The second half of 2008-09 saw Reliance Capital going slow on loans as raising funds was a problem. Besides, its revenue from distribution of financial products was affected and the number of life agents also dropped by over 60,000. Though the overall environment seems to be improving, Reliance Capital CEO Sam Ghosh tells Anirudh Laskar and Sidhartha that the company is opting to be cautious. Excerpts:
Insurance companies and mutual funds have been known to be buyers in the equity market during the first quarter of a financial year. What is the trend this time?
Most of the money in mutual funds comes from liquid funds. In equity, the participation of mutual funds has gone up but only marginally as the number of customers coming in was lower. As far as investment by insurance companies is concerned, there would have been a slowdown in investments in April. But if the market continues to remain above the 12,000-mark, insurance companies will start investing by May-June, though we have been investing in equities from April.
You have not provided financial results for your life insurance venture. Can you give us an idea of the extent of your losses?
We have posted a loss of about Rs 1,080 crore in 2008-09 as compared with a loss of Rs 700 crore at the end of March 2008. This has been because of a slowdown in new business premium and a fall in equities over the past year. About 93 per cent of our products are unit-linked insurance products (Ulips). We have introduced new products and will launch more. These would be mostly Ulips, with capital guarantee, so that customers get an option of taking advantage of market upsides, while their capital is protected.
The number of agents with your life insurance venture dropped to 1,49,613 at the end of March from 2,11,293 at the end of September 2008. Why did this happen when your business was growing at a healthy pace?
We have terminated the contracts of those agents who failed to give us any business during the last 12 months. As a part of our appraisal process, we assessed the performance of the agents, and decided to remove those who could not give us any business. All companies do it. Some do it at the end of the quarter, but we decided to do it together. People who have not got a single policy in 12 months will not get you business.
The number of employees at the end of September 2008 stood at about 37,377. What is the employee strength now?
Currently, we have about 35,500 employees and associates with 28,000 on-roll employees and about 7,500 associates who work for us but are not our direct employees. They are from agencies and handle customer services and things like that. Following the performance review, some of them may have been asked to go. But, going forward, we will add more employees. In businesses like life insurance and Reliance Money, employees are evaluated on an ongoing basis and non-performing employees are asked to go. This is a normal process. Again, we will add more people this quarter and give them six months or a year to perform. If they do not perform, then we will follow the same process.
Last year, you got permission to set up a home finance company and also hive off the consumer finance business into a separate company. What is the status of this and are you still in the personal loan business?
We have capitalised the housing finance company with Rs 100 crore and also transferred assets to the tune of Rs 100 crore. We are awaiting clarity on refinance and we will move ahead based on what the National Housing Board (NHB) says. At the moment, we are doing around Rs 80 crore a month in the housing finance space. The consumer finance business is working as a separate division. We are mainly doing commercial vehicle finance, auto finance, SME lending, but with asset backing, and financing commercial equipment. While we were only in the over Rs 2 lakh personal loans segment, we are going slow on it. Now, the personal loan book is around 10 per cent of the total loan book, as against 12-14 per cent at the end of September.
Is the retail business going to be the main focus for general insurance, since there is an element of huge discounts in the commercial business?
There is severe competition in terms of pricing in general insurance. We will also focus on the corporate side, but that needs a better market condition. General insurance is price-driven, and if you cannot get a corporate client at the right price, you may not be able to survive affordably. At present, our corporate client base stands at about 25 per cent. Risks arise when you are asked to give discounts to your corporate clients. We may bring down our corporate client base further this year.
Your broking business has taken a beating over the last six months. You have added just about 9,000 clients during the fourth quarter. What is your outlook now?
The markets were going through a rough ride during that period. Broking and distribution volumes have been low, so the margins were also low during that period. Since April, the market and our business have started picking up.
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You distribution income has dropped to almost one-fourth of the level at the end of the fourth quarter of 2007-08. What are you doing about it?
Distribution income is market-driven and comes mainly from the sale of insurance and mutual funds. In the fourth quarter of 2007-08, there was a huge spurt. After that, volumes and margins went down in 2008-09 due to the overall environment. We will recruit more people and add more franchisees. We are tying up with more insurers and mutual funds to generate more volumes, but a lot will depend on the markets. To improve the broking income, we are coming out with a different fee structure.
What about the exchanges? Are you looking at setting up a stock exchange or will you pick up a stake in other exchanges?
The spot exchange business is yet to generate revenues, and it will break-even in the next 12-18 months. We are a shareholder in the NMCE. The Bombay Stock Exchange and the National Stock Exchanges are the main exchanges and a 2-5 per cent stake in these companies does not offer any strategic value.