Ladies and gentlemen, good day and welcome to the Bajaj Finserv Q2 FY 2021 earning conference call hosted by JM Financial Securities 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 the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I would now like to hand the conference to Bunny Babjee from JM Financial Securities Limited. Thank you, and over to you, ma'am.
Thank you. Good morning, everybody, and welcome to Bajaj Finserv's earnings call to discuss the second quarter FY 2021 results. To discuss the same, we have on the call Mr. Sreenivasan, CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance; Mr. Ramandeep Singh Sahni, CFO, Bajaj Allianz General Insurance; Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance; and Mr. Bharat Kalsi, CFO, Bajaj Allianz Life Insurance. May I request Mr. Sreenivasan to take us through the financial highlights, post which we can open the floor for Q&A session. Over to you, sir.
Good morning, everybody. As usual, it's a pleasure to have all of you to attend this conference call to discuss the results of Bajaj Finserv Limited for Q2 of FY 2021 and the half year ended on 30th September 2020. As before, in this call, we will largely be concentrating on the consolidated results as well as the results of our insurance operations through Bajaj Allianz General Insurance, BAGIC, and Bajaj Allianz Life Insurance, BALIC, and where material, the standalone results of our company. BFL, Bajaj Finance, which is another major subsidiary of ours, has already had its conference call. 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's stake in our insurance companies.
The status has remained the same as at the end of the previous quarter, and there is no change there. Any statements that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. A few remarks on Ind AS. As required by regulation, BFS has adopted the Indian accounting standards from FY 2019. 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, standalone numbers reported below are based on non-Ind AS accounting standards, what we call Indian GAAP, as applicable to insurance companies. Our results, the press release accompanying the results, and our investors deck have already been uploaded on our website yesterday evening. Now I'll come to the update on the performance for the quarter and the half year.
With lockdowns gradually being lifted towards the end of Q1, economic activity slowly started getting traction in Q2, as indicated by many high-frequency indicators. Since then, each of our businesses has experienced a month-on-month growth in the areas they chose to grow, while the risk levels remain elevated. In general insurance, post the lockdown, compact car sales have seen an uptick, leading to growth in four-wheeler sales almost after a few quarters. During the quarter, BAGIC has gained ground in this segment. BAGIC has, however, been conservative in the high-end car segment as pricing is very poor. A large part of BAGIC's motor de-growth is from the commercial vehicle segment, where BAGIC has been more active in the passenger carrying vehicles, which is seen as more profitable. Production and sales of passenger carrying vehicles, as you may be aware, is well below normal.
The demand for retail health insurance continues to be high for the industry. BAGIC reported 39% growth in Q2, which is well above the industry. On the other hand, BAGIC continues to be conservative on employer-employee group health business due to excessive price competition leading to high loss ratios and the potential impact of COVID claims. Among the commercial lines, property fire continues to drive the growth for the industry on the back of IIB-based rates. However, rate increases have been higher for riskier segments, while the more profitable segments have seen lower increases and in some cases, reduction in rates as well. BAGIC has always been focused on the more profitable segments. In the case of life insurance, given the uncertainty due to pandemic and the resultant volatility in the equity markets, we continue to see negative growth for the industry.
Recovery in capital markets from March 2020 levels has helped equity market-linked business like ULIP to some extent. In addition to pandemic-related uncertainty, lower interest rates and risk aversion among retail consumers continue to drive the demand for guaranteed products and protection products. Pure term product, which saw a strong pickup in Q1, has seen moderation in Q2 as the mortality rates in Covid have dropped across the country and on the back of rate increases by most major players in the market. I must also add that in terms of the group protection business, Q2 was better than Q1. However, as you may be aware, the group protection business is largely dependent on disbursement by banks and NBFCs, and that is still below pre-Covid levels.
Despite these circumstances, BALIC has done very well, recording a growth in individual rated NBP of 19% in Q2 as against flat growth for the market, while the private players actually de-grew by 3%. For H1 too, BALIC's growth is well above the market. Both BAGIC and BALIC continue to utilize their digital properties to harness the best possible under the current situation, where customers are restricting branch visits and limiting the face-to-face interaction. All our partners, individual agents, retail brokers, and point-of-sale personnel are being supported with updated digital tools and are being provided with virtual training wherever needed. We have seen a substantial increase in digital penetration across several parts of our distribution and service chain across both our insurance businesses. Further details regarding BAGIC and BALIC's digital capability are covered in the investor deck uploaded on our website yesterday.
Overall, both companies' digital foresight will, we hope, help them navigate through any difficulty and will help them to continue the momentum picked up during Q2. Both companies have been able to recruit agents and POSP personnel in fairly large numbers in this quarter. BALIC recruited 2,428 ICs or agents and 11,000+ POSP during the first half of the year, while Bajaj has also recruited approximately little under 6,000 agents and POSP personnel. A short brief on BFL. During Q2, we could see month-on-month growth in various businesses, and as of the end of Q2, business has restarted across all verticals except EMI cards and wallets, which are on hold till early Q4, till we get all the credit bureau data fully updated.
The focus of BFL was on, A, restarting all businesses, refining loss estimates using granular models, creating back to growth plans, augmenting collection capacity, and implementing business transformation. BFL is optimistic of growth prospects for H2 and expects to end the year with positive growth, better than H1. BFL has also provided an additional INR 1,370 crores for expected credit losses in the quarter and the company has retained its estimate for the full year credit cost at INR 6,000-INR 6,300 of credit cost. At the end of Q3, the company expects to have a clearer picture. I must hasten to add that being an NBFC and covered under Ind AS, we provide expected credit loss based on financial models, and these are expected credit losses across the completion of each of the loan books. The company has very strong liquidity surplus of INR 24,775 crores.
Additionally, they also hold INR 2,582 crores of SLR. As growth evolves in Q2, BFL will be slowly reviewing its liquidity buffer with the intention of dialing down. I will now come to the highlights of our financial results. Coming to Q2 of FY 2021 versus Q2 FY 2020, our consolidated total income was INR 15,052 crores as against INR 14,224 crores in the previous year's Q2. Consolidated profit after tax was INR 986 crores versus INR 1,204 crores in the same quarter of the previous year. More about it a bit later.
Bajaj Finance consolidated profit after tax was INR 965 crores versus INR 1,506 crores. General Insurance profit after tax was INR 332 crores versus INR 294 crores, an increase of 13%. The Life Insurance shareholders' profit after tax was INR 98 crores versus INR 207 crores. Coming to the first half, H1 of FY 2021 versus H1 FY 2020, the consolidated total income was up at INR 29,244 crores versus INR 26,496 crores.
Consolidated profit after tax INR 2,201 crores versus INR 2,049 crores. Bajaj Finance consolidated profit after tax INR 1,927 crores versus INR 2,702 crores. General Insurance profit after tax INR 727 crores versus INR 504 crores, and Life Insurance profit after tax INR 228 crores versus INR 269 crores. Coming to a note on the consolidated profit after tax. The consolidated profit figures for the current quarter and the half year may not be directly comparable with those of the corresponding previous periods for the reasons mentioned below. Firstly, under Ind AS, equity securities held by Bajaj and BALIC are classified as fair value through profit and loss account, and they are required to be marked to market for the purpose of consolidation. While in Q4 of FY 2020, these have resulted in a post-tax negative impact of INR 451 crores in the consolidated PAT.
In Q2 FY 2021 and H1 FY 2021, it has been a positive impact of INR 182 crores and INR 512 crores respectively in the consolidated PAT. Effectively, the provision made in Q4 for a valuation loss of MTM securities has mostly been recovered at the end of H1. In Q2, consequent to the ongoing pandemic, BFL has further increased its provisions on stage one and stage two assets by INR 1,370 crores pre-tax, which negatively impacted the consolidated profit after tax by INR 541 crores. The combined effect of these adjustments in the BFL books as a result of these in BFS's consolidated profit after tax is INR 359 crores in FY 2021 and INR 603 crores in H1 FY 2021. Let me come to the performance of major subsidiaries.
While detailed performance of the subsidiaries is covered in the press release and investor presentation, I would like to highlight a few major points for each of the subsidiaries. For BFL, while BFL dispersed fewer loans in Q2 FY 2021 as compared to Q2 FY 2020, it more than doubled the new loans booked in Q2 FY 2021 versus the previous quarter, which is Q1 FY 2021. That is 3.62 million versus 1.75 million on the back of improved market conditions post unlocking. Overall PAT for Q2 FY 2021 for BFL was lower than Q2 FY 2020 because of the additional provision as mentioned above of INR 1,370 crores. I must stress here that the pre-provision operating profit continued to show strong growth and is more than adequate to cover the excess provisions on NPAs that we are required to make.
Gross NPA and net NPA ECL stage three recognized as per extant RBI prudential norms and provisions applying the ECL method prescribed in Ind AS as of 30th September 2020, stood at 1.03% and 0.37% respectively. Standard asset provisioning ECL stage one and two stood at 3.69%. This includes the additional provisions that we have made based on the ECL models. Without considering the honorable Supreme Court's interim order of not classifying customers at NPA after 31st August, gross NPA and net NPA ratio would have been 1.34% and 0.56% respectively. Capital adequacy ratio including tier one capital as of 30th September 2020, stood at 26.6%. The tier one capital stood at 23%. For Bajaj Housing Finance, a 100% mortgage subsidiary of BFL, the capital adequacy ratio, including tier two capital, stood at 25.97%. Coming to BAGIC.
BAGIC reported an excellent combined ratio of 97.4% in Q2 FY 2021 versus 102.7% in Q2 FY 2020, in turn reported profit after tax of INR 727 crores in H1 FY 2021. This is the highest ever first half PAT that BAGIC has reported in its history. The claim ratio reduced to 74.2% in Q2 FY 2021 versus 75% in Q2 FY 2020. Overall, claims experience was mixed during the quarter with higher claims in health insurance, including COVID-19 claims and property due to heavy rainfall, compensated by lower claims in motor OD segment. While there were lower claims reported in some segments like motor OD, the uncertainty over ultimate losses is quite high for the following reasons. Most of these, I must hasten to add, are industry-level issues.
Motor OD claim frequencies were lower than previous year average, but we have seen are inching closer towards pre-COVID levels, and we can see month-on-month increases. In respect of motor third party, MACT and other courts have been at very low activity, and it is possible that when the orders are finalized, there could be an interest impact for this period during which they have not emerged. Thirdly, reporting of many non-emergency and elective health insurance treatments are still below pre-COVID levels, and there is a risk of higher frequencies when the pandemic subsides. Uncertainty on the quantum of COVID claims as many nations across the globe are experiencing a second wave of COVID-19. Approximately INR three and a half lakh COVID claims have been reported across the industry, and BAGIC's share of the same is sub 4%, in line with its market share of the health segment.
Overall, the average claim size for COVID claims is about 75% higher than non-COVID claims. BAGIC has, based on actuarial models and keeping all the above factors in mind, sought to increase the margin for adverse deviation in its ultimate expected loss provisioning for motor TP while making provision for COVID claims as well. Coming to BALIC. BALIC AUM, represented by total investments, crossed INR 64,000 crores as on 30th September 2020. Again, a historic high. New business premium grew by 11% from INR 1,235 crores in Q2 FY 2020 to INR 1,372 crores in Q2 FY 2021. The performance was aided by institutional business side as bancassurance insurance partners Axis Bank, Bandhan Bank, RBI and India Post started contributing. During the quarter, another significant event was the commencement of operations with Karur Vysya Bank and IDFC FIRST Bank. BALIC has recorded over 30% growth in renewal premiums.
Although there was some pressure on 13 month persistency, BALIC persistency has improved in the longer vintages. Net NBV reported strong growth in H1 FY 2021, growing at 103%, INR 61 crores versus INR 30 crores in H1 FY 2020. This is after absorbing all cost overruns. During the quarter, BALIC also undertook forward rate agreements to protect its liabilities under guaranteed products, mainly in the non-participating segment. On the investment side, most of the stressed investments reported in the past have either been sold or have been adequately provided for. We do not see any stress at the moment on any of our fixed income holdings, and going forward, we may stop reporting specific cases unless there is a reason to do so. Finally, both the insurance companies are financially among the most solvent, BALIC with 730% solvency and BAGIC with 307%, and both are financially very well placed.
As indicated in an earlier call, we have started reporting EV and new business value of BALIC on a half-yearly basis starting this quarter, and you will find the details in our investor deck uploaded in our website yesterday after our board meeting. Overall, the company and its subsidiaries are navigating through this challenge with focus on profitability over growth. They're conserving cash, borrowing long-term where possible, strengthening collections and reducing overheads. This is the period when we have been focusing on strengthening the balance sheet, and I'm glad to say that all our companies have responded very well to this. As a result, all our operating companies have strong solvency well above the required capital while maintaining excellent liquidity. With growth prospects for H2 looking better than H1, all our companies are looking forward to some growth in H2.
With this, I conclude my opening remarks and open the floor for questions and answers. Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Dhaval Gada from DSP Mutual Fund. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I had three questions. On the BAGIC side, could you talk a little bit around the crop claims ratio and overall, given the sort of sentiments being positive on crop yields this year, when should we see the benefit of the kharif underwriting that we've done and any initial expectations around that? That is the first question around crop. The second is related to health
Sreeni, you mentioned around the frequency and our market share in COVID related claims. I just want to understand, while providing the extra claims provision, what is the kind of assumption that we made and till what point we are covered, if you could give some broad indication just to monitor the trends on that part, that would be quite useful. That is on health. Coming to the group level, just wanted to hear some of the broad strategy plans around Finserv Health and the mutual fund business, and the amount of capital that these two businesses are going to take. Overall, if you could share some broad targets and some more detail around these two businesses, that would be useful. Yeah. Those are the three things. Thanks.
Dhaval, I will broadly take the first question on crop. Typically, Q2 is a kharif season when the sowing and the harvesting happens, but the claim determination usually happens in Q3. We are generally quite conservative in Q2. Based on the data available, we tend to be a bit conservative in provisioning based on data available. As of now, I would leave it to Tapan and the team to answer that question later on. If at all there is any final adjustment, that will happen in Q3. The second question was on COVID claims that I would let Raman handle this after that or Tapan, as to how they have approached the provisioning issue on COVID claims. The third question, which is at a BFS level, you have asked about the BFH and the mutual fund business.
We mentioned in the last investor call in our press release, we had identified that the board had approved setting up an AMC. In this quarter, we have applied for an AMC. At this stage, we have nothing further to communicate. We are working on what kind of AMC we would like and what approach we want to take on the AMC. The process of licensing is likely to take some time, and by that time we would have better clarity on exactly how we want to do it. At this moment, we do not have anything. We are still working out the strategies. At this moment, I have nothing further to communicate. For the Health Business, as of now, our capital commitment is a little over INR 100 crores and we will continue monitoring it. The business is just getting built.
We have launched the company and the new product, the Arogya Care app. It is a platform which will connect the users of healthcare systems with the providers of healthcare. The providers of healthcare, like you have doctors, you have pharmacies, you have diagnostic centers, you have clinics. All of them will get access through this platform, a fully digitized online platform. On the other hand, you have customers wanting to traverse the entire healthcare spectrum from finding a doctor, getting treated, outpatient treatment. This company will also provide insurance as part of the customer's healthcare journey. We will also have a data focus on that, allowing customers to store their medical records and subject to obviously the entire legal law on data protection and privacy. As we go forward over the next few quarters, we will get better picture on how this is evolving.
Our initial pilots have indicated there's a very strong market for this, and our companies have been working over the last year and a half in building the right kind of platforms, and now we have launched our product. I'll hand it over to Tapan and Raman to answer the question on crop and the COVID claims.
Okay, this is Tapan here. First and foremost, let's look at the crop business. I think I maintained over now quite some time that as a company, we work on all businesses. We learn, we work hard, and we ensure that we are able to understand the business and do well. We have been doing crop from the very beginning, from when the government started it. We've been consistent about it. We try to keep our crop portfolio up to the market share of the company that we have. We don't try to be overweight or underweight in it. That is the strategy we've been following consistently. On the loss ratios of kharif, like Sreeni mentioned, this develops in the third quarter when it comes through.
If the year is good, then we obviously make much more profit and that gets reflected in the third quarter when it comes through. If it's not been that good, obviously that depression comes in the third quarter results, which would be coming over. That would be on the crop business. If you look at our reserving, I think what we did was very early on realized two things is going to happen. The initial euphoria that the industry had of low loss ratios in motor and health was, as per us, not the right euphoria to have for two reasons. If you look at the study of COVID claims, we had thought about is it going to build up, which we had building up. We also look at the SARS study in Hong Kong.
We can always go back to history and see what has happened in the previous era when things like this happened. When SARS happened in Hong Kong, the initial hospitalization dipped, and then it peaked up again because all people who had to go to hospital had been avoiding it. The moment they get comfortable, they start going again. Claim ratio starts moving up. Just because of the initial dip, one should not take it as the profit with the industry is building up on. If you look at motor also, on the own damage part, there would be a drop in frequency in initial stages. You look at the courts are closed, so TP claim settlement is not happening.
When you look at TP claim settlement, they also allow for provision of interest on the delay what happens in terms of settlement, which means that when the claims get settled for TP claims, the quantum would be much higher compared to normal times. All that is getting built up in claims, which obviously at the initial stage also we thought through. That is why we increased the severity and we have total provision over INR 300 crores. Which as of now we feel is sufficient for these two instances to play out on and as they play out on, because we've built it in, that shock we will be able to absorb. That is why the company, we have been very clear these are going to play out and we actually see the play-out happening now. If you look at the health claims, the hospitalization has increased.
You look at newspaper reports, I think hospitals have started asking for non-COVID beds now because now they have started seeing that. If you look at motor claims also started moving up and TP claims also settlement is happening. Whatever little is happening is with the interest part of the delay. The court is not condoning that. In a way, they are also charging and paying for interest on the months that has got delayed there. I think our prediction was right there and as of now we feel that we have been providing sufficient for these cases and we should be comfortable on that basis. I hope it answers your question.
Just one follow-up. Is there on the COVID claims and any sort of broad indication, Sreeni mentioned around 4%, sub 4% kind of share. Till what level are we covered, any sort of broad estimates around this to just monitor this whether it goes out of control or any broad markers?
If you look at our company's market share is close to 7% and the health market share is close to 4%. That is what Sreeni was mentioning. Our COVID claims overall of the industry is 4% to that. In a way if you look at from industry perspective, since our health market share is lower compared to overall market share and our COVID market share exactly what our health market share is, the flow will be determined on that basis. Can somebody predict how it goes? Can you tell me will we have a second wave? When will you have a second wave? It's very difficult to predict like that. That is why we have this conservatism of building in reserve to see how it goes. That's what we have done and we'll see how it progresses.
I think it's very difficult to predict how COVID goes, when second wave happens, how does it behave out. The world is still grappling with that. To make assumption that this is exactly how it's going to go, I think would not be right from my perspective.
Sure. Appreciate it. Thanks. All the best.
Thank you.
Thank you. The next question is from the line of Sanket Godha from Spark Capital. Please go ahead.
Yeah. Thank you for the opportunity. I have just one question on health insurance and on the OpEx. When I see the combined ratio, the combined ratio improvement is largely driven by the OpEx ratio and if I break down the OpEx into commissions and the regular OpEx, I see the total OpEx has declined almost by 23% year-over-year. Do you think this OpEx cut what we have taken is it sustainable and continuing to support our combined ratio or maybe over a period of time, maybe by end of the year it will normalize? That's my first question. Second question is on COVID claims again. If I look at the public disclosed data, the total health insurance claims paid were around INR 320 crores which is significantly lower than INR 511 crores what were paid in last year and still you ended up providing significantly higher.
Just wanted to understand that this is largely towards COVID or second wave which probably you think could come and outpace the numbers or is it because of the bunching of electives you provided significantly higher on the health insurance claim. Finally on life insurance, just wanted to understand given non-par business has grown almost like 150% year-over-year in the second quarter, just wanted to understand how much of the business is backed by FRA and how much of the business is backed by market rate ranges.
Okay. Thank you, Sanket. I think there are three questions that you have asked. One is on the health claims, one is on how much of the non-par portfolio is protected under FRAs and the first question was on?
OpEx.
OpEx, whether it is sustainable and will we see a rise in OpEx as growth comes back. First I'll tell Tapan to take on the Bajaj questions and Raman and followed by Tarun and Bharat to take the question on FRA.
Let's look at the health claims since it's been asked again. Health claims has two components right now. One is non-COVID claims and other is COVID claims. If you look at COVID claims and you will have the industry data, it is moving up exponentially. The non-COVID claims has actually come down significantly. This is a play of these two together. You have to watch the trend to be able to figure out how things are moving. If you look at the COVID claims and look at let's say the past month compared to let's say the month of May, you will see a significant difference. Look at non-COVID claims also now start moving up.
When you do a kind of assessment of losses and you make reserves, it's based on this trend analysis and the way you see how things are moving up. Non-COVID claims also start moving up now. COVID claims obviously have moved up exponentially and that is what we have analyzed and that is how we have put this reserving which would be there. We look at and as I mentioned in my previous conversation also that we look at now non-COVID claims also start moving up because people have started going to the hospital now. You watch this is a general trend which is there and people were very afraid to go to hospital let's say two, three months back. Not fully as yet.
Our expectation is that as COVID is behind us, the hospitalization is going to again shoot up the non-COVID ones also as COVID comes down. The play of these two is what you will see as it progresses. Other part that you see overall is lower is because GMC we have played less. We have a decline in GMC because our personal belief was that GMC is a one-year contract and renewal is not certain here. In retail policies, renewal is there. Even if let's say one year you have losses due to COVID, next year, third year, fourth year still better. GMC if you write one year, right, and if you have this COVID impact, another impact happening on that next year, not certain how do you get that basis.
It's a play of these three together, what you see in the results now, that is coming through, and that is what we have been thinking through. Coming on the expense part of it. Yes, expense overall for the industry, if you look at, would be down because of the travel is not happening now, which would be a major component, and there would be there. As a company, we have, and as we mentioned it before COVID also, we have been working on expense. We invested on IT, and it's good that we invested in IT because we moved our core to the cloud also. We see now that it is paying off in terms of our service parameter, in terms of we are delivering a large transactional business.
That is investment we did of shifting the core, and we still continue doing that, and we'll do that. The other expenses like travel and all has definitely come down. That's why for the entire industry, you see this phenomena of this coming down. As BAGIC, we have always been an underwriting company, and that is what we always talked about. Our combined ratio has always been significantly better than the industry. The impact of the COVID-related expenses because of this is there for the industry, and the industry combined ratio also has come down. To that level, it will again move up for the industry and for BAGIC also. In terms of underwriting, in terms of our loss ratio, in terms of what we've always done, that will continue, which is there. That is what we have always been focused upon.
Just to add to what Tapan said on the expenses, all our companies, BFL, BAGIC, and BALIC, have been looking at structurally at the cost structures. This year actually gives us an opportunity to prepare ourselves for the next five years. Digital transformation, work from home, a variety of these are at play. We segregate cost into three things: waste, which has to be eliminated immediately, cost, which has to be controlled and where productivities have to improve over time, and lastly, investment, on which we will not dial down all relevant investments required in technology, in digitization, in customer experience, in CRM, all that we will continue to invest.
Okay. The bulk of the profit saving came from the employee costs. That's the reason I was asking that it is sustainable or not, because last year we had an employee cost of INR 254 crores. Now it is INR 190 crores.
Can't hear you clearly. Sorry.
Yes, audio is not very clear, sir.
Is it better now? Am I audible?
Sir, requesting you to please use the handset mode while speaking. Your audio is breaking up.
Can you hear me now?
Yes, sir.
Is it better?
Yes.
Sorry. I'm asking this question because the bulk of the saving in the cost came from the employee cost. INR 254 crores was the number in last quarter, same quarter last year, and now it is INR 195 crores. Just wanted to see that the saving with respect to employee cost is sustainable or not. That's the reason I asked that question.
I think if you look at the makeup of cost, I think more than 65% of the costs are employee costs. There will be an element of IT cost. There is an element of infrastructure cost, which is related to your rent and your offices and things like that. As far as the infrastructure cost, over time, we expect that will come down. IT cost may not increase in proportion to business, but we'll continue making investments in IT. Those costs, especially in both companies, as we have mentioned before, are engaged in a complete transformation of their core systems. That is already a contracted amount, and we do not see significant increase in that element of cost, but otherwise, we will be investing in digitization.
Lastly, employee cost is not a conscious effort to actually reduce the number of employees, but largely the result of better productivity. As we get more businesses, for example, on the bancassurance channel because of the mergers of public sector banks, we have added a large number, more than 10,000 branches of public sector banks to our kitty in BAGIC. Clearly, we are not going to invest in more people proportionately to tackle that, and existing people will handle more business, and that is how the productivity will increase. Similarly, in the case of BALIC, in terms of agency, we are now working on variabilized cost structures. We are using POSP. We are using a variety of models, which has resulted in better productivity overall, and that is why the costs have come down. Some of this we believe will be structural.
What could happen if growth returns is that the acquisition costs, which are variable to business, will continue to increase in proportion to the business.
Sreeni, let me just add to Sanket's query. Sanket, you're right, some of it is the efficiencies which we are seeing due to the productivities moving up, and there is a lot of work which we've done on rationalizing infra also. Given the way the world is moving towards digital, we thought this was the best time to actually propagate that. Hence, some of these saves, like Sreeni highlighted, will be obviously there for the future. Some, like Tapan highlighted, are as a result of the lockdowns. You can assume half of it is pertaining to the lockdowns, and the balance will sustain.
Okay, perfect. I just want that last question of FRAs, I mean, the non-par growth.
Yeah. This is Tarun here. I will respond to an extent, and then I'll give it to Bharat to get into details. We are 100% covered on all the guarantees that we have given on non-par. We are using two instruments. One is the FRA, and the other is partly paid. Through this, we've 100% covered ourselves. Bharat, can you share the percentage?
Basically, with the partly paid bond, our total non-par book would be covered around 70%, 71%. With FRA, we have covered the balance book. The first transaction we entered in August, wherein first up to June 2020, we covered all the previous book. Now on a monthly basis or on a once in a two month basis, we continue to cover through the FRA as well as whenever we get a partly paid bond opportunity, we buy that also. Tarun covered both the things.
Got you. Given the yield curve might change the shape, do you think the guarantees what we are offering right now can be sustainable or will it be very nimble in revising those rates?
It's something we monitor every quarter and/or more frequently if required. It's not a call we can take at this time. There are other companies offering products. See, one thing we have to see is that whatever risk we take is also related to the capital that we hold. What do we use the excess capital for? I think last three, four years you have seen how we have used it to build our distribution. Some part of it we'll use to absorbing some guarantees. Now we have decided to protect ourselves in the guarantees as we have seen good traction in that business. We will continue monitoring on all these dynamics which will drive the yield curve, the amount of guarantee we want to take, what is the VaR on multiple periods. Based on all this, we have a very rigorous process of monitoring.
Tarun, would you like to add something to it?
Yeah. I think what Sreeni said is perfect. We have multiple forums in which we have trigger rates and multiple committees in which we keep checking this. In any case, in August, we were one of the few players who actually brought down the guarantees we were offering. We're already quite comfortably perched. In fact, if anything, I think we are currently better placed than what we were placed earlier. You'll see us only just being more agile in this. Every quarter, in any case it could move, it could come down the guarantees we offer. At this juncture, we are quite comfortable.
Perfect. Thank you, sir. Thank you so much.
Thank you. The next question is from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
It's Bharat Shah, not Bharat Shah. First and foremost, my compliments for the life insurance business. BAGIC has always been a very solid piece, but I'm really delighted progressively to see how BALIC is shaping up in terms of banker distribution, product portfolio, protection, persistency, balance of the product portfolio, all of the points and first time the VNB are reported. All of it is pretty delighted and not to see any further erosion due to any investments. One important issue, I think time has come to highlight Embedded Value in its whole components, whether the Value of New Business or unbinding of past profits or in terms of salience of the assumptions made and benefits obtained or operating variance. All of these components if we are highlighting and then we work on operating profit, Embedded Value OP.
That I think will give a very good sustainable long-term picture of how the business is shaping up.
Thank you, Bharat. Thank you for the compliment. I think you have hit it spot on. Both our businesses, BAGIC always has been on top. BALIC did undergo some tough time. Last three years, whatever they promised on delivering on the transformation, the phase one is over. The company is now well-poised to participate in the growth of the economy and the savings pool. As far as Embedded Value is concerned, we had consciously taken a decision to report it once a year till last year. The reason was the business is very much back-ended and the expenses are in the second half is where more of the NBV gets reported. However, this time, based on various feedback we have received from investors, we decided to start reporting the NBV and the EV. We note your point regarding the granular waterfall of EV to be disclosed.
We did that in March but from next time onwards we will be publishing that on a half-yearly basis as well.
Thank you, Sreeni, because that will give a bit more near-term kind of view. That will help. My secondary point I just wanted to say. These pocket insurance or micro-insurance which is being unveiled and digital and technology usage is at the forefront in making it scalable and efficient. Any thoughts around that? The new life simple policy which has been announced by the regulator, though the amount unveiled there seems to be rather low at INR 25 lakhs, but any thoughts there as to
Yeah.
What do you think of it and what it can be?
I'll take a high-level answer first. Pocket insurance largely is suited for people who are either not insured or depending on the type of pocket insurance, people who do not want to burn their existing sum insured because of some specific event. For example, if people take vector diseases like dengue, chikungunya or when they take a COVID-specific cover. Some of them take it because they feel a higher risk at that time and therefore they take it for a short term. Some of them do not want to take full-fledged health insurance policy either because they can't afford it depending on the customer segment. The second segment is people who feel they have a sum insured which they have reserved for certain major ailments, but these smaller ailments actually take up most of the sum insured so they want to take pocket insurance.
To a large extent, pocket insurance in premium terms may not amount to much. It brings in a lot of customers. Basically, it's a customer acquisition engine. People who have not tasted health insurance, most of them will end up being a high-frequency cover, which means that people tend to experience the claims faster. For example, last year when we launched with Flipkart the mobile all-risk policy, I think the frequency of claims was very large. Customers really appreciate the service through these products. They play these three, four kind of roles. That's acquiring customers, providing them with a taste of what claims are like. They're able to distinguish between the companies which settle claims better and the others are not.
In a traditional indemnity policy, it's more like what if something happens in future, maybe it never happens, which is good for the customer, but that's the kind of risk they cover. I can now hand over to Tapan and Tarun to add more to this.
Just one quick thing I would like to add.
Yeah.
Pocket insurance I see similar to sachets being introduced in FMCG industry decades back. It was small and numerous, used to be sold, and pinch-hitting over a period of time, but that has built a whole new class of customers in FMCG, and they've graduated to the bigger packs and sampling their instincts. In some sense, I think there's some kind of a shadow of that sachet picking in FMCG industry.
Yeah, it is. You can't build a business only out of sachet. You see, sachet is only an entry door because you showcase a variety of products that you can have. You help them experience claims. That's the point I'm trying to make. In terms of premium amounts, the amounts are very small and many of them are very specific covers. Some of them may not get sold at all, but a lot of them may get sold for specific segments of customers. It helps us identify customers, their behavior, segmented, trying to offer more segmented products, things like that. Tapan, would you like to add to that?
Yeah. If you look at it internationally also, some companies they went all out on pocket or packet or sachet insurance as you call it. In terms of their balance sheet, it did not do very good for them, and now they are shifting towards more traditional lines of products also to give an overall balance. This is why what Sreeni mentioned is right. One, it does a behavioral change. If you look at Bajaj, we have done a good amount of sachet insurance. If you look at mobile insurances, Flipkart is one of our agents, and most mobiles sold had our insurance there, and we were always able to service them well. Our score in terms of NPS was over 90%. The way we service those insurance claims also across the country, remotely, which we did using digital methodology.
If you look at maybe railways, you have a cover there, which again, Bajaj is one of the key providers there. If you look at quite a lot of sachet insurances, we do. They cannot be in its own way, a business builder. Yes, they get people reduced to insurance. They get people to understand the beauty of having an insurance cover. It pays off. That awareness building happens, which obviously later on leads on to more insurances being taken. Right now, as Sreeni mentioned, if I look at vector-borne diseases or the COVID cover which is there, people are buying it now. If they go ahead and buy a regular health policy after that, yes, they understood the benefit of having an insurance cover. If they don't, obviously just there's one more thing that we do. As a company, we are doing it.
It is not that we're not doing it, and we'll be on the forefront of doing these kind of insurances across different distribution and different segments, and we are seeing how it plays out and where does it take us. A very good question on that basis. Thank you.
On the second part, the new standard premium vanilla life insurance.
Mr. Shah, so sorry to interrupt, but your audio is not very audible, sir.
On the new policy which is suggested by IRDAI and like a standard vanilla life insurance product, any thoughts around that?
Tarun. Tarun is on the pricing and the risk because fraud is very high on low ticket. Tarun, would you like to take it?
Yeah. Just coming. Bharat, three things. First of all, thank you for acknowledging the turnaround in BALIC. As Sreeni said, I think we have now got the foundation in place. I like the way you put it, participating in the economy, because at that point in time, we were really just restructuring and getting things right. Thank you so much. It really is very meaningful when senior analysts from the market acknowledge this as well. I'll first take the sachet question there. I know a part of it was on life insurance when you talked about it. See, sachets life insurance have taken off in the telecom sector and in the commerce side. The natural fitment for sachet for life is a little lesser than the general side.
On the Bajaj side, it'll be higher. We were a little wary and careful of this, and I think till now we've been right in not entering that market. Most of these groups, this is largely group insurance, but most of these groups have actually bleeded and bled significantly and continue to bleed at this point in time. As Sreeni put it can be a very good engine to get data, understand, and to an extent, we would want to participate for sure. We want to participate with the right partners. We have one such relationship already, which is looking to begin in the last quarter of this year. We will be careful of the way we are going about this because the premium that you collate is very less, and the claims can be far higher. That's on that.
On Saral Jeevan Bima, which is the IRDAI product, I think it's a very good move from IRDAI. They've made it a very standardized and a very simple product to be offered. It's not bells and whistles but a simple term cover. Yes, it starts at a very low cover size and it goes up to a certain level which can be higher as well. Good thing is that they have let the pricing being handled by the life companies itself. Sreeni correctly said that this is a segment most people are wary. For example, today our life covers start only INR 50 lakhs and up. We will be entering the lower cover segment through Saral Jeevan Bima. In terms of pricing, all companies will price based on their own data.
That comfort is there and there will be good numbers coming in, a good amount of cover coming in. I'm seeing two, three benefits of that. One is just a sheer spread. Second, the fact that given pricing, hopefully we can price in the risk well. That structure is currently still underway. The third bit is IRDAI itself getting to see directly what volume can come in life insurance, term insurance, which is not really such a big component as you know of the life sector as of now. Plus the role of reinsurers as well. It is good that IRDAI directly take an interest in and out of lesser the companies. Hence, it'll be a good learning experience for the regulator, for the reinsurers, and for all life companies because now we are all in it together at the lower end of the business here.
I think a lot more to be still read. From BALIC side, we'll be very careful of the way we price it as we've always been. We would, of course, not just want to be the first one to just plunge into it, but take baby steps first and then move in with rigor later.
Sure. Thank you.
The next question is from the line of Hasmukh Gala from Finvest Advisors. Please go ahead.
Yeah. Hi, Sreeni. Yeah, really good set of results in these trying times. I just wanted to have a very broad question that yesterday in the Bajaj Finance conference call, they said that they have taken out about INR 400 crores worth of operating expenses, structural changes. Can we have some quantification for BAGIC and BALIC on this?
Okay. Raman, Bharat, would you like to take it or Tapan, Tarun?
Hello.
Yeah. Raman, you can go ahead on this one.
The question is that Bajaj Finance has reported substantially lower operating expenses through their zero-based budgeting exercise. We have also taken a lot of steps in BAGIC and BALIC. We want to know what have we done there in terms of structural changes and business transformation.
Yeah. I'll talk about it for BAGIC. BAGIC, I'll just give you the numbers first. Our cost ratio for H1 last year used to be about 29%, which is now down to 26%, 25.7% to be precise. Like I said earlier, this is outcome of two reasons. One is obviously the expenses were in Q1 on the lower side because of things like travel, et cetera, not happening due to the lockdown. Some benefit we got from that. There are some which were structural in nature, which we started working on much before the pandemic hit us. To just highlight a few of them, one was. See, you have to understand the two big heads for a insurance company are essentially infrastructure and manpower.
On manpower, we have been investing, like Sreeni said earlier because of the new partnerships we've been getting, and we've also been expanding through the length and breadth of the country, and hence we were adding people. Hence our ratios were little on the higher side for the last few quarters. From H2 actually of last year, we started working on rationalizing the manpower, largely focusing on enhancing productivity and enhancing spans of the managerial cadre of people. The third thing which we did was we moved our entire organization on quarterly incentives rather than annual bonuses. Which ends up creating a high-performance culture is what we believe. A result of all this, we actually ended up saving about 17%-18% on the wage bill versus H1 of last year. The second piece, like I said, is infrastructure.
I think two quarters back, we had about 170 odd branches. We gave a hard look at each one of them in terms of the way we run the infrastructure. Do we need 4,000, 5,000 sq ft office? Do we need people to come to office every day? As an organization, we are trying to move towards digital. Hence we took a call on multiple aspects. One was we said in multi-branch cities
In a city where we have multiple branches, we try to rationalize a few offices there. The second was office size. We said, given the current situation and given the way we are moving towards our digital endeavor, we said let's start focusing on operating most of the things we do from tablets or portable devices, and hence let's not have the need for people to come to office. Hence we started rationalizing the size of the offices also, and we ended up reducing already the size of about 30 odd offices, and that process is ongoing. As and when the leases keep coming up for renewal, that process will continue to happen. The third one was on that we went and renegotiated the rentals with most of the landlords because the rentals across the country had anyways fallen.
As a result of that, we've been able to save a lot of costs and our expense ratios is down by almost 300 basis points from 29%- 26%.
Where do you see this 27% moving as we go ahead into H2?
It's very difficult to predict at this stage because it all depends on if there are any future lockdowns, there will be more saves coming from that. Like I said earlier, you can attribute half of these saves to structural in nature and half could be happening because of the environment.
Understood.
Yeah. We believe this is an ongoing process we will keep revisiting. Every two years, we keep revisiting our cost structures and take calls on rationalization. This was just one wave of it.
Okay, fine. At BALIC, what is the story on the cost reduction side?
On the BALIC side also the story is on the similar lines. Our overall OpEx for H1 is down by almost INR 110 crores compared to H1 of last year, which is down by 13% in absolute value. In terms of the OpEx ratio to total premium, it is also down by 400 basis points at 18% compared to 22% last year. Whatever Raman has also said, broadly, we are also in the similar journey where we have actually relooked at all our branches. As of 31st of March, we were at 550 branches. We are already at around 520, 524. There is another round of branch revisit, both in terms of closure as well as reducing the size of the branches. We'll continue with that. That is a structural save.
There are few timing savings also there in terms of travel and training and all that stuff which is not happening. We have also renegotiated all our rental agreements. This is despite the fact that we started our new channels, specifically more on the Axis Bank, IDFC FIRST Bank, KVB, all in this. It was at least not there in H1 of FY 2020. Despite our significant investment there, our overall OpEx is down by INR 110 crores in H1 of FY 2021.
Okay.
Overall approach to
Individual rated premium and group premium, we have got a ratio of about, say, 40, 60 type. Where do you see this ratio going? When will the improvement come in the individual premium products?
I think we see last three years, individual premium is what is being focused on. See, there are two different types of customers. The customers who are on the loan book of bancassurance and NBFCs is largely where the group products are sold. You have the individual premium, which is sold by a whole lot of channels. Bancassurance sells it to their asset book, the agency force sells it, the BALIC direct sells it. Similarly, in BALIC as well, you have a variety of distributors selling these products. It is a question of the type of channel and the type of distribution. Our job is to build a wide enough distribution which can handle both. The mix will eventually be determined because group products are profitable. It is not that you are doing group products is good or individual products is better.
The question is the focus of getting customers and acquiring them. Tarun?
Yeah. See, I don't think we manage it like a ratio the way you've looked at it. I mean, I won't have the exact ratio, but I think the ratio for this year is already reversed in the way you are currently saying. Not thanks to us, but thanks to the market and not something that actually we like because the credit life business has come down. Now, we are one of the larger players in the credit life side, and we spent quite a few years to understand and study because this is a multi-year project almost, the MFI credit lines and how they behave and how do the lives there behave. I think we've been an anchor in the industry for that segment. I think it's very well structured now and the pricing is right and the industry has been following what we've been doing.
Yeah.
In fact, if anything, we would like this to grow more and more, not at the expense. The problem would have been if one was at the expense of the other. These are two independent markets. Within group, there are two kinds of businesses. One is group risk and the other is group funds.
Yeah.
If I just look at the percentage of group risk and group funds for the first half, it's 35% group risk and 65% group funds.
Yeah.
Last year the same ratio of group funds was lower.
It was other way around. Correct.
Yeah, it was the other way around. This is more because our group risk having come down. In the H2, we expect this to get sorted out because we're seeing credit lines now begin from banks and from MFIs and I think festival season is going to start kicking in now. Overall, our focus is on the weighted premium, which you will always see in the retail side.
Okay.
That is what we measure ourselves more by. There is no confusion there. Pretty much like the rest of the sector, we are focused on retail-weighted premium as a company.
Yeah.
Maybe almost six, seven years back, we were a little different, but now we are quite rounded as everybody else. Just to close it again, we would like the credit life business to grow. It's quite profitable.
Okay. Sir, third question from my side is, at the group level, do we have any thinking on when to convert Bajaj Finance into a bank? What will be the right timing? What are the things we are looking at from the government?
In this call yesterday, as of now, we think we have enough scope to continue at this rate for at least two to three years of our current volume. This is a matter we continue to evaluate. We will await RBI's final guidelines, revised guidelines, which is being talked about or if any other initiative comes in. As of now, we are not seeing any particular need that we have to act very quickly.
Okay. Thank you very much. Wish you all the best.
Thank you. The next question is from the line of Kishore Kaushal, individual investor. Please go ahead.
Good afternoon, sir. Thank you for giving this opportunity. My question is for Bharat. My first question is, your protection mix has moderated in Q2. What were the key reasons, and how do you see the mix to be trending in FY 2021? The second question is, agency has suffered for most players. What are the specific initiatives that you are driving in the agency? Then third question is, how has the GCL performed, and when do you see the arrival happening? Fourth question is, how many numbers of individual and group claim we have got till now? Thank you.
I didn't get your third question. What was the third question?
Yeah. How has the GCL performed, and when do you see the arrivals happening?
GCL. What is that?
Yeah. GCL.
Group Credit Life.
Group Credit Life. Sorry.
Okay. We call it by different names. Okay. You asked four questions. I'll take a shot at all four, and Bharat can jump in where it comes. On the term life, see the term life is visibly down for the entire sector. If you noticed the first quarter, it was like a fire sale because everybody knew that it was a matter of time when the reinsurance price would get priced in and prices have since gone up. We've also increased prices almost by 25%, 30% in various segments and some other segments are 40%. I would actually take the first quarter for the sector while we were all happy at that time and we. Of course, it is not clear one. You can't always spot where it is going to really end. I think that was like a dream come true for the sector.
I don't think you should expect that kind of a thing coming back for the sector no matter what statements the rest of the people in the sector make.
Okay.
This will get carried down, and we need to tone down the expectation in the sector in terms of what term will contribute to. Having said that, for us, every new percentage of term coming is a significant bit because till last year we had near 0%. I won't really hazard a guess on a significant improvement. That having been said, the overall term year-on-year for the sector will go up. It is not that it is some dream come true and it will start suddenly switching on in a very big way and we'll see people guzzling up term covers. I think that one should be very careful on forecasting that. If that happens, of course, it is great, but I don't think that's going to happen so quickly.
Because all said and done, India is a young country. Those basics haven't changed. Indians, when we invest money, we do want money to come back in our lifetime. Those things we'd have to see how the pandemic has structurally impacted that in the customer mindset. I think that the jury's out. We don't really know that bit right now. On agency, yes, you're right. Almost entirely across the sector, agency has been hit. We have not been very different. The core reason, and I think it is good for you to know this, has been because of new advisors. See every year, a significant percentage of our business comes from the advisors that are hired during the year. What had happened since March when the lockdown started and COVID began, is that people have been afraid of going for IRDAI exams.
Usually happen on a third-party base and as a result, advisors onboarded have come down significantly for the entire sector and we've not been any unique there. Where we've been unique is that when we saw this changing in the first 15 days of April itself, we were quite agile and we said that, "Look, we will then move to POSPs in a big way." As Sreeni highlighted, we had 11,000 POSPs in the first half. POSP is a model where the testing happens controlled by the company. We have an app-based testing where a person can sit in the house and do the testing itself. That has basically helped us, to some extent, prevent a significant deep loss in agency. That's what we've been able to do to prevent it.
Having said that, now the people are getting comfortable to do testing outside and go ahead and get their licenses. At the same time, we have been pushing IRDAI to also get NSEIT to give us testing facilities which are agile from homes of advisors. That discussion is still on. Let's see how that goes. IRDAI has also made it a little bit more flexible that we can do the testing in bulk in our branches. That is underway, and I expect that the moment this stabilizes, the growth in agency should be back for everybody. That's my response to the second question. The third one, book credit life, yes, it is down as I explained earlier as well, because it's entirely linked to credit lines that are being extended. Q1 it was very badly affected.
Q2, we have seen some comeback in a positive territory. Q3 onwards, we do expect that this will start coming back because we are seeing a lot of inquiries that banks are getting for loans. That should help us, particularly on the GCL, as you call it, GCL side. On the fourth question on COVID, we have put money aside also for claims. I will ask Bharat to give you more details on that.
Thank you, Tarun. As of 15th of October, we have got around 368 claims, which in value terms is around INR 26.7 crores, out of which we have already settled 327 claims. That is what our experience is on the COVID claims. What we have done as a part of our prudence towards any unexpected claims coming from COVID, we have created a separate reserve of around INR 21 crores, which is an extra reserve, that varies at our individual line as well as the group line. A total of another INR 21 crores has been created.
Okay. That's it from my end. Thank you, sir, and all the very best.
Thank you. The next question is from the line of Ajok Frederick from BNK Securities. Please go ahead.
Thank you for the opportunity again. Sir, just an extension of your earlier answer on protection. Are you seeing demand itself coming down and that's the reason why you are expecting protection to not grow as much? Is it anything else you're seeing on the ground which is causing that protection to slow down?
It's very difficult to draw the line in the sand. How much is demand, how much is push from the distributor?
Right.
I think the way we have to see it is that the first quarter, like I said, was a dream come true. The second quarter is like a shock because all prices have gone up everywhere. It will take some time for the system to absorb the price hikes, at least mentally to absorb the price hikes. And to an extent, I believe it is not really finished. There will be a few more price hikes by a few more players, because some players, the smaller brands, are trying to make hay. They will realize soon that you cannot really, because there is a cycle to this. I think from Q3, a little bit growth over Q2 you will start seeing. By that time, at least the excess, I would say, the pent-up demand which we lapped up in Q1 and more than satiated that.
Since then, a little bit of shock from distributors, particularly on the price hike, has been absorbed. Q3 should see better with Q2, and of course, the second half is usually good. On the whole, very difficult to predict, but I do say that this year has been a threshold year for life insurance term plans at least. You will see as a percentage of the overall mix, the proportion of term covers to go up. How much will it be is very difficult to currently say. You will see a trend towards people buying it. Inquiries on website have not necessarily come down significantly. They've been quite active. There is a demand which is surely there, and that kind of gives us comfort that people will come and buy it as well. Currently, an inquiry is an inquiry.
You haven't really said that you want to buy.
Right.
There is an upward trend, but I would not read too much yet into it. I think Q3 will be a good test to see how the future is going to be.
Understood, sir. Sir, on Axis Bank
Around you, we see, this is intuitive, and is that insurance usually works when fear is high.
Clearly in first quarter, we found that mortality rates were much higher than now. Today, the mortality rates in COVID themselves have come down, people are getting COVID and getting recovered at a much faster rate, particularly in India. Therefore, as it dies down, there is possibility that some people feel there's no urgency to take term protection immediately.
Understood, sir. Sir, on Axis Bank, what is our strategy? Are we specifically going to dial in some products through Axis Bank, or what's on the drawing board with respect to that distribution channel?
Sorry, your question is that, how much? I didn't get that. Can you say that again, please?
Are we planning any product-specific strategy to be pushed through Axis Bank, or where are we with respect to Axis Bank as a distribution channel?
Yeah. Bank insurance is a very unique channel and every bank has its own persona. Our job is really to be able to meet the demands of the customers the way the banks use it. Our push is to the extent the bank's channels are willing to accept and take. If you are talking about will it be very high unit or very high term, if that's what your underlying question is.
Yes.
I think it's on either side skewed too much. It's quite a balanced product mix. Yes, there is a good amount of guarantee products that are getting sold. Usually, Axis as a distribution does sell a lot more long-term products. It's a very good distribution for long-term products.
Okay. Understood, sir. Thanks. That's it from me.
Thank you. The next question is from the line of Nidhesh Jain from Investec India. Please go ahead.
Thanks for the opportunity. Sir, on the life insurance, our persistency has dipped almost 10 basis points.
Sir, I'm so sorry to interrupt but your audio is not very clear, sir. We're unable to hear your question.
Hello. My question is that on the life insurance side, our persistency has dipped almost three basis points. In which product segment we have seen or which channel we have seen this experience?
Yeah. See, our persistency basically has been hit for about approximately 3%, which we had talked about in the last quarter as well that we were expecting this to happen. Usually, the decrease depending upon what businesses you're in, anywhere between 0%- 5%- 7% appears. For us, the impact has really been on the high ticket at this point in time. It is across all channels, but particularly in agency high ticket, where people are trying to time the market to an extent because the markets are down and we saw that people suddenly saw the market come up and they've been maybe shocked by the rise, so they're trying to time it. We are seeing it more in agency, we are seeing more in high ticket.
The way I see it, unlike other large bank-owned companies, in our case, the second premium tends to come a little later. We hope to recover some of this, and we are of course very focused on trying to get persistency back to track.
Sure. That's it from my side. Thank you.
Thank you. The next question is from the line of Sachit Motwani from Param Capital. Please go ahead.
Yeah. I just had one question on this new health platform. You mentioned that you've committed INR 100 crores towards this. Can you elaborate more? You said your initial pilot indicates a very strong market. I just want to understand that you want to make this a subscription-driven model. What is the customer profile you're targeting at? What kind of model you're creating essentially around this?
Broadly, I think there was a big launch function and it was fully explained by the CEO of that company, Devang Mody, who had long experience with us in BFL as well. The full nuances of that are available in that video. More importantly, I think basically, we are trying to cover the entire spectrum of healthcare needs of the customer. Today, insurance is one big part of that puzzle, which covers the financial outlay because of unforeseen healthcare. Insurance cannot be a complete solution to that. You have various healthcare providers, doctors, hospitals, pharmacies, and we will then provide this platform by which customers can handle all their healthcare requirements. A major part of that will be subscription-based.
For a certain subscription, the customer can get specific services like OPD, like lab services, like doctor appointments, and on top of that, they can also get insurance coverage. In case they get hospitalized or insurance-covered illnesses, that will also kick in. The demand is very strong. I think overall, the gap between available healthcare and the demand for healthcare has been very clearly established after the pandemic across the world and in India as well. Secondly, healthcare is a population business, which means that every citizen of India will require the same amount of healthcare as everybody else. Therefore, it does not distinguish. For example, if you look at car insurance or things like that, it's only for people who buy cars.
If you want to take a home loan, it's only people who can afford to buy a home who will need a home loan. Health insurance is healthcare is required for everybody. Our objective, we only provide a digital platform. We have worked in partnerships with different providers. We work with labs, we have worked with a few hospitals. We created co-branded products. We issue health cards of different layers, and that is the objective of this company.
Okay. Bajaj, BFL will also be funding the treatments. Is that right?
See, there are three elements to it. Insured coverage insurance will pay to the extent they have coverage.
Many people may be under-insured. There could be expenses will go beyond their insurance. Many people do not have insurance, suddenly they are faced with healthcare. Depending on the customer and the risk metrics of BFL will end up advancing them amount to pay for the treatment, which is not insured or which they have to pay out of their pocket. This is a service. This is a subscription service where people get access to all healthcare across a variety of hospitals, doctors, pharmacies. Over time, we will have to build more and more partnerships to be able to provide that service.
Today, it's just a startup company, so it's too early to say.
Okay. Any idea on what kind of subscription fees would be there?
That is all, I think, the company will be putting up. You can go to their website and check.
Okay.
There are multiple services, so it's very difficult to say what kind of price it is.
Okay.
It is available and through an app. The entire thing will be through digital means.
Got it. Yeah. Thanks a lot.
Thank you. The next question is from the line of Arjun N from Spark Capital. Please go ahead.
Hi. Could you please elaborate the progress that you have made in Bajaj Financial Securities, the number of clients enrolled, what percentage are active, and the packages that they have opted for, whether it is beginners or professional? Broadly, what is the outlook that you are seeing in this business?
Bajaj Financial Securities has reported a profit for this half year. They have started getting clients. At this stage, the objective of that company is to get more clients. It is one more door through which clients will come to us. Broking by itself is not a profitable business, it's not our intention that we make a large amount of profit from that. Nevertheless, we will be investing in that business and to provide holistic financial services across our group. We provide lending, we provide insurance, we provide digital platforms to buy all kinds of financial products through Bajaj Finserv direct. We are now providing access to healthcare, and Bajaj Financial Securities will provide them access to stock market for people who want to invest. Secondly, I think it has also brought in a complete holistic platform to support the loan against property business of BFL as well.
Financial Securities, as you know, is a wholly owned subsidiary of Bajaj Finance, not of Bajaj Finserv directly. Now we have control on the DEMAT, so the whole process of lending and supporting loan against shares will be very seamlessly handled through this. Over time, we will build traction. As of now, we are just building clientele. We are not in a position now to disclose how many clients, but the business is growing. It has started recording profit, and we will invest in technology and drive it from here.
Perfect. Thanks a lot.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.
Yeah, hi. A couple of questions in budget. I just wanted to understand the claims and ratio on.
Mr. Chawathe, so sorry to interrupt. Your audio is breaking up, sir. It's not very clear. Requesting you to please use the handset mode while speaking.
Yeah, sure. I am using the handset. This is Bunny Babjee. If you look at claims ratio in fire and motor OD, just trying to read the quarter-on-quarter claims, how should we look at it, I guess, on motor OD side this side that your claims have started increasing now as well. Your claims ratio has come down for the quarters. How should we think about it? Even on the fire side?
See, on the fire side, before I pass it on to Tapan, fire side is not really related to high-frequency events. These are more related to specific events that happen, like floods, acts of God, and things like that. That can vary across board. This year we had Amphan, and there was Nisarga, I think, another cyclone. Now we are having unseasonal rains across all of Telangana. All this will have some impact on the fire claims. One has to see fire claims over a cycle of three, four years. Quarter on quarter, there can be big variances. Floods, for example, happen in monsoon season, southwestern, northeast, but then it tends to be low in Q4, and to some extent in the early part of Q1. motor OD claims, so far the trend has been lower because fewer cars are on the road.
As we said earlier, it is picking up and reaching closer to pre-COVID levels. It's probably frequencies are about 85%-90% of pre-COVID levels already. Tapan?
Yeah. Thank you. I'll answer this question for the industry basis because it's not fair to answer for company basis, because a lot of other things play out on the motor OD loss ratio, how the company segments, what kind of vehicle it plays on, and how does it go on forward. On an industry basis, the initial months, the car claims was much lower because the OD loss ratio was pretty low. Now, it is about 90% of pre-COVID level. The motor own damage part. The TP part, as I mentioned to you earlier, one, intimations are coming less because of 40% courts still closed, and the other courts also not operating up to the full level. Second, the settlement is happening less.
Our expectation is that for the entire industry, if you look at the claims trend, as it progresses, you'll actually see the motor claims going up higher, the OD plus TP combined together, compared to what it was in the pre-COVID times as we move towards more and more courts opening up. When do the courts open up? When they start performing at full capacity, when does the settlement start happening? That we have to see. Once you see that happening, when the courts have opened up and settlement starts happening
Two, three months from then, when you look at the loss ratio, you'll actually see a higher loss ratio in motor compared to what it was in pre-COVID times, our belief. For the industry as a whole.
No. motor OD losses I think came down quarter-on-quarter.
Yeah. It came down. I said 90% of what it was in the pre-COVID time, the intimation has started happening now for motor OD.
Okay. What you're saying is that a rise should be expected in the third quarter because what I really thought was that since the economy is opening up and you'd expect claims to kind of have this ratio on a sequential basis should start reaching.
Your voice is not all very clear. I'm really straining myself to listen very carefully, but still I'm missing it.
Sir, the point I'm trying to make is that, I might have accepted that there is a sequential increase in claims ratio that come out quarter on quarter.
No, the frequency increase in claims, if you watch, is already there now. It is still the vehicle on the road has not reached the level what was in the COVID times. The simple thing is that as vehicles increase on the road, the frequency also reaches where it was because that is how the patterns get done. Now if I look at the market, 90%, I think people have started moving out. That is why you have reached 90% now. As it progresses, it'll reach 100%. Maybe another month or two month, my belief is that the OD loss ratios would be at 100% what it was in pre-COVID times. It'll reach there.
On the channel mix, sir, we have seen the share of direct going up to around 20% odd. This is purely because of higher growth in health versus motor. I guess there is a reversion that possibly happens. Maybe the kind of direct share goes down again.
I didn't get the question, sorry.
I think if you look at the channel share, the share of direct business is at around 20% right now. I think in your packet was something around 5% or so.
Sir, I'm so sorry to interrupt, but your audio is not at all clear, sir.
The big swing comes in because of the health business.
Are you talking about the direct business of Bajaj?
That's right.
Sreenivasan, I think Sreeni is talking about our share, our mix of direct going up.
Yeah.
This should be right. That's because of motor going down and property showing a big growth. It's getting offset and that's why it's reflecting in the channel.
Okay. Let me add to this, Raman. This is not only for Bajaj. This is an industry phenomenon. You'll watch that the fire growth is much higher than motor growth for the entire industry. There's this mix ratio shift for entire industry. The point you to see that we look at numbers. First we should look at the industry numbers, then the company numbers. That gives an idea how the industry is moving, how the company is moving. This would happen for the entire industry. The direct side have moved up for the whole industry.
Having said that, there is a point here that if a very large ticket business, some companies want to participate and it has happened to be direct or tender driven or something. Obviously, that has a big swing. For example, all of the crop business is done direct. Government health is done direct. Direct as an overall percentage has to be broken up into segments. Retail direct is different. That by itself can vary according to quarter-on-quarter, year-on-year.
Sreeni, here actually this shift has happened because of fall in the motor growth, what Raman mentioned.
Intermediated. Correct.
It is not that we have changed the shift in our business strategy.
Correct, sir.
That will happen for the entire industry if we look at. Motor growth has come down in the entire industry, so overall direct will look much bigger for the industry.
That is true.
Got it. Perfect. Thank you very much.
Thank you. The next question is from the line of Vinod Rajamani from HSBC. Before that, I would like to remind participants, please limit your question to one per participant. Thank you.
Yeah. Thanks for the opportunity. Just had two related questions on health. First is on health claims, what proportion of that would be related to COVID? Just want to find out how much is the non-COVID claims because there's been some anecdotal evidence that the non-critical care patients are not going to hospitals because of fear of catching COVID. They're postponing their hospitalization. That is one. What proportion of claims is due to COVID? Also on health, on retail side, what would be the split between indemnity and benefit? Is it 100% indemnity?
I think the first question, I will take that question. I think overall, we are not giving that kind of granular information. Compared to last year, obviously there are more COVID claims this time. The severity of COVID claims, as I already mentioned, is about 75% higher. The average claim size is about 75% higher than non-COVID claims. Overall frequency of non-COVID claims is at about 90% of what it was just before COVID in January of this year.
Yeah. Thanks for that, sir.
Majority of our business is indemnity. We have always done indemnity. We do a bit of benefit-based products with specific intermediaries. I would presume that more than 80% of our business is indemnity. Raman? Of the retail business.
About upwards of 90%, Sreenivasan.
90%. Yeah.
Other point here is what you're asking, if I catch it right, is on COVID indemnity and benefit. Are you asking on that or are you asking overall health?
Overall retail health.
Overall, I think that is what my answer is just.
Thanks for that.
Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Ms. Bunny Babjee for her closing comments.
I would like to thank Sreeni Rajan and the management team of Bajaj Finserv and all the participants joining us on the call today. Thanks, have a good day.
Thank you.
Thank you. On behalf of JM Financial Securities Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.
Thank you.
Thank you.