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Though Religare Enterprises could not secure a universal bank licence but says they continue to aspire for such an opportunity. Religare’s Group CEO Shachindra Nath tells Neelasri Barman that the lending business and asset management business will continue to drive the lion share of their revenue mix. Excerpts:
In the first round of new banking licences, Religare Enterprises had applied but did not bag the license. And you have not applied for niche banks 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 they 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 namely asset management, SME 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 your expectations are from the guidelines?
It has to be seen what would be the criteria for universal banks as and when they are out. We are predominantly a mid-market SME business. We need to see if prioritization will be given to businesses that focus around SME’s. We would like to see if there is some sort of preference for businesses which are focused around SME’s.
Are you open to tie-ups with payments banks or small finance banks?
No, because payments banks will be set up with the objective of facilitating remittances. We are targeting those SMEs who are 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 model is a nationwide model. There is no co-relation really for us to tie-up either with payments bank or small finance bank as of now.
What kind of capital raising plans you have for this year?
Our NBFC business is well capitalized so we will borrow from time to time as per the lending requirements. At the parent holding company level, Religare Enterprises we keep evaluating various strategic alternatives with a view to raise capital to fuel future growth and also to diversify and institutionalize our shareholding. IFC is a large institutional holder in our company . Our board had approved last year a capital raise plan to the tune of around Rs 1,000 crore. There is a lot of interest in the financial services industry 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 out.
There have been reports that the promoter group are looking at monetising their investments and gain the value. At what level the talks are currently?
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 comes 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. Going forward 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 going forward we do foresee that too contributing meaningfully to our overall mix.
What will be the key drivers for growth in your businesses this fiscal?
Lending will continue to grow. We have now become a pure SME financing business. We will demonstrate the growth seen in last fiscal and we would accelerate that growth because the market dynamics show that 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 fiscal 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 last fiscal.
Where exactly Religare stands in terms of SME lending vis a vie the banks with a portfolio size of Rs 13,000 plus crore?
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 the last 5-6 years. We have a good on ground presence across all key markets and this is coupled with a robust, granular underwriting capability which enables us to manage risk and analyze our customers and their respective cash flows. Our NIMs are in the range of about 4.6%.
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, 2015) we have clocked a Gross written premium of around Rs 276 crore on a total capitalization of Rs 350 crores. This is like being probably the best and the most capital efficient insurance platform with respect to every amount of capital invested vis a 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 as per plan and we achieve 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 US $ 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.
