BAJAJ FINSERV LIMITED 14th ANNUAL REPORT 2020-21 CONTENTS Corporate Information 2 Leading the Way 4 Chairman’s Letter 6 Management Discussion and Analysis 10 Report on Corporate Governance 32 General Shareholder Information 52 Directors’ Report (Including Annual Report on CSR Activities) 62 Consolidated Financial Statements 85 Standalone Financial Statements 231 1 BAJAJ FINSERV LIMITED 14th Annual Report 2020-21 CORPORATE INFORMATION Board of Directors Nomination and Remuneration Sanjiv Bajaj Committee Chairman & Managing Director D J Balaji Rao Chairman Madhur Bajaj Dr. Gita Piramal Rajiv Bajaj Manish Kejriwal D J Balaji Rao Sanjiv Bajaj Dr. Gita Piramal Dr. Naushad Forbes Duplicate Share Certificate Anami N Roy Issuance Committee Manish Kejriwal Sanjiv Bajaj Chairman Chairman Emeritus Rajiv Bajaj Rahul Bajaj Manish Kejriwal Audit Committee Corporate Social Responsibility Dr. Naushad Forbes Committee Chairman Sanjiv Bajaj Chairman D J Balaji Rao Dr. Naushad Forbes Dr. Gita Piramal Anami N Roy Manish Kejriwal Stakeholders Relationship Risk Management Committee Committee Dr. Naushad Forbes Chairman Dr. Gita Piramal Chairperson Sanjiv Bajaj Sanjiv Bajaj Anish Amin President (Group Assurance, Risk and M & A) Dr. Naushad Forbes 2 Corporate Information Corporate Overview Statutory Reports Financial Statements 01-09 10-84 85-286 Management Auditors Sanjiv Bajaj S R B C & CO LLP Chairman & Managing Director Chartered Accountants Ranjit Gupta President (Insurance) Secretarial Auditor V Rajagopalan Shyamprasad D Limaye President (Legal & Taxation) Practising Company Secretary Anish Amin Cost Auditor President (Group Assurance, Risk and M & A) Dhananjay V Joshi & Associates Deepak Reddy Cost Accountants Group Head - Human Resources Ganesh Mohan Bankers Group Head - Strategy Citibank N A Ajay Sathe Group Head - Customer Experience & CSR HDFC Bank Purav Jhaveri Registered under the Companies Act, 1956 President (Investments) Rajeev Jain Registered Office Managing Director, Bajaj Finance Ltd. Bajaj Auto Ltd. Complex, Tapan Singhel Mumbai - Pune Road, Akurdi, MD and CEO, Bajaj Allianz General Insurance Company Ltd. Pune - 411 035. CIN: L65923PN2007PLC130075 Tarun Chugh MD and CEO, Bajaj Allianz Life Insurance Company Ltd. Corporate Office Atul Jain Bajaj Finserv House CEO, Bajaj Housing Finance Ltd. Viman Nagar, Pune - 411 014 Rakesh Bhatt CEO, Bajaj Finserv Direct Ltd. Share Transfer Agent Devang Mody KFin Technologies Pvt. Ltd. CEO, Bajaj Finserv Health Ltd. Selenium Tower B, Plot 31 - 32, Financial District, Nanakramguda, Serilingampally Mandal, CFO Hyderabad - 500 032, Telangana. Toll free: 1800 309 4001 S Sreenivasan Email id: [email protected] Company Secretary Sonal R Tiwari 3 BAJAJ FINSERV LIMITED 14th Annual Report 2020-21 LEADING THE WAY Sanjiv Bajaj S Sreenivasan Ranjit Gupta V Rajagopalan Anish Amin Deepak Reddy Ganesh Mohan Ajay Sathe Purav Jhaveri 4 Leading the Way Corporate Overview Statutory Reports Financial Statements 01-09 10-84 85-286 Rajeev Jain Tapan Singhel Tarun Chugh Atul Jain Rakesh Bhatt Devang Mody 5 I can, however, say one thing with confidence. BFS, BFL, BAGIC and BALIC have strong leadership backed by excellent teams of management and employees. Sanjiv Bajaj Chairman & Managing Director Chairman’s Letter Corporate Overview Statutory Reports Financial Statements 01-09 10-84 85-286 Chairman’s Letter Dear Shareholder, As you know, your Company, Bajaj Finserv Ltd. (Bajaj Finserv or BFS) is the holding company for the various financial services businesses under the Bajaj group. The companies under BFS serve millions of customers by providing solutions for asset acquisition through financing, asset protection through general insurance, family and income protection in the form of life and health insurance and retirement and savings solutions. BFS participates in the financing business through Bajaj Finance Ltd. (BFL), a company listed on The Stock Exchange, Mumbai (the BSE) and the National Stock Exchange (NSE). The shareholding of your Company in BFL was 52.74% as at the end of the reporting year. In its part, BFL has a 100% subsidiary — Bajaj Housing Finance Ltd. (BHFL) — which is registered with the National Housing Bank as a Housing Finance Company for its mortgage business. BFL also started a broking business in FY2020 through its 100% subsidiary, Bajaj Financial Securities Ltd. (BFinsec). The protection and savings business is done through (i) Bajaj Allianz General Insurance Company Ltd. (BAGIC) for general insurance including health insurance; and (ii) Bajaj Allianz Life Insurance Company Ltd. (BALIC) for life insurance, savings and retirement plans. Both BAGIC and BALIC are unlisted joint ventures with Allianz SE, one of the world’s leading composite insurers. As on 31 March 2021, your Company held 74% of the equity capital in both BAGIC and BALIC, with the balance being held by Allianz. How have these enterprises fared in a year that has been ravaged by COVID-19? Sanjiv Bajaj Chairman & Managing Director 7 BAJAJ FINSERV LIMITED 14th Annual Report 2020-21 Let me begin with BFL. Despite being hit by the national lockdown that began on 25 March 2020 and continued till 31 May, followed by gradual dismantling of curbs that went on up to 30 November 2020, BFL has performed well. To be sure, not as well as we have seen BFL do over the past decade; but better than all expectations given the severe circumstances. Here are the key results: Number of new loans booked by BFL in FY2021 was 16.88 million. Customer franchise grew by 14% to 48.57 million. Despite COVID-19, assets under management (AUM) increased by 4% to ` 152,947 crore. Total income increased by 1% to ` 26,683 crore. Net interest income (NII) rose by 2% to ` 17,269 crore. Total operating expenses (opex) reduced by 6% to ` 5,308 crore. Consequently, opex to NII improved to 30.7% from 33.5% in FY2020. Pre-provision operating profit increased by 6% to ` 11,961 crore. Loan losses and provisions grew by 52% to ` 5,969 crore. Profit before tax decreased by 18% to ` 5,992 crore. Profit after tax reduced by 16% to ` 4,420 crore. BFL’s capital adequacy ratio as of 31 March 2021 was over 28.3%, which continued to be well above the RBI norms. Tier I adequacy was over 25%. Bajaj Housing Finance (BHFL), a 100% subsidiary of BFL, also did well in FY2021. BHFL’s AUM increased by 19% to ` 38,871 crore; net interest income rose by 15% to ` 1,189 crore; and despite taking major impairment provisions on account of COVID-19, profit after tax grew by 8% to ` 453 crore. BAGIC is one of India’s leading composite general insurers offering all types of general insurance including motor, health, crop insurance, marine, and various forms of commercial lines of insurance. It has built a strong retail franchise and retained a leading position among private insurers. It was able to hold ground during FY2021 despite COVID-19 affecting not just the general and health insurance industry, but virtually all economic activity. BAGIC’s summarised results are given below: Gross written premium (GWP) was ` 12,624 crore in FY2021. BAGIC’s market share in the industry, including standalone insurers, was at 6.8% in FY2021, versus 7.2% a year earlier. Net earned premium reduced by 9% to ` 7,436 crore. Profit before tax increased by 29% to ` 1,769 crore. Profit after tax increased by 33% to ` 1,330 crore, the highest ever since its inception in 2001. The combined ratio was 96.9%. BAGIC’s return on average equity was 20.3% in FY2021, which was 220 bps higher than the previous year. 8 Chairman’s Letter Corporate Overview Statutory Reports Financial Statements 01-09 10-84 85-286 In life insurance, BALIC recorded an all-time high Gross written premium (GWP) of ` 12,025 crore and an AUM of ` 73,773 crore in FY2021. Though market conditions for the industry, which depend on consumer savings, remained depressed for more than two quarters, BALIC recorded excellent growth, well above that of the market. The key results for FY2021 were: New business premium grew by 22% to ` 6,313 crore. Individual rated new business premium increased by 28% to ` 2,468 crore. Renewal premium rose by 25% to ` 5,712 crore. Consequently, GWP increased by 23% to ` 12,025 crore. This was BALIC’s highest ever GWP. New business value (NBV), a key metric used to measure profitability of life insurance businesses, increased by strong 59% to ` 361 crore. Shareholders’ PAT increased by 29% to ` 580 crore. Thanks to excellent business and financial performance of BFL, BAGIC and BALIC under these severely trying times, your Company’s financials have also done well. In FY2021: Consolidated revenue stood at ` 60,592 crore. Consolidated PAT was ` 4,470 crore. As I write, India has been swamped by a massive second wave of COVID-19 with daily infection rates of the kind not seen earlier. Frayed by the lack of hospital beds and oxygen, various states, districts and municipalities have started imposing local lockdowns. From an epidemiological point of view, it is difficult to predict how long this second wave will last and with what intensity; and when will it reduce to manageable levels. In such a milieu, none can say with any degree of certainty how businesses will fare, especially in the first and second quarters of FY2022. I can, however, say one thing with confidence. BFS, BFL, BAGIC and BALIC have strong leadership backed by excellent teams of management and employees. These companies have it in them to meet any crisis head-on — even one such as COVID-19 — and overcome them. This is the time for those who execute; and those who can turn this crisis into multiple opportunities. In the meanwhile, stay safe. Vaccinate yourself and your family. Wear masks. Maintain social distancing. And remember that this too shall pass. With my very best, Sanjiv Bajaj Chairman & Managing Director 9 BAJAJ FINSERV LIMITED 14th Annual Report 2020-21 Management Discussion and Analysis Bajaj Finserv Ltd.