Reliance Capital, a part of the Reliance Anil Dhirubhai Ambani Group which is aspiring for a banking licence, is set to scale up its existing businesses and add a separate subsidiary for investment banking even as its aims to become the largest health insurer in the country. Sam Ghosh, the recently elevated executive director of the company shares the diversification plans with Neelasri Barman in an interview. Edited excerpts:
Q: In December, Reliance Capital entered into a partnership with Sumitomo Mitsui Trust Bank (SMTB) with plans to offer businesses like real estate broking, vendor financing and advisory services to the Japanese bank’s clients in India. How much progress you have made with those plans?
A: We are working with SMTB on various initiatives – including supply chain management and supply chain financing – for some of SMTBs clients. We have also started investment banking activity, a business we intend to grow, the target market is Japanese SME clients between $ 50 million to $ 500 million looking to set up operations in India. Discussions have been initiated with 4-5 clients but no deals has been executed yet. We continue with our aspiration to apply for a universal bank license with SMTB, in the meantime we will continue working SMTB on various initiatives.
Q: Have you started catering to the Japanese clients too in real estate brokerage?
A: We already have a real estate broking operations under Reliance Property Solutions, we will now offer these services to Japanese clients too. As and when the Mumbai-Delhi industrial corridor picks up we will see a large number of SME clients coming to India. Our estimates indicate that investments in this corridor alone would be about Rs 60,000 crore. We would be targeting about 20 per cent share of this by providing services under M&A, advisory, fund raising and other services to these SMEs.
Q: You have entered into partnership with SMTB for a banking foray. What if you don’t get the banking license?
A: Our partnership with SMTB is for the entire financial services sector, but obviously we aspire to apply for a banking license jointly with SMTB as and when the guidelines are issued. We will continue to do other businesses in the financial space – investment banking, supply chain financing, real estate brokerage etc – with SMTB. We can build scale in investment banking like other players have built. A bank will certainly add to and complete our offerings under the financial services portfolio.
Q: Will you have a separate subsidiary for investment banking and other businesses planned with SMTB?
A: For the initial 6- 12 months, investment banking will be a division under Reliance Capital and then we will spin it off as a separate subsidiary from April 2016, once it scales up. Reliance Capital acts as a holding company for all its business, similar structure as insurances, mutual fund home finance. Supply chain financing will be done by Reliance Commercial Finance and we will continue doing it that way. For the real estate brokerage it will continue to happen through Reliance Property Solutions.
Q: For the existing businesses of Reliance Capital what kind of growth you are aiming for?
A: In our asset management business we expect over 20 per cent growth in Assets Under Management (AUM) next year. We are glad that the AUMs have been growing and retail investors have started coming back which is a big positive for a retail focused fund house like Reliance Mutual Fund. In our Life Insurance and General Insurance we are expecting 15 per cent growth in premiums and above 20 per cent growth in profits. For the NBFC business, we are looking at increasing the scale of housing finance substantially. Last fiscal the AUMs in housing finance was about Rs 7,000 crore and this year we want to take it up to about Rs 10,000 crore. For the rest of the commercial finance division we are expecting growth of about 15 per cent in AUMs primarily driven by SME financing. We had gone slow in the commercial finance business in the past few years. Now with growth returning to the economy, we are planning to build scale.
Q: As far as your affordable housing business is concerned, your focus has primarily been in tier I and tier II cities. Do you plan to venture into Tier III and IV cities too?
A: Though we have around 40 branches, we have added about 40 satellite offices and our presence is in 80 locations. We are present in tier III cities also. Gradually we will venture into tier IV cities too. To spread into smaller cities, we will continue adding satellite offices.
Q: Have you taken a call on Nippon Life hiking stake in life insurance venture?
A: We have been in discussion with them as and when the time is right, it will be done. They have shown interest and we are also interested in allowing Nippon Life to go up to 49 per cent. The transaction will happen in dues course based on an agreed time frame. Our intent is to close the deal soon.
Q: What will be the criteria to rope in a partner in your general insurance venture?
A: In general insurance our thinking is to move the health insurance business out into a separate company and then look for strategic partners in both health and the non-health business. We are looking for partners that have experience, know the business well and operate globally. They need to add value in our businesses. We would prefer strategic partners than financial investors.
Q: Why split the health business? How big is your health portfolio under general insurance?
A: Globally health insurance is always a separate entity. If we move out the health insurance business we will be one of the largest player among the standalone health insurance companies. Currently, our health insurance business is about 25 per cent of the general insurance business – about Rs 500 crore. Our aim will be to be the largest health insurer in the next few years.
Q: Can you tell us more about the company’s plans of setting up businesses in the International Finance Service Centre (IFSC) Special Economic Zone, which is being set up under the GIFT project?
A: Reliance Capital has taken space for office as well as residential in GIFT (IFSC). We want to bring in a number of our existing business there. The first one will be from our mutual funds – alternate investment funds business and Portfolio Management Service (PMS) – and will look at scaling up our offshore investment portfolio from GIFT facility. We also want to set up a commodities exchange in GIFT to look at global commodities. Gradually we will also look at wealth management business catering to the NRI, HNI customers who look to park money in Indian currency as well as foreign currencies.
Q: Some analysts who track your company say that the pace at which your business is growing is not very fast because of which they cut their target price. Do you agree that the pace of growth is slow?
A: All our businesses have grown – mutual funds, general insurance and broking have done well – and I don’t think anyone can question that. There are concerns on the life insurance business, across the industry, and that has had an impact on Reliance Capital. All the analysts continue to maintain a buy on Reliance Capital.
Q: What is your current debt-equity ratio? Are you looking at further capital raising by way of preferential allotment or a qualified institutional placement?
A: Our debt to equity ratio is one of the lowest in the industry at 1.8. We are not looking at raising any capital for the time being unless the opportunity arises.
[“source – business-standard.com”]