrong, the ROE for Bajaj is over 20%, even currently. I think around for second quarter is 27% or so ROE that we're delivering. This is the kind of return on equity we're delivering. That, again, when the industry equity ROE is at 3%. The outperformance of Bajaj to the industry is by these margins, which should be there.
Sure. Hello. Nidhesh, one more thing.
This is happening as we indicated earlier that we are writing more and more of longer-term business. For example, what I indicated earlier on the two-wheeler side, three years back, my market share on two-wheeler was only 3%. This quarter, it was 13%. Having to pay upfront for five years of commission, that causes new business in the life sense, what we call it. That is one reason why the combined ratio is looking elevated. Similarly, even on four-wheeler, our market share is now hovering above 9%, which used to be close to 7.5%, is what I remember three years back. Overall, our long-term businesses are much higher than the industry. That is why we are, in the last few years, you have seen this delta. Sure.
In the motor business, I have noticed that motor OD loss ratios have increased to 71%, which is on the higher side versus that historical trend. Any trend reversal in this business or just a quarterly blip? It is just a quarterly blip. We will come down by the year end, is what we believe. With all the actions we are taking, we will come down to normal levels for full year is what I believe. I think, Nidhesh, historically, whenever there is an increase in loss ratios, Bajaj always puts in place a risk reduction mechanism. We have a very 20-year history of being able to come back by looking at segments where we should slow down, where we should get more aggressive. That process will continue. Every time there is a blip, there will be action taken by the company.
Eventually, it takes a bit of time because it's a one-year contract. It may take three-six months for it to play out, but we will continue the journey and we'll continue doing the right thing, what we have done in the past. At least in the blip also, see, what happens is in the beginning of the year, the OEMs increase their charges for labor, spare parts. This happens like in most of the years, you'll see this blip initially happening. Like Sreenivasan said, the company keeps on taking corrective actions, and then it gets it there. It will be a phenomenon that you will see in our business because obviously, our claims depend a lot on where it's getting serviced. If the OEMs increase their labor parts, it increases their spare part price, the claim ratio would move up immediately.
If the hospital increases their charges, that would move up. However, how does the company react to it? Is it able to bring it down while ensuring that the customer service is at the highest of order is what the game is. That is what Sreenivasan was saying, that over decades, we do this. This is not, again, to me, a cause of why. The last question is, how do you see the GST impact on motor business loss ratios as well as in the retail health insurance business? If you look at now, GST had two components. One was input tax credit for distribution, which would be there. Second was because of reduction of GST, you saw the increase of car sales happen, which obviously the motor business goes up. Also, you look at retail health business, that also moves up.
At the same time, hospitals also and OEMs also have other benefits and spare parts involved. Now, if they pass it on to customers as was the expectation by the government, that would also bring it down. There we have to see proof in terms of how much they really pass on to customers. That would be those impacts. You will see increase in the business in these lines of businesses. You will see the impact in loss issues. If they pass on the benefit they have in terms of, be it the spare part cost or be it in terms of the medical equipment cost, which would be there and things being put together. This is how it's going to play out overall.
But in terms of the impact on the life, the impact is only on the health and PA business, only output tax side. So proportionate disallowance because of the variety of product lines, many of which continue to be under GST, the company has enough flexibility to be able to manage it in the long run. Temporarily, there may be a bit of blip as these things play out, but we'll wait and see.
Sure. Thank you. That's it from my side.
Thank you. Next question is from [audio distortion] from Wealth Managers. Please go ahead.
Good evening, sir. Thank you for taking my questions. Just wanted to confirm, am I audible, the Operator?
Yes. Yes. Yes.
Okay. Thank you. So again, congratulations to the entire team of life insurance.
I don't want to sound very poetic, but clearly within the Bajaj group, a new star is getting born. We had two stars, and now the third star also coming up. That's a great and heartening thing. It's not after one quarter. It is consistently we have been watching it over a couple of quarters now. A great execution of the strategy which has been there. Just on the question side, actually, there was a question on this listing, and response to that was also about the regulatory changes, and it will help companies with higher capital adequacy, which we have. In the light that now the profitability engine of the life insurance is firmly in place and the fact that at a Bajaj Finserv level, we may have requirements of capital, does it make sense to have a dividend policy?
Will that lead to some correction in the capital adequacy? How do we see that aspect from a parent perspective? Is there any thought process on that?
From a parent perspective, I think the two insurance companies have been paying dividends since 2018, if I'm not mistaken. In fact, both of them have more or less paid back more than the capital that the PFS and our ex-partner Allianz have invested in these businesses. That was already on. Now, as we go forward, this year, obviously, we could not take any dividends because we are in the midst of a change in shareholding. Obviously, you cannot pay a dividend because that's not part of the arrangement with Allianz that we will share dividends with them. Once that is completed, we will review that.
There are multiple things in relation, as I mentioned earlier, in terms of RBC, the IND AS, in terms of composite licenses, and the surplus capital, and the utilization of those capital. By Finserv itself, I think BFL is a dividend-paying company. Bajaj Life are paying dividends. Our capital consumers currently are only our health business and our AMC. Therefore, it is not significant capital that we need at the moment. We are quite comfortable at this stage. We will see once Allianz transaction is over what to do with that capital.
Okay. Yeah. Actually, the second question was also on the line of the health. We have almost infused more than INR 1,200 crore, if I see it right, on that number on the health and this side. When do we see and we are seeing almost INR 30 crore quarterly run, roughly, losses which are there.
When do we see that part turning around? What would be our milestone and benchmarks over the next three years for that business in terms of profitability or something which we can monitor quantitatively and qualitatively both on that side?
Devang, you want to take that?
Sure. Where we look at the health businesses, our objective is to build a differentiated platform which takes care of the requirements of all stakeholders. This ecosystem has quite a few stakeholders. Obviously, the consumer who consumes the healthcare is an important stakeholder, but there are insurers, there are providers, or hospitals or doctors which have slightly conflicting priorities. There is a value creation possible globally. It is seen, and hence it can be done.
Our priority at this point of time is to create digital interface and put health data to use for users as well as payers or insurers and providers. I think two things we are focused on as far as profit trajectory is concerned. One, how do we launch more services which balances requirements of all stakeholders? Second, how do we drive volume which will eventually lead to operating leverage? We are seeing operating leverage play out quarter on quarter, but it needs to steepen up, but it will happen with more and more new services getting launched. That is our broad view on the business. If I have not clarified your question, you can ask again. Since I am not asking a quarterly or a yearly, but from a milestone over three years, do we have anything to look after from a more quantitative aspect?
While qualitatively, you have highlighted what is at play and how to look at it. Anything quantitative benchmarks which we would have internal in terms of the numbers or over a three-year, four-year period? I think we watch two North Star metrics. Point number one, how many health transactions are we processing? That is the most important North Star metric for us. Second, are we able to create use cases from those transactions in sight? Now, that is slightly qualitative, but I think that is the two most important monitorable for us as a business. As far as quantitative financial output is concerned, we are very clear in next to next financial year, we should break even. We will moderate our investment appropriately. That is FY 2027. 2028. 2028. 2028.
I would like to know we are also now started dealing with life companies, Sahi companies, other GI companies, selling riders, products, services. So that's a start we have made, and we want to scale that.
Okay. Great. Sir, I have a slightly shorter just number understanding. My financial understanding on insurance is not very great, so pardon me with that. But just wanted to understand, we have around INR 120 crore or some odd crores impact of the GST which we have taken in the quarter. Is it going to be recurring for two quarters? Is the understanding right, the number? Or is it just all the impact has been taken?
That is one.
That is the impact which we see on the, I think, VNB, but will it also, how has been the impact on, will there be an impact on embedded value or anything on the other side, will there be an impact of that as we go? Sure. Let me answer both the questions. I think the INR 112 crore number that you are referring to is after-tax PAT. Now, you're right. There are two elements to it. Like I mentioned, in case of VNB, there is an impact of all the policies that were issued until 21 September because as we keep paying renewal commission on renewals, we would not get the GST credit, right? Out of INR 112 crore, INR 73 crore is backbook, as we call. This is one-time impact. This is not going to recur.
39 crore is for the business that was written in the last eight-nine days. That is recurring. I will make the same point that I made for MBM. There was a significant product skew in those eight days towards normulin. On an annualized basis, this impact will not be as proportional. I think it is important to understand that the number that you are looking at is without taking any action. As Tarun mentioned earlier, it has been more than two months. It is close to 70 days since the GST changes were announced. We have already taken a number of steps to mitigate the impact on PAT, VNB, and margin. Coming to EV, we have already reported there is an impact that has been reported on our EV. It comes to 44 basis points of EV.
Because our NAV is very high, because we have high net worth, as a percentage of BIP, it is 102 basis points. I think that would be a more rightful measure if you want to compare our backbook impact on EV compared to anybody else. I'm not sure. I think those were two questions you were looking for.
Yeah. Yeah. Yeah. I think I got the answer. Can I squeeze in one more question with the permission?
Go ahead.
Yeah. Sorry. Actually, it's on Bajaj Life Insurance itself. Definitely, we are in the first year of a very significant leg up in our NBMs from closer to 10%-12% kind of range to now, even if we exclude the 17%-19% kind of ranges. And we had these targets of 20%, reaching around 20% we could have.
The question is, yes, it's the early journey. We understand it. It is in sight. It is in sight of us, and we are almost there. The question was, are we now in a position, will we stay in this band for some more time, consolidate, and grow the scale and profitability both? Or do we think we will be looking at the further next journeys from here on over the next three years and more, moving in line with where the tier one margins for players are? Will that be the trajectory, or will we consolidate here first for a couple of quarters or years and then move up the next leg?
Yeah. Mahir, there are a lot of things you've asked on that. Just to be clear, I think we'll take it a step at a time. Yes, there has been a leg up.
I really am happy that all of you are acknowledging that significant change. I would not jump ahead of my time, and I would not make too many forward-looking statements yet. We take it step by step. There is also now the, and we are handling, the entire sector is looking at the GST impact. We are working on it. I guess the sector first has to gobble up that, and then maybe talk of times beyond that. I guess there is going to be another quarter when we will meet, another quarter after that as well. We will then be in a better position to respond to this.
Great. Thank you. I wish everybody all the best for the next quarter. Thank you so much.
Thank you very much. As there are no further questions, I will now hand the conference over to Mr. Raghvesh for closing comments.
Thanks to all the participants for joining the call, and a special thanks to the management of Bajaj Finserv for giving us the opportunity to host the call. Thank you as well. Thank you. Thank you, everybody. Thank you very much. On behalf of JM Financial Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.