Bajaj Finserv Limited (NSE: BAJAJFINSV) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
S. Sreenivasan — Chief Financial Officer
Tapan Singhel — Chief Executive Officer
Ramandeep Sahni — Chief Financial Officer
Tarun Chugh — Chief Executive Officer
Vipin Bansal — Chief Financial Officer
Unidentified Speaker
Analysts:
Raghvesh — Analyst
Prakash Kapadia — Analyst
Mahek Shah — Analyst
Supratim Datta — Analyst
Dhaval Gada — Analyst
Prayesh Jain — Analyst
Sanketh Godha — Analyst
Nischint Chawathe — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Bajaj Finserv Limited Q2 FY’25 Earnings Conference Call hosted by JM Financial. 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. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Raghvesh from JM Financial. Thank you, and over to you, sir.
Raghvesh — Analyst
Thank you. Good morning, everyone, and welcome to the 2Q FY’25 earnings conference call for Bajaj Finserv Limited. First of all, I would like to thank the management of Bajaj Finserv for giving us this opportunity to host the 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, CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance Company; Mr. Tarun Chugh, CEO of Bajaj Allianz Life Insurance; Mr. Ramandeep Singh Sahni, CFO of the General Insurance Business; Mr. Vipin Bansal, CFO of the Life Insurance business; Mr. Ashish Panchal, CEO of Bajaj Finserv Direct; and Mr. Devang Mody, CEO of Bajaj Finserv Health.
With that, I would hand over the floor to Mr. Sreenivasan for his opening comments. Over to you, sir. Thank you.
S. Sreenivasan — Chief Financial Officer
Thank you very much. Good morning, everybody. I welcome everyone to the conference call to discuss the results of Bajaj Finserv Limited for Q2 of FY’25. As before in this call, we will largely be concentrating on the consolidated results as well as the results of our insurance operations through BAGIC and BALIC and where material the standalone results of your company, BFS. Bajaj Finance, which is another major subsidy of ours, has already had its conference call or if there are any high-level questions on BFL, we’re glad to take that as well. I will also take you through some of the key developments from some of our other subsidiaries, including our AMC, our marketplace business as well as our healthcare business.
Before I go into the call, with respect to the news article published in the mainstream media and the disclosure that we made regarding the intimation by Allianz to us of their decision to exit the joint venture. We have already put out a press release. There is no significant additional information that I can provide you at this stage. We will — as and when things evolve and as required under the applicable law, we would make disclosures as and when it is ready. Therefore, I would request you in this call to focus on the operations of our companies and we would be glad to provide any clarification that you need in this aspect. The only thing I would say that in the last several years, we have built two solid businesses in life and general insurance business and we have always held 74% equity stake. And this will continue to be — Bajaj will continue to be the dominant shareholder in this business in the times to come.
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. As required by regulation, as you are aware, BFS prepared its financials in compliance with the Indian Accounting Standards or IndAS. The insurance companies are not yet covered under IndAS. They have prepared IndAS financials only for the purpose of consolidation. Accordingly, for BAGIC and BALIC, the standalone numbers reported are based on non-IndAS accounting standards or Indian GAAP as we call it as applicable to insurance company.
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. I would like to draw your attention to the newly revamped investor deck with an executive summary and significantly more disclosures. We do hope you appreciate this and look forward to your feedback for further improvement in time.
Coming to the — I will now start with the results. Our total — it has been generally a very good quarter for growth across all our businesses. Our consolidated revenue grew 30% for the quarter and for the half year, it is 32% Y-o-Y. We ended the quarter with INR33,703 crores of total revenue. The profit after tax was up 8% Y-o-Y for Q2 and 9% Y-o-Y for H1 and we have surplus funds now in Bajaj Finserv of INR3,546 crores, which is 28% higher than last year.
Coming to the individual businesses, BAGIC’s gross written premium for the quarter, the headline number is down 20%, but it is predominantly because of a large government health business, which got shifted to Q3. So we hope this will get stabilized in Q3. But nevertheless, the underlying growth is significantly above market. BAGIC had a profit after tax of INR494 crores, which is 6% higher and a combined ratio of 101.4%.
The life insurance continues to deliver market-leading growth, growing the individual rated new business at 34% Y-o-Y. The NBV, the new business value was higher by 3% Y-o-Y. The NBM is down by 3.8%, as you may have seen from our disclosure of other companies, the NBMs have dropped across the industry and I’ll come to the reasons soon. Our gross retail premium was higher by 23% and our AUM at INR123,178 crores is 25% higher as well.
Coming to the consolidated results of BFL, the strong growth, 29% on AUM, total income up 24%, 13% growth in profit after tax and the gross NPA at 1.06 and net NPA 0.46 continues to be among the best in the industry. The ROTA was 4.48%, which translates into an ROE of 19.08% annualized. Our newly listed subsidiary Bajaj Housing Finance ended with 26% growth in AUM, 18% growth in net total income, the profit after tax at INR546 crores was higher by 21% and the credit performance continues to be exceptional at just 12 basis points of net NPA and 29 basis points of gross NPA. We wrote off 2.5% given that it is low risk, low margin business is quite satisfactory. It translates in an ROE of 13.03%.
Coming to some of our smaller businesses, the stock broking business, which is under Bajaj Finance, had a very good quarter again, 78% growth in revenue from operations at INR121 crores. The profit after tax is up by 185% at INR37 crores. The AUM at INR5,430 crores is largely the margin trade finance AUM and an ROE of 12.03%. So we’re an emerging start-up company, it has already reached a level of profitability we are comfortable with, but we’ll see good runway for growth in the coming years.
The marketplace and tech services business, again, 30% growth in the revenue from operations. The profit after tax is down to just INR6 crores for the quarter as against INR18 crores. And the health tech and TPS services again as revenue from operations at INR233 crores. We are comparing the previous year because this year we acquired Vidal and therefore the year-on-year growth may look very high, but it’s not comparable [indecipherable]. The profit after tax was negative INR32 crores within our plan, of course, and accumulative capital we have infused in the business is INR1,086 crores.
The asset management business again had an AUM close at about INR17,000 crores. And as I speak, it is about INR18,000 crores. It had a revenue from operations of INR10 crores. And as you know, in the asset management business, the revenue comes over time as the asset builds gradually over time.
Coming to the highlights for each of the individual businesses, BAGIC, muted industry growth across various segments, given that excluding crop and government health, which are more volatile and particularly the crop insurance has been subject to significant price compression as well with the new 80, 110, and 6130 schemes. BAGIC’s Gross written premium actually increased 11% in the core business which is higher than the industry growth of just 4%. The combined ratio continues to be good, but it was affected by NAT CAT claims. So it is higher than last year from 95.3%, is now up to 101.4%. Excluding that, the combined ratio would have been below 100% at 99.7%. On account of the NAT CAT claims, as I told you, there was an underwriting loss of INR48 crores, there was an underwriting profit of INR37 crores and we hope by the second half, we do get an opportunity to recover that.
The solvency margin is very strong at 312% as against regulatory norm of 150%.
BALIC market reaching growth — market share has increased to almost 9% of the private sector now 8.9%. In Q2, BAGIC ranked sixth among private players and third on retail NOPs. I think this is a very significant move over the last couple of years that BAGIC has been acquiring new customers and the number of policies and new business that’s grown is now number three in the market for the quarter. The new business value grew by 3%, notwithstanding the margin pressures. And predominantly the margins were down across the industry because of the significant increase in the sales of units, which are lower-margin business for the industry as a whole. And we have seen from some of the other companies that published their results that is an industry phenomenon. But given that the growth in NBV with these headwinds is actually quite reasonable.
Coming to Bajaj Health, the integration work has commenced post acquisition of Vidal Health and the consolidated revenue for the quarter is INR233 crores. Clearly as a pure health tax startup, the amount of revenue is very encouraging. And as we continue to integrate Vidal, we see a lot of runway for growth for Bajaj Finserv Health. Bajaj Finserv Direct, clearly, the INR6 crore negative profit in the quarter, we do see very good visibility that with the next couple of quarters, we might actually breakeven. On a cash basis, we may breakeven a bit earlier as well. And the loss has narrowed to INR6 crores, as I told you.
The ALC, I’ve already mentioned, and Bajaj Finance, capital adequacy remains strong, 21.69%, Tier-1 capital is 20.9%. Housing Finance, I already covered. The IPO was one of the most successful in the history of the Indian corporate sector and they are now sitting on significant capital adequacy, which will help them play the growth in the housing markets quite well in the quarters to come.
With that, I hand over the mic to you for Q&A and we look forward to questions on our businesses.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Prakash Kapadia from Spark PMS. Please go ahead.
Prakash Kapadia
Yeah. A couple of questions from my end. Now on the health side, typically when we are looking to scale, what are the combined ratios on the retail and group side or what are the thresholds for scaling that business? And what is your experience being on the government side of the health business because if I try and look at our GDPI growth, it’s — in the first six months, it’s degrown partly due to health, TP and crop business not growing. So what will bring back GDPI growth in the medium-term for us? Those were my two questions.
S. Sreenivasan
Before I hand it over to Tapan, I think if you look at BAGIC’s history over the last 20 years, when we started business, we were said, don’t do motor business. Everybody was very interested in very attractive corporate business, which was under the tariff, very cushy tariff in hindsight. But from the first year, we started making profit. Similarly, over the time, we have entered into businesses, we have entered crop business, we have gone to rural markets, we have done government health and we have a very clear focus on underwriting profit throughout combined ratio and risk management. This business is not just about GDPI growth, it is a combination of growth and how you maintain profitability and risk is more critical to this business. Now I hand over to Tapan to take on the question on the crop, government and the retail health business.
Prakash Kapadia
Sure.
Tapan Singhel
Yeah, very good morning. So if you look at it, our growth, if you — see the core growth is much over the market now. When you have done this part of seeing what has degrown, but if you also remove the bulky business, growth is very comfortably over the market. I think, Raman, correct me if it is wrong if the market grew in the second quarter at about what —
Ramandeep Sahni
4% and we grew 11%,
Tapan Singhel
11%, yeah. So our growth is about what —
Ramandeep Sahni
Three times, almost three times.
Tapan Singhel
Three times the market, right? So I think it is wrong to see from a perspective that degrowth is happening. And again, if you look at it, the government health business has shifted to October bookings, which were last year booked in this quarter. If you add that up, our growth again is very comfortable for the half year and for the quarter. It is at least like Srini mentioned about 250%, 300% market growth, which would be there. So I don’t think that there is any degrowth happening anywhere. What you’re seeing at a micro level degrowth is what we are doing willingly. If you look at the TP degrew that you see, commercial lines of businesses with no TP price hike happening for the past three years and their combined ratio shooting up. So we have reduced our exposure there. If you look at the retail health, we’re growing at market because again the retail health combined ratio for the industry is under stress. So we are not really getting very aggressive there on that basis. Crop, if you look at, there has been about 50%, 40% fall in prices in crop for the market. So obviously, we have now reduced exposure. Now if you see this, this has been a strategy for 23 years. There is nothing — nothing new or surprising, we’ve been consistent with it. Where we see stress in the market, we reduce exposure. Where we see opportunity, we increase exposure. That is why if you look at our combined ratio, it has always been among the best in the industry. And if you look at our ROE to know in the business return equity, you see we have excess capital. Our solvency is highest at 300 plus. Remove the excess capital and let’s say, take 200 or even 150, you take it 150 our ROE we are touching 30%. At 200% of solvency, which is still better than most — our ROE is clearly over 20% consistently. So you have a business which is delivering an ROE, which is clearly on the higher side of 20% consistently without the excess capital. It is a business which has been able to be agile to be able to manage in terms of opportunities. And still the growth is much over the market. So that is what the summary is of the current scenario.
S. Sreenivasan
I hope everyone understood this.
Prakash Kapadia
We would be comfortable with the government health side of the business. What has been our experience? Obviously, you said it is getting deferred.
Tapan Singhel
As I said, I never give you in calls micro number, but broadly, as I said, if you look at the combined ratio as a company, it will still be among the lowest in the industry and the ROE over 20% if I remove shareholders. So as a company, we do business that we feel as strategic importance for long-term growth of the company.
S. Sreenivasan
— having the risk of repetition on previous calls, the P&C business is a business of how you manage your risk across P&C. And within that, in India, particularly, you have different types of businesses, there are retail business, there are government subsidized businesses, there are group businesses and this is — there is a big tactical element as well because the market is very dynamic. The pricing changes very dynamically. And therefore how fast you adjust and how you hold-on to your basic risk parameters is what defines a good company and that is what we try to do all the time.
Prakash Kapadia
Right. And any sense on the TP price hike, it’s been almost the third year now, no hike from the government. So any — any sense what and when is there any possibility of TP price hikes.
Tapan Singhel
We should not be blaming — yeah, we should not be blaming the government, I don’t think that’s right thing. See, the process of TP price hike is data is sent from the industry to the regulator. The regulator looks at it and if the regulator feels that there is merit and they look at a micro level of increase in certain section and decrease also in certain section, then they recommend it to the ministry. And on that the ministry decides a merit and then takes a call. I think this is the process, is a very transparent process. The industry has represented to the regulator. They can merit in it and they would push it. So that is how the process gets done from an industry perspective, they’ll always be representative, but regulator look at the overall environment of the price of the commission, of the combined ratio and then see where the merit would be and then they would recommend that basis. So it’s a process. But as of now, I think for the past years, they did not see a merit in the increase and that is what happened. This again industry has recommended. Let’s see how it goes out.
Prakash Kapadia
Sure. Got it. I’ll join back the queue. Thank you.
Tapan Singhel
Thank you.
Operator
Thank you. The next question is from the line of Mahek from Emkay Global. Please go-ahead.
Mahek Shah
Yeah, hi, good morning, everyone. Thanks for taking my questions. So two questions. First, on the motor side. So the motor business has been growing at a slow rate. So any outlook on the second half of the year? And I mean any change in strategy which would be in the motor segment going forward? And secondly, I mean, how are the trends in the motor OD in terms of renewals versus the new — new auto sales which is being done? And my second question would be for BALIC. So in BALIC, group protection segment has grown by 25%. So just wanted some color on how the credit life and GTI business — businesses are performing for the H1?
Prakash Kapadia
Okay. So if you look at the motor business growth, see, as I mentioned previously, the commercial vehicle with the stagnation in TP price hike. And if you look at the frequency of accidents happening has moved up in terms of the TP [indecipherable] compared to the time when COVID was there. And in fact, pre-COVID also was moving up. And with the frequency going up, this is really moving on commercial vehicle space. That’s why we have, as I mentioned earlier, slowed down our exposure in that line of business.
Now if we see a price hike coming in, then obviously, our strategy would change. If we don’t see, then we would be cautious in that business. And that’s why you see our growth lower than the market growth in motor. But that is — as I said, this is fine with us. We do it for so many years. If we find some business doesn’t make economic sense, then we slow it down and it makes and we increase it. So the future statements depend on do we see a price hike or we don’t see price hike in terms of what we shall be doing the term. Over to you, Tarun, for the life part.
Tarun Chugh
Yeah. So the question is around the group term size, the credit life side particularly. So I think directionally, we were — we’ve been commenting on this every quarter that particularly last year, all quarters we were focused on derisking ourselves because we largely used to work with two, three partners and they used to consume a big part of our share. So that hence the task for us this year is — will remain that we get on to more lines of credit life business and get more and more partners onboarded plus that we can diversify ourselves. As a result, I’m happy to say that today we have about 80 partners and within this about 22 banks with who we are already on the credit life side. But having said that, there has been — while we’ve grown because of a smaller base last year, the color is different shades within this business. Some of the profitable parts of the businesses have degrown and some of the businesses which consume a little bit more time in growing and of course may not be as profitable as the rest, are growing faster. Hence, this balancing act will — this balance will emerge as we go. As you may be aware that the credit life businesses for most insurers have slowed down, but I won’t really jump in joy for the growth that we’ve shown yet because of the base effect. I think we are just getting back to where we ought to be. On the whole, there is a lot more competition emerging in the credit life side. And as a result, margins for credit life will remain to date as we go by.
Mahek Shah
Thank you for such a detailed answer. Just a follow-up for Tapan. Just wanted to know, I mean, how are we doing in the motor OD segment, the renewals versus the new car segment?
Tapan Singhel
No, it has been consistent. I think we improved on that. But again, if I look at the numbers from industry perspective, you’d be among the best.
Mahek Shah
Okay, thanks. Thanks.
Operator
Thank you. The next question is from the line of Supratim Datta from Ambit Capital. Please go ahead.
Supratim Datta
Hi, thanks for the opportunity. My first questions are on the BAGIC business. So, Tapan, you highlighted the challenges in the retail health segment. Just wanted to understand if you could elaborate that what are the real challenges in this industry and how do you see these challenges being resolved going forward? That would be my first question. And a second part to this would be if you could split the loss ratios in the health segment between retail, group and government, that would give us some clarity about how things are moving in this segment.
Now the second question on the BAGIC business was again on the motor side. I understand that you have done fairly well on the motor business, you were early in the EV business and now you are slowing down there. But overall, the outlook for the EV segment as well seems to be weak based on commentary from some of the auto OEMs in the second half of this year. So in this — in this scenario, how do you see this book growing going forward? And what could you do to offset the slowdown? Is there opportunities for market share gains or you know from the share gains in certain OEMs? So if you could give some color on that, that would be very helpful. I have a few questions on BALIC, but I’ll get to that after this.
Tapan Singhel
You can question while I explain the different portfolios and the strategy behind that. But the humble request and I’ve said this in the previous calls also in this call also is don’t ask questions on micro level of claim ratio bifurcations. Those I would restrain my comment on because the business is strategic and when you start giving micro level claim ratios, it opens up to the entire market and that’s what never in the past also done that, now we don’t do that. Whatever is available in terms of the loss ratio, it is intense public disclosure in the GI business. I think if you look at it and go to the website and get that.
But now let me come to the retail health and the challenge in retail health. So if you look at health and this is globally a phenomenon of the health business and India specifically. So the outgo happens at hospitals now. And hospitals are not regulated in the Indian context here. So inflation on the expenses that the hospital level, medical inflation and you all are aware about it moves up much faster than the price which gets built in the retail health portfolio. And then also quite a bit fraud which keeps on happening in this space. Now if we increase the price too dramatically, then it hurts the end-consumer because unlike motors whereas the vehicle ages, your insured value comes on, so the price actually comes on. In health, as the person ages, the price starts moving up and the inflation also happening starts moving up. So the price is a very sensitive part of the health portfolio from a customer perspective and rightfully so. While the problem in outgo is that you have a medical inflation, which keeps on moving much faster than the pricing which they get done and you also have frauds happening.
So the way the industry is trying to handle this is two points, one, an health exchange has been set-up with the government, NHA in process. Every insurance company has plugged into that health exchange and the hospitals are a bit reluctant to plug in as yet, but talks are with them because that will bring in transparency in terms of claims. The industry wants to pay claims as soon as possible immediately. But the transparency of the documents or the procedures being put on exchange. So there is a flow of claims happening, but there’s reluctance from hospital as of now, but conversations are on to see how do we get them onboard. So that would one bring in more transparency to the system, which would be better in terms of overall seeing how things move now.
The other issue would be if you look at in terms of the expectation from the customers and the regulator to the industry that you should be covering everything, every possible means of treatment, any means of different segments of the society and nothing should be missed out. And you should be serving the customer in a way that they have the least of difficulty, which is a very fair. But when you put all that together, it’s also cost of servicing to the customer and that also moves up in terms of costs that the companies bear. So when you put all this together, it is not something which you can easily say that to. It will at any point of time be able to generate a substantial amount of profit in terms of the business which has to be. But it is a substantial amount of business. So you have to be there and you have to make yourself more efficient, much more now, better in terms of servicing customer and build a good brand.
So overall, this is a summary of the retail health that you asked me in terms of how it is and the challenges which is there, how the companies have to keep on overcoming it at a company-level at industry level and to be able to provide very good service to the customers in terms of — this is a sensitive portfolio, especially individual in terms of their own health and also. You have to be very sensitive towards that and provide the best service. If you look at Bajaj Health, we’re the first to set up RMs at hospitals, people standing there for our customers to take care of them because when somebody is ill, they would really get confused, some of the major hospital people there. We’re also looking at RM servicing the customers. We also came out as very interesting products for senior citizens, which actually had and has a provision that there is a variable day, right? If somebody calls as emergency — we send ambulances over, get them picked-up, taken the hospital, get green channel there, get them treated, get them back. We also came out with global health cover that it is not that if you getting treated in India, you restrain yourself only to India, you can get treated anywhere in the world. So we have done a lot of innovation and we’re trying to bring the best in the product and look at interesting businesses models in which we try to see that is not only just pure paying claims, but also ensuring that we are able to take care of the customers beyond then take care of the emergency of the customer. So it’s a constant improvement and constant push, but this is in short the retail health story.
On the motor, your question was — sorry, I missed that.
Supratim Datta
So I was asking about the second half, how are you looking at growth, given the commentary from OEMs suggest that it’s going to be —
Tapan Singhel
But if you look at motor growth, overall industry also has come down. So you see the sale of the vehicles have been low and that has an impact in terms of the growth of motor business is there. And I said if the TP does not happen and with the inflation of costs in terms of TP and other moving up, that actually is the reason why you have to still look at segments which makes sense and be there. So you have rightfully seen that and let us see how the second half builds up. Right now, there is a stress in the sale of new vehicles happening. But as a company, we have a substantial share in the new vehicle sales. So I don’t think I would see a huge difference from the current level of growth which will happen, either plus or minus. But that is a forward-looking statement. It just depends on how things move for TP price hike, now how does the sale of vehicle moves up and all it is subject to lot of these parameters for the second half is that,
Supratim Datta
Got it. Tapan, thanks a lot for the detailed explanation on the retail health side. If I could just ask two follow-ups here. So one is, do you see a need for different structures to emerge on the retail side in terms of products maybe something like a [indecipherable], which is there in the U.S. some kind that kind of a model to get better value distribution between the insurance company and the hospital? And two would be, do you see GST and there is talk around GST rates coming down, would that be a relief enough to really drive growth or make this product a bit more attractive for insurance companies like that.
Tapan Singhel
The GST will play a role and that has been the demand in the industry a long-time and we are actually seeing positive feelers, at least from the senior citizen and the low sum insured coming right now. But let’s see how it emerges, which I believe is good, at least for senior citizens because as it in health, it gets more expensive as you age. So GST relief at the senior citizen would actually make a huge difference because that is where the health requirement is very high also and we are focusing on that. And to your point, health business will emerge, it is in a constant state of churn and we are seeing some good models of either discovery in South Africa or most to some extent part of the U.S. models is there. This churning will keep on happening and evolution will happen in the health portfolio. But one has to build it in a very long-term basis. See, in motor business, you can say no to a renewal. In health, by regulation, we can’t say no to a renewal, you know. So you have to be very cautious of building a very good book, which sustains and stays for like forever with you kind of so.
Supratim Datta
Okay. Thank you. Thank you, Tapan. Just one question on the BALIC business. I understand that you have grown very strongly this quarter. But given how the markets have been over the last 15 days and considering that some of the commentary from some of the consumer companies suggest that there is steps building in the middle income households. You know, how do you see this unit growth sustaining going forward? And if it does not sustain, then how comfortable are you that to shift this growth to other products or if you could such give some color on that, that’s helpful.
Tapan Singhel
Right. That’s a good question. So yes, last quarter has been an abnormally good month in terms of top line and hence, when top line comes with easier selling products, they do lead to a bottom line hit. So I’d be happier if we got a more balanced product last quarter. What you’ll see is that we’ve been working on our product mix trying to get it balanced all the way through. Broadly, if I was to indicate the ballpark of ULIP, the way it has changed the market. So when the markets in the BSE Sensex crossed 82K, our units were moving closer to a very high level of almost 60% of our product mix. And this then we retrained our teams, got them focused on a broader set of customer needs. And we were able to actually control it, if I can use the word control, but ideally balance is the best word here, through what remains our usual mix and if you go back and look at how our quarters will move, but how the years land up ending. We’ll end-up balancing our product mix over a period of four quarters in a year. But we do let customers and distributors sell the flavor of the month and as markets are now kind of cooling off a little bit, we will be back to predominantly traditional product mix. That’s where BALIC has always been. BALIC is largely a market-leader in the mid segments already. Yes, I have been listening to the commentaries that there is a issue around the mid segment. But at the same time, if you look at the way people have money in hand to spend the way other indicators are moving, it’s a mixed bag. I don’t think it’s a fair indication that people are kind of cash track because spending on homes has gone up, stamp duties have been higher, you see middle class coming out and spending a lot more on travel. So it’s not that there is — we are seeing any significant risk. And our products usually are well thought through. It’s a very-high involvement product and we do remain resilient to minor volatility of such bids. This would largely spill out more from the credit life business, but not necessarily in the long-term saving plans. And hence, we don’t see an issue there. I think what you will see is our mix getting more and more balanced to what we are usually accustomed to have. And last year was quarter one where we had a significant ULIPs, this time it’s in quarter two, but good thing is the best quarters of the year are yet to be kind of pronounced and they’re coming in and as our mix balances out here, overall, I think the year should be a lot more comfortable. And we don’t have an issue on-demand on longer-term traditional plans because traditionally that is what we’ve — BALIC has been known for anyways.
Supratim Datta
Got it. Thanks a lot for this answer. Just one question [Technical Issues] while traditional products will become larger in the second half is what I understand, but there is also an impact from surrender charge, higher surrender charge and renegotiation of some of the commission contracts with your partners. So if you could give some color on that, how do you see that play out? What would be the impact from the higher surrender value and how are negotiations with your partners going ahead? That would be helpful. That’s last comment, sir. Thank you.
Tapan Singhel
Yeah, that’s a fair question to ask at this juncture. The surrender value, yes, did put us in a tizzy. I’d admit it. And has also put distributors in a tizzy because it more than anything else because of cylinder value, the cost of distribution, the cost of commissions have to come down. Only then can they have to plateau out in such a way that the first year’s commissions have to come down. I think the distributors have been quite in sync with manufacturers and they realize this, and the fact that this was going on for almost like six months of discussion, this has already seeped into the bloodstream of sectors. And it had its time. So while there will be some small aberrations here and there. But largely most distributors have either taken a commission cut or the deferrals. And I’m not just saying it for BALIC, I’m saying it for the entire sector. BALIC, of course, is led also from the front as always. And it’s kind of getting shared, this entire bit is getting shared. And as we go ahead now, we will see more and more, I’d say, plateauing out of commissions relatively. And that should help persistency, because you get your second year, third year higher higher commission versus what they used to be earlier only if you’re more persistent. The more persistent you are, the lesser the probability of surrender.
And it is, I think it is relatively been a very well-informed bit. I’d also like to thank the regulator that they could come up with this. And because it was largely publicized, distributors have basically been in sync with the manufacturers as well.
Supratim Datta
Got it. Thank you.
Raghvesh
Can we move to the next question please? I think there are others waiting in queue.
Operator
Thank you. The next question is from the line of Dhaval from DSP Mutual Funds. Please go ahead.
Dhaval Gada
Yeah. Thanks for the opportunity. I had a couple of questions. Sorry I missed the opening few minutes of Sreeni’s commentary. But just on this news flow around Allianz looking at exit, just I wanted to understand how are we thinking about sort of this event in terms of, let’s say, if we were to buy funding of this event? I mean some perspective around that would be useful, how are we thinking about it?
And then the other question was relating to the life insurance business. Directionally — not maybe nearer term, but just directionally, we wanted to get closer to the listed peer group in terms of VNB margins. I just want to get some perspective that maybe our pace of change may have got derailed in the current year with the product mix and the regulatory changes, etc. So is that still on track in the next two years or so, FY ’27? Do you think we will be getting there, or there is any change to that thought process? Yeah, those are the two questions. Thank you.
S. Sreenivasan
I’ll take the first question. I think as you correctly said, you missed my opening remark in which I had said that we have made an announcement. It is Allianz’s decision to exit. They have informed us. Beyond that, we have nothing more to communicate at this stage. So there is no further questions that we will take in this call as well.
The second question, I think Tarun will take it.
Tapan Singhel
Yeah. So another good question. I’d say that yes, some derailing for a quarter or two here and there should be the only outcome of this because like I was answering the previous one, distributors have realized that this is a situation where they’ll have to be as much of the brand of manufacturers are. And there has been multiple actions we’ve taken. So that should ease the impact. Yes, directionally, we are committed to moving our NBM margins or normally we look at VNB, because NBM margins not captured the entire source, the NBB is what we look at. And that is what you will see moving in direction. A slight, I’d say, aberration for the quarter because more because of ULIP, not because of surrender value piece in last quarter. But the trajectory remains up, and we should be — we are in shape to start moving in the direction of the rest of the companies among the top three or five companies that have been. And you will see us getting there because traditionally as you may have seen, BALIC is a turnaround case. We have moved in from single-digits to double-digits already, and now we are in the mid-teens. And nobody is more keen than the team and me to ensure we get to where the rest of the players among the top cohorts that we have, the one we compare ourselves with. We are committed to getting there.
Dhaval Gada
And sorry, Tarun, just if I may take a follow-up on this one. So like the market share change that has happened over the last few years, now we’ve got to a particular size, I mean, in terms of rolling 12-month AP market share would be about 5%-plus. So from that perspective, the incremental pace of market share change may moderate. And we are seeing that in terms of the steepness of the market share gain has started more moderating. So how do you insulate this current position and then ensure that the gains still continue, because historically, we have seen in case of some of the other companies like Tata AIA or Kotak and even in Max, they get to this point and then they start sort of losing ground, and then again there is one, two years of correction? So just on growth to ensure that this VNB margin comes through, how are we sort of looking at navigating this size and ensuring that we don’t falter on that? Thanks.
Tapan Singhel
So it’s not about — first of all, I must comment that I think you’ve done your homework quite well. And yes, other companies would have moved laterally and not necessarily the steepness would have continued. One needs to understand that steepness is also a base impact, right? So when we were small, it was steeper. If you look at the number of thousands of crores we had, possibly that would remain similar. And hence, percentages maybe — not percentages, growth may not always remain the same as the size gets to be larger and larger. What we are committed to is how is this market share coming? Is this coming from the more profitable products and more customer-friendly products? And are we growing our base of customers? Are we — is that distributor capability enhancement in the right trajectory? You have all these input parameters that, if we monitor, directionally, we shall remain only positive. The pace of growth of top-line is essentially an outcome of all these things taken in conjunction. And you shall see that.
Like for example, while the numbers say what they say, I’m particularly very happy to let you guys know that we are now the third largest company in the life sector in terms of the number of policies we sell in the private sector. So we are punching way above our weight class there. And that gives us capability to upsell. As you know, Bajaj Finserv Group is particularly known for such capabilities. And this is what we are always enhancing, that are we getting into more households? Are we getting into more cities? Are we adding more distributors who are active? How does the quality of sale go? Because all of these, if they are there, directionally, the growth shall remain. Trajectory would be positive. We’ve always committed that we’ll be twice the growth rate of the industry and which is what we’ve always been mostly more than that. But it is important that with that the bottom-line also moves faster. Not the way it’s gone this quarter, but faster than the top-line.
Dhaval Gada
Thanks, and all the best.
Operator
Thank you. The next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Prayesh Jain
Yeah. Hi, everyone. So firstly on BAGIC and kind of linked to the tariff hike as well. So we’ve seen the motor TP loss ratio for you and one of your core competitors, a significant improvement in loss ratios over the last couple of years. And so in that sense, whether — first of all, what are the reasons that is kind of driving this loss ratio improvement? And secondly, when the regulator or the government kind of decides the tariff hike, is it specific to — more to linked loss ratios or it’s — because acquisition cost is all company strategies rather than driven by anything else, in that sense does the loss ratio play a meaningful role? And in that sense, the probability of price hike goes down given the trajectory that we’ve seen? That’s a question on BAGIC.
On BALIC, if you look at the industry where we are getting more granular with our agency channel and direct channel reporting very strong growth for even your counterparts on the private side, how does the kind of structure with respect to the infrastructure capacity that the companies would have or the industry would have will have to change and the investments will continue over a longer period of time keeping the costs elevated and so the margins possibly could be restricted? Yeah, those would be my questions. Thanks.
S. Sreenivasan
Tapan, should I take the first one on PP rate hike and how important loss ratio is and do you see any trend in that evolving?
Ramandeep Sahni
Yeah. So if you look at it, and I mentioned earlier in the call, also in the previous calls, that it is a balancing of portfolios. And I did mention that commercial vehicle, we have been kind of conservative on that line of business. So if the mix changes, then loss ratio will change, what you see is overall loss ratio. So if you are changing the mix of class of business, which is higher loss ratio, and you’re moving the mix of businesses lower loss ratio, then overall your loss ratio will improve. That is how it grows. And you see that you’ve been doing it now for quite some time, the mix, because obviously, as I mentioned, that if from our perspective, if you don’t see the price to be appropriate for certain class of business, so in those class of businesses we will become underweight. And the ones which are better, we keep on moving that business. And I said broadly, you see the change in the loss ratio, one.
Secondly, if you see also the COVID times, when COVID happened, then actually the frequency had dropped, but it’s very unpredictable. So quite a few companies had dropped the ratio, looking at the frequency, while we had still held it because of the unpredictability. Then the reserving can also put the unpredictability part to account for it. And as it gets more predictable, so that ratio that you put fund also comes down over time. So mostly loss ratios movement will happen with your selection of business now happening. I think that is how it reflects on that basis.
Now the other point on overall loss ratio, again, segment-wise it’s different for motor business. Some do require a price hike, some requires a price decrease also, which have improved over time. And that is what industry has recommended. Also, the industry recommends based on, let’s say the frequency increase and the severity of increase today, currently, then if you extrapolate the, let’s say, six months from now, with all the cases coming out a year from now, it is going to move up. So if the price rise has to happen, then you take also into consideration the future movement based on the experiences currently. This is what the industry puts forward as their logic in terms of why the prices at a certain section not sustainable and in certain segments, they should come down also. The industry recommends both.
Prayesh Jain
Okay.
Ramandeep Sahni
The regulator has a view on how they look at it. So I hope this answers the question.
Prayesh Jain
Yeah. Thank you so much. And life insurance?
Tapan Singhel
Yeah. No, again, another good question. So there was a time when we had more new verticals coming, more bank partners getting tied up with us. I mean, literally in the last six, seven years now from near three or four banks, now we have close to 34, 35 banks now with us. So the investment phase was significantly higher. And usually this takes a little time to get to productivity levels. And we’ve been pretty much transparent in telling you that. We were setting up more new verticals than we were reaping from these at that time. But as we are now stabilizing, at least in terms of the amount of new businesses that need to set up, which tend to put a new hierarchy, new vertical, higher costs, higher systems, that is now not such a significant part of the growth.
Now where we expect the growth to come is as we reap these relationships which have come with us, and it’s more a horizontal investment now. So while we’ve added 40 branches this year, and we are now about 562 branches, the growth shall come in. Incrementally, this is about 9% more branches, 8%, 9% more branches that we used to have earlier. But these are horizontals. So these don’t require new verticals, new hierarchy, new non-production costs, and no new significant systems to be added in this. So we will be starting to see the cost ratios getting better as we go ahead. And the other is, of course, more productivity is coming in, and we call it smart productivity where we are doing a balanced product mix that is going through with customers. Hence, you are not at risk of market volatility, which is what you will see as we go ahead. And hence the answer to even the earlier question that come up that hence the impact, positive impact on VNB growth will start coming in because of scale will be there, but it doesn’t need to be built from scratch anymore.
Prayesh Jain
So it was more specific to agency and direct channel, while on the institutional side I understand you would have built in a lot. So capacity with respect to infrastructure, like for agency and direct channel where you will need to add manpower for servicing for major other elements of the business. Do you think that this gets delayed by another one or two years? Would we need further investments in manpower?
Tapan Singhel
Yeah. See, further investment in manpower is horses for courses that will be required. I’m not saying it won’t be required. But I think given the sanity around the product mix, given the fact that we are already scaled up, we don’t need to invest in convincing people to become our distributors. It is more adding lesser and nonproductive costs. So if you’re adding producers that is a good investment, right, than adding support staff to make it happen to — you do read — need a basic amount of actuaries, you need a basic amount of finance people, a basic amount of admin people when you’re starting off. But once you are adding distributors or you’re adding more producing part of manpower, that’s only positive. In fact, I would say agency and direct channels are now getting to be a lot more profitable as we are seeing year-on-year with the product mix getting stabilized and not swinging to one direction. That is what is going to help us grow our VNB more and more.
Prayesh Jain
Got that. Thank you so much, and all the best.
Operator
Thank you. The next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead. Due to paucity of time, this will be our last question, and please make it short. Thank you.
Sanketh Godha
Thank you very much. On general insurance, I have a question. You highlighted in the call that you are seeing pricing pressure in crop and maybe in commercial lines like fire. So we attribute this largely to EOM, so this will continue till next year because EOM compliance is need to, needed to be compliant by next year. So the pricing and the Profitability of this segment might be under pressure for the sector as a whole, is the first question.
And counter-question to the same thing is that if EOM is the point which is leading to the pricing pressure in the commercial line, then it should have been ideally played in the favor of motor business because the payouts are higher. So naturally the price war, or at least, payout war should have moderated in that business. But what we understand from you is that we are seeing a different trend there. So just wanted to understand how you are looking at the space. That’s on general insurance. And one thing on general insurance if you can quantify, non-motor long-term business in our portfolio in GDPI. That’s not motor, on general insurance. On life, I know you indirectly answered that question on the commission VNB margin, but given it ended at first half at 9.2 and given we are now going through the surrender rules, what kind of a exit margin which should we assume? We reported last year 14.6. Whether — is it possible to get closer to that number or we will be off given we have a product mix challenge and also the regulatory headwind? So if you can give a bit of color on the margins would be useful.
And second data keeping question is the negative operating variance in the EV walk is related to what? Yeah.
S. Sreenivasan
Yeah. I think the first question was on crop insurance, the EOM, and others. I think Tapan or Raman can take it. And the second was a little bit more technical question on life. So I think Tarun can take that.
Tapan Singhel
Thank you. Now if you look at first statement is we don’t feel any pressure on anything, I think. So because we are growing much over the market and we have a combined ratio now which is among the best in the market. In terms of number of policies last year, we sold 3.6 crores policies, which should be there. So I don’t think we feel pressure on things. It’s business, it’s strategic and it will move well. If I take you back to a couple of years back in the call, the question that I would always get asked is nobody is doing crop business, you’re doing crop business. It doesn’t make sense for others, and I would keep on saying that we would see that. And then — and if you look at the results in crop we did phenomenally well, right? And then obviously the results are good. Everybody jumped into the businesses there and then the results the margins would get narrow. It’s a natural part of any business across globally, not only insurance, any business where people would see margins they would come in.
EOM does play a role because it is very clear the EOM has to be — but for Bajaj Allianz, I think we have been safely under the EOM norms and still are very comfortable because we are much, I think, we are not even close to 30, we are much below that. So we are among one of the well-run companies. I don’t think there is any pressure on EOM to make decisions from our perspective. Someplace the market may have. That is their outlook, their call. They would figure out what is good for them and what is best for them, and accordingly, they will strategize and try to acquire business. But business movements happen based on how people see where the profit margins are, what is the competence service, the customer, what they can deliver based on that. And that moves.
But if you look at the GI business globally also, there’s nothing which remains permanent forever. It’s cyclic. Some part of business will have discounting happening, some part of business will have hardening of rates happening. And it happens cyclically. Look at the insurance market also, they have softening, hardening. It’s part of a business. So I think these circumstances do not put pressure on us because part of the business and how do you be agile to figure out and have the vision to see what would be the right business mix to have and you keep on making those business mixes and growing your business and ensuring that you serve your customers well, develop good ROE, innovate and do that. So this part of business I don’t think we should read too much or see permanently in any part or any strategy.
Sanketh Godha
Sure. Tapan, the reason I was asking that question was that whether this other than cyclicality, the EOM has also played a role in pricing pressure because…
Tapan Singhel
Let’s say I can’t talk for other companies for a has no pressure to you, and you would be knowing that. You have studied it so well. We are much below 30 and we’re comfortable and we have not — we don’t have any breach. So our decision making will have nothing to do with the pressure of EOM. I think first — and you know that and you see that. Now for me to comment on somebody’s else’s strategy is not fair because they would be using the best strategy for their company. And I respect all my friends in different companies. I’m sure they are thinking through what is best for them. But if you ask me, if I had to do a strategy in terms of making business calls just to correct EOM, that in my view is a very short-term strategy. I would not do that. I would make strategies to run my business well for a very long term. Insurance is a long-term business. It’s not fly-by-the-night business. If you enter the insurance business, have a vision for 100 years minimum when you’re thinking or doing something. So just making strategies to correct EOM in short term cannot play out. It will always be very short-term, will always hit you again in a very short-term basis.
So I would personally not do things just to correct EOM on a short-term basis.
Sanketh Godha
Got it. Raman, if you can answer the long-term non-motor business to our GWP contribution.
Ramandeep Sahni
So I’ll answer that indirectly. See, while we don’t disclose such granular numbers like Tapan said, but I’ll give you an indicative number. If you look at our advanced premium growth, which is largely driven by the long-term businesses, that has grown at 20%. So that indicates that we are still growing in those lines of business at a healthy pace.
Sanketh Godha
Sorry, Raman, my question was not with respect to motor. I was more keen to understand non-motor long-term business.
Ramandeep Sahni
Okay. Yeah. That will be closer to, I think, see, last year, I remember the number was closer to INR1,000 crores. But for this year, some of the businesses have slowed down in that segment. So I’m assuming you are asking in context of the new regulation. So for H2, I think that number for us will be closer to about INR500 crores, if I’m not wrong.
Sanketh Godha
Got it. Perfect. Thank you. Thank you very much. On life, sorry [Speech Overlap]
Tarun Chugh
Yeah. So I’ll just get in on the life bit, Sanketh. So there are two questions, I’ll answer the first, and Vipin will take on the next one on the EV. But just on the VNB margin, directionally, in a way already answered it. But just to be a little bit more specific, within a year, you would see that we have a higher swing within our peer set. And usually, the first two quarters are most sedate. And Q3, Q4 tend to be getting better because productivity is because second half is usually skewed towards better product, better product mixes as well sometimes, as well as a lot of the hiring that we do usually happens in Q1 and Q2, and the productivity really starts kicking in only Q3, Q4.
So I don’t have any major concerns on the exit numbers. The team is committed to maybe delivering better than this. But as we are closing out on all negotiations and discussions around the deferrals, commission reductions, I think we’ll be a little better placed to put a kind of broad theme that is it going to be better or is it going to be thereabouts in another month or two, because everything is now getting discussed and closed at the stage. But we are — we remain positive is all I’ll say, because you asked a question on the regulatory bit and the direction of the NBM.
Sanketh Godha
Right. But sorry, is it fair to assume that we could be potentially 100 basis points to 150 basis points lower compared to what we reported last year given the product mix and the regulatory selling?
Tarun Chugh
See, if I was a scaled-up company with margins having peaked out, yes, I would be concerned. But we — our margins are only just cropping up in the last two, three years. So I don’t think for us to beat that this number is tough despite whatever.
Sanketh Godha
Got it.
Tarun Chugh
Yeah. So because we are — our trajectory was a lot steeper versus our peer set, so our aim is to get in that to that direction, let me just say that to you at this juncture.
I’ll ask Vipin to comment on the technical bit, please.
Vipin Bansal
So your question was on operating variance. I think there are no major items. I think on a wave of close to about INR9,300 crores or INR50 crore variance, some of it is purely the way your persistency behaves. Some of it is there, and it cuts both sides. Some products better persistence, you can cut both sides. On one product it could be favorable. On other it could be. But it’s a small variance. Nothing that worries us honestly on this side at this point of time.
Sanketh Godha
The reason I was asking, Vipin, was that given our persistency has improved across cohorts and we are at a better scale, operating leverage should also play out. Is it largely related to mortality was my concern?
Vipin Bansal
So if your question is mortality, that’s not the reason for this variance.
Sanketh Godha
Okay. Perfect. That’s it from my side. Thank you very much.
Operator
Thank you. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Nischint Chawathe
Yeah. Hi. Thanks for accommodating my question. This is essentially on a little bit understanding of the surplus capital or surplus cash that we have versus the deployment that we are looking at over the next couple of quarters. So if you could just help us sort of understand that. I believe you said somewhere closer to around INR3,500 crores of surplus cash is what we are sitting with. And maybe if you could help in terms of how that is getting deployed in various group businesses.
S. Sreenivasan
Okay. This is at the BFS level. And as you know, the last few years, depending on the solvency, increased solvency of both BAGIC and BALIC, we have been taking dividends from both BAGIC and BALIC. BFL also now has been a consistent dividend payout for the last few decades. So that is a primary source of cash flow. And we will continue to build on that as we go along. Of course, we have demands primarily from the mutual fund business and from our healthcare business for some amount of capital. At the moment, we are not envisaging capital requirements for our marketplace business. As we go into the future plans over the next few quarters, we will give you that situation, but we are not seeing that at the moment. And if we have any surplus capital, we may put a bit into our venture funds as well. So this continues to be our plan. But over time, we should see that the cash supply grows. We also have a commitment over the next seven or eight months to contribute to the [Indecipherable] issue warrants. The balance 75% is due. We would be investing in that. That’s about INR900 crores.
Nischint Chawathe
Sure. Got it. And very rough ballpark the investments that we’re looking at in health and AMC? I mean if any number that you could give.
S. Sreenivasan
It is a long-term vision, but I think between the two, we should be at the moment looking at to be able to know clearly by February. But as of now we are not looking at more than about INR500 crores to INR600 crores over the next year and a half till March ’26.
Nischint Chawathe
Both the companies put together?
S. Sreenivasan
Yes.
Nischint Chawathe
Okay. Got it. I think that answers my question. Thank you very much, and all the best.
S. Sreenivasan
Based on the last year’s [Indecipherable] so I cannot comment the next year it will be in February, so I can’t give a commitment now. But this is what it looks like.
Nischint Chawathe
Perfect. No, got it. Thank you very much.
Operator
Thank you. Ladies and gentlemen, this was the last question for today’s conference call.
I would now like to hand the conference over to Mr. Shreyas.
Unidentified Speaker
Thank you to all the participants who are joining the call. And a special thanks to the management team of Bajaj Finserv for giving us the opportunity to host the call.
Thank you.
Operator
[Operator Closing Remarks]