Contents Board of Directors ................................................................................02 Chairman’s Letter ................................................................................ 04 Management Discussion and Analysis ..............................................07 Corporate Governance .........................................................................23 General Shareholder Information .......................................................38 Directors’ Report ...................................................................................47 (including Annual Report on CSR activities) Consolidated Financial Statements ....................................................83 Standalone Financial Statements ..................................................... 177 Board of Directors Risk Management Auditors Committee Rahul Bajaj S R B C & CO LLP Chairman Nanoo Pamnani Chartered Accountants Nanoo Pamnani Chairman Vice Chairman Sanjiv Bajaj Secretarial Auditor Sanjiv Bajaj S Sreenivasan, CFO Shyamprasad D Limaye Managing Director & CEO Duplicate Share Certificate Practising Company Secretary Madhur Bajaj Issuance Committee Rajiv Bajaj Cost Auditor Rahul Bajaj D J Balaji Rao Chairman Dhananjay V Joshi & Associates Dr. Gita Piramal Cost Accountants Sanjiv Bajaj Dr. Naushad Forbes Rajiv Bajaj Bankers Audit Committee Management Citibank N A Sanjiv Bajaj HDFC Bank Nanoo Pamnani Managing Director & CEO Chairman Ranjit Gupta Registered under D J Balaji Rao President (Insurance) the Companies Act, 1956 Dr. Gita Piramal Kevin D’sa Dr. Naushad Forbes President (Business Development) Registered Office V Rajagopalan Bajaj Auto Ltd. Complex, Stakeholders Relationship President (Legal & Taxation) Mumbai-Pune Road, Akurdi, Pune-411 035. Committee Ganesh Mohan Head - Strategy Dr. Gita Piramal CIN: L65923PN2007PLC130075 Chairperson Deepak Reddy Group Head - Human Resources Nanoo Pamnani Ajay Sathe Corporate Office Sanjiv Bajaj Head - Group Risk Management Bajaj Finserv House Rajeev Jain Viman Nagar, Pune-411 014. Nomination and Managing Director, Bajaj Finance Ltd. Remuneration Committee Tapan Singhel MD and CEO, Bajaj Allianz Nanoo Pamnani General Insurance Company Ltd. Chairman Tarun Chugh D J Balaji Rao MD and CEO, Bajaj Allianz Life Insurance Company Ltd. Dr. Gita Piramal Rahul Bajaj CFO Corporate Social S Sreenivasan Responsibility Committee Company Secretary Rahul Bajaj Chairman Sonal R Tiwari Nanoo Pamnani Sanjiv Bajaj Leading the Way Nanoo Pamnani Sanjiv Bajaj S Sreenivasan Ranjit Gupta Kevin D’sa V Rajagopalan Ganesh Mohan Deepak Reddy Ajay Sathe Rajeev Jain Tapan Singhel Tarun Chugh Chairman’s Letter Dear Shareholder, Bajaj Finserv is the holding company under which there are three key financial sector businesses: (i) lending through Bajaj Finance Ltd. (BFL), which is itself a listed company; (ii) general insurance, under Bajaj Allianz General Insurance Company Ltd., or BAGIC; and (iii) life insurance, under Bajaj Allianz Life Insurance Company Ltd., or BALIC. The insurance businesses are unlisted. In addition, there are wind-farm assets in Maharashtra with an installed capacity of 65.2 MW. Let me briefly share with you the key achievements of your Company in FY2018 under BFL, BAGIC and BALIC. Lending: Bajaj Finance Ltd. (BFL) In a tough year where real GDP is expected to have grown by 6.6% — less than the 7.1% achieved in FY2017, and 8.2% in FY2016 — BFL has continued to deliver outstanding results. l Standalone assets under management (AUM) increased by 34% to H 80,444 crore. Consolidated AUM rose by 40% to H 84,033 crore. l Total income rose by 33% to H 13,329 crore. l Profit after tax also increased by 44% to H 2,647 crore. l BFL’s net NPA at 0.38% was among the lowest in the NBFC industry. l Capital adequacy as on 31 March 2018 was 24.71%, which was well above the RBI norms. General Insurance: Bajaj Allianz General Insurance Company Ltd. (BAGIC) BAGIC is a composite insurer offering various types of general insurance including motor, marine, health and various forms of corporate insurances. It ranks among the more profitable general insurers vis-a-vis peers of comparable size. Its combined ratio of 92.3% - a ratio below 100% indicates that the Company’s core insurance business is profitable - is among the best in the industry. BAGIC’s results for FY2018 were as follows: l Some 13 million policies were issued in the year, versus 10 million in FY2017. l Gross written premium (GWP) rose by 23% to H 9,487 crore. l Net earned premium grew by 23% to H 6,059 crore. l Profit after tax increased by 27% to H 921 crore. l Solvency margin as at 31 March 2018 stood at 276%, which was well above the regulatory minimum margin of 150%. l Return on average equity was 23%, same as the previous year. 11th ANNUAL REPORT 2017-18 | 5 Chairman’s Letter Life Insurance: Bajaj Allianz Life Insurance Company Ltd. (BALIC) BALIC has also done reasonably well for FY2018, recording strong growth in new business, as the figures below indicate. l Individual rated new business (NB) premium increased by 38% to H 1,397 crore. l NB premium grew by 29% to H 4,291 crore. l Gross written premium (GWP) grew by 23% to H 7,578 crore. l 13th month persistency saw improvement: up at 77% versus 68% in FY2017. l Assets under management (AUM) grew by 5% to H 51,970 crore as on 31 March 2018. l Profit after tax was H 716 crore. l Solvency margin as at 31 March 2018 was 592%, which was well above the regulatory minimum margin of 150%. I am also pleased to share with you several pieces of good news. Firstly, BFL and BAGIC have again had record years – BFL has recorded its highest ever assets under management and profit after tax while BAGIC has registered its highest ever gross written premium and profit after tax. Secondly, for the first time since their incorporation, BAGIC and BALIC have declared dividends of 100% and 70% respectively. Finally, your Managing Director, Sanjiv Bajaj, has been selected by a prestigious jury as the Ernst and Young (EY) ‘Entrepreneur of the Year for India, 2017’. My congratulations to him and BFS on this award. So, as you can see, all the cylinders are firing. BFL continues to perform extraordinarily — delivering industry beating performance. BAGIC has also done very well. And BALIC has stabilised to produce growth with profit. I hope that we will see even better performance next year. Thank you for your support. Yours sincerely, Rahul Bajaj Chairman 17 May 2018 6 | BAJAJ FINSERV LIMITED Management Discussion and Analysis Bajaj Finserv Ltd. (‘Bajaj Finserv’ or ‘the Company’) is the holding company for the various financial services businesses under the Bajaj group. It serves millions of customers in the financial services space by providing solutions for asset acquisition through financing, asset protection through general insurance, family protection and income protection in the form of life and health insurance and retirement and savings solutions. More specifically, the areas are: Lending The Company 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). On 29 September 2017, BFL was included in the benchmark Nifty Fifty index of the top 50 stocks in India. BFL also operates through a 100% subsidiary, namely, Bajaj Housing Finance Ltd. (‘BHFL’ or ‘Bajaj Housing’) which is registered with National Housing Bank (NHB) as a Housing Finance Company (HFC) for its mortgage business. BHFL started its operations in FY2018 and all the incremental mortgage business is now done through BHFL. During financial year 2017-18 or FY2018, BFL raised approximately H 4,500 crore through Qualified Institutional Placement (QIP) route by issuing 2,66,27,218 equity shares of face value of H 2 each and a premium of H 1,688 per share. This was the largest QIP of equity shares by an NBFC in India. After this, the shareholding of Bajaj Finserv in BFL stood at 54.99% as at the end of the reporting year. Protection and Savings These are 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 and retirement plans. BAGIC and BALIC are both unlisted joint ventures with Allianz SE, one of the world’s leading composite insurers. As at 31 March 2018, Bajaj Finserv held 74% of the equity capital in both BAGIC and BALIC, with the balance being held by Allianz. Bajaj Finserv also has investments in renewable energy in the form of 138 windmills situated in Maharashtra with an aggregate installed capacity of 65.2 MW. Bajaj Finserv is a Core Investment Company (CIC) under the regulations of the Reserve Bank of India (RBI), not requiring registration with RBI. From 2 April 2018, Bajaj Finserv, along with BFL, was included in the benchmark Nifty Fifty index. Macroeconomic Overview FY2018 began uncertainly with the economy still dealing with the impact of demonetisation of H 500 and H 1,000 bank notes. Further, second quarter (July-September 2017) saw considerable disruption in economic activity on account of teething troubles that accompanied the rollout of the Goods and Services Tax (GST). The third quarter, however, has shown an uptick — posting 7.2% GDP growth vis-a-vis the same quarter in the previous year. This has prompted some to argue that the economy has recovered from demonetisation and the transition to GST, and that one should now expect a period of higher growth. 11th ANNUAL REPORT 2017-18 | 7 Management Discussion and Analysis As it stands, however, the second advance estimates of national income for FY2018 released by the Central Statistics Office (CSO) on 28 February 2018 forecasts real GDP growth for the year at 6.6%, which is 50 basis points less than the 7.1% growth witnessed in FY2017. Table 1 gives data on real GDP and gross value added (GVA) growth over the last four financial years. Table 1: Growth in Real GDP and GVA, India Particulars FY2015 FY2016 FY2017 FY2018(E) Real GDP growth 7.5% 8.2% 7.1% 6.6% Real GVA growth 7.2% 8.1% 7.1% 6.4% Source: Government of India, Central Statistics Office (CSO).