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By adopting what looks like a cautious approach to lending during low growth spell, Reliance Capital Ltd has exited low yielding car financing business. Instead, it will focus on relatively high yielding asset segments in non-urban areas.
According to rating agency CRISIL, the Anil Ambani-controlled non-banking finance company has changed approach to doing business to support company’s growth in commercial finance segment. Given the weakening sentiment in the macroeconomic environment, RCL has maintained a cautious approach and slowed down its growth in the commercial finance business over the past two years.
The company has maintained its strong position in non-lending businesses such as asset management, life insurance, and general insurance. RCL acts as a financial holding company for subsidiaries, and also carries out lending activities through its brand, Reliance Commercial Finance.
CRISIL reaffirmed “A1+” rating for Reliance Capital Ltd’s short term debt. Rating on short-term debt continues to reflect its diversified presence across the financial services domain (through various subsidiaries) and adequate capitalisation.
These rating strengths are partially offset by the susceptibility of RCL's lending portfolio to the macroeconomic environment, along with a modest, though, improving earnings profile, CRISIL said in statement.
RCL’s on assets under management (AUM) were around Rs 17,350 crore (Commercial Portfolio) as on March 31, 2014. It has diversified product in comprising home loans, loans against property, small and medium enterprise (SME) loans, automobile loans (including commercial vehicle and construction equipment loans), and infrastructure loans.
CRISIL said RCL's asset quality, though largely in line with the industry, may be impacted by any adverse macroeconomic developments. Its gross non-performing assets rose to 2% as on March 31, 2014, as compared to 1.7% a year ago.
RCL focuses primarily on the self-employed customer segment, which is inherently riskier than the salaried segment. The company's exposure to SMEs, a relatively risky segment, continues to be high at around 27%. However, RCL has adequate underwriting and collection mechanisms which mitigate these risks.
These companies collectively referred to as RCL, are engaged in commercial and mortgage finance, asset management, capital markets, asset reconstruction, and general and life insurance businesses. They have significant operational and management integration, and a common brand
RCL has adequate capitalisation, with a consolidated net worth of around Rs12,500 crore (excluding minority interest) as on March 31, 2014, as compared to Rs 12,000 crore as on March 31, 2013
