We are open to partnering with investors who like our business model: Shachindra Nath

Interview with Chief executive officer, Religare Group

Although Religare Enterprises could not secure a universal bank licence, it still aspires to become one. Religare Group Chief Executive Officer Shachindra Nath tells Neelasri Barman that the lending business and asset management business will continue to drive most of their revenue mix. Edited excerpts:

Religare Enterprises had applied for a banking licence but failed to bag one. And, you have not applied for a niche bank licence. What is the road ahead for Religare?

We are not aspiring to become a payments bank or a small finance bank. We will be looking at the final guidelines for universal banks as and when those are out and then take an informed decision of whether to apply again or not. Religare is an integrated financial services business. We are in almost every aspect of financial services business — asset management, SME (small and medium enterprises)-focused lending, insurance and capital markets. Banking is obviously a core fulcrum of all financial services activity. So, the logical next step of progression is having a bank within the framework of Religare.

 

What exactly are your expectations from the guidelines?

It has to be seen what would be the criteria for universal banks. We are predominantly a mid-market SME business. We need to see if prioritisation will be given to businesses that focus around SMEs.

Are you open to tie up with payments banks or small finance banks?

No, because payments banks will be set up with the objective of facilitating remittances. We are targeting SMEs, not covered by the banking sector. Similarly, small finance banks are designed to service customers who are present at locations where normal banking channels are not available. Our business one is a nationwide model. There is no correlation for us to tie up either with a payments bank or a small finance bank, for now.

What capital raising plans do you have for this year?

Our NBFC (non-banking finance company) business is well capitalised, so we will borrow from time to time, according to the lending requirements. At the parent holding company level, we keep evaluating various strategic alternatives with a view to raise capital to fuel future growth and also to diversify and institutionalise our shareholding. International Finance Corporation (IFC) is a large institutional holder. Our board had approved last year a capital raising plan of about Rs 1,000 crore. There is a lot of interest in the financial services sector from global players. We are open to partnering with investors who like our business model and are supportive of the growth plans that we as a team have charted.

There are reports that the promoter group is looking at monetising their investments. At what level are the talks?

I am not privy to the intent of the promoters but as far as we are concerned, the intention is to infuse capital at the parent holding company level of Religare Enterprises.

In your total business, the highest revenues come from lending, followed by asset management, capital markets and health insurance. Do you plan to maintain the ratio this way?

I don’t think we ever run businesses with a view to maintain such ratios. However, if you look at the pool of capital at Religare Enterprises, a large portion of that deployment is in our SME-focused lending business followed by asset management. Obviously, wherever our capital outlay has been high, the revenues have been commensurate with that. The lending business and asset management business will continue to drive the lion share of our revenue mix. Even our health insurance business is growing quite significantly and we do foresee that contributing meaningfully to our overall mix, too.

What will be the key drivers for the growth in your businesses this financial year?

Lending will continue to grow. We have become a pure SME financing business. We will demonstrate the growth seen in the previous financial year and would accelerate that because the market dynamics show the demand for credit among SMEs is growing very fast. The biggest jump is also likely to come from our fast growing health insurance business. Asset management, too, will continue to grow on a year-on-year basis. The strategy this financial year would be to consolidate our position in each of our business verticals and grow. We do not guide people in terms of forward looking numbers, which we are targeting for growth. Our revenue and profitability growth will surpass the growth seen in the previous financial year.

What impact did the rate cut by the Reserve Bank of India (RBI) have on your costs? Did you reduce your lending rates this year?

This year so far we have not cut lending rates. There has been a marginal improvement in our cost of funds but it has not been so significant for making cuts in lending rates.

Where does Religare stand in terms of SME lending vis-à-vis the banks with a portfolio size of Rs 13,000 crore? What margins you earn, considering many other new NBFCs are planning to venture into this space?

SME lending has a different meaning for different set of people. I am no one to comment upon what is the portfolio of banks around the SMEs. At Religare, when we lend to SMEs, we keep in mind that they have the capacity to generate cash and have a solid track record. We have not seen big cyclical pressure in five-six years. We have good on-ground presence across all key markets and this is coupled with a robust, granular underwriting capability, which enables us to manage risks and analyse our customers and their respective cash flows. Our NIMs (net interest margins) are in the range of 4.6 per cent.

Now that you have exited life insurance, will health insurance be a major area of focus?

Health Insurance has always been and will continue to remain a big focus area for us as a group. Our life insurance was a JV; with Aegon being a global partner and Bennett and Coleman being a domestic partner. Life insurance business as a whole has gone through a cycle of under-performance across the sector. The time that business takes to generate return on equity was very long for us to stay in it. But over the long term, life insurance will continue to be a good business.

Having learnt from the practices in the life insurance business, we have designed our health insurance business very differently. We have conserved our capital and continue to grow efficiently and systematically. In our third year of operation (ending March 31) we have clocked a gross written premium of about Rs 276 crore on a total capitalisation of Rs 350 crore. This is like being probably the best and the most capital-efficient insurance platform with respect to every amount of capital invested vis-à-vis the returns achieved. Although we are yet to achieve break-even but are tracking well against our plans. 

Will you look to re-enter life insurance at a later stage?

Not as of now, because for the time being, we would like to focus on our existing set of businesses. In the next phase of growth for Religare, we will see if we would like to look at life insurance again or venture into other aspects of the financial services industry..

Will you be looking at getting a foreign partner in your health insurance business?

At the moment there is no such plan. Our first objective is to see that this business grows according to plan and we achieve the break-even.

Any other new area of business you are planning to venture this year?

As mentioned earlier, we will continue to focus and grow our existing set of businesses. However, in our global asset management business, wherein we manage assets of about $23 billion plus, thus making us one of the largest asset management platforms from this part of the world; we will keep evaluating opportunities to launch new funds and platforms.