A day after roping in Japan’s largest life insurer, Nippon Life, as a 26 per cent equity partner in Reliance Life, his insurance business, Sam Ghosh, CEO of Reliance Capital, tells Niladri Bhattacharya his company is set for a high-growth phase in the coming year. Reliance Capital is planning to double its commercial finance portfolio in two-three years to Rs 25,000 crore. Edited excerpts:
The high valuation you got for Reliance Life must have been a pleasant surprise, specially when the private life insurance industry isn’t doing all that well in India.
Well, valuation is a matter of debate. There must be a reason why buyers are willing to pay a premium. Nippon Life is a long-term player and so they have taken a long-term view about the Indian market. All our policies have at least a 15-year term. Regulatory changes will happen but, ultimately, there will be growth. One should not bother too much about short-term issues.
Can we expect an IPO from Reliance Life soon?
We will take a decision jointly with our strategic partner. The IPO issue can come up only when the foreign direct investment cap is raised to 49 per cent (as prescribed in the Insurance Amendment Bill). At this point, a domestic IPO does not make any sense.
You are getting Rs 3,062 crore from Nippon. How do you plan to deploy this?
We are not giving any break-up on how this money will be used. But since it’s a secondary sale, money comes back to Reliance Capital. So, that money can be used to grow our other business. For example, our commercial finance business is growing at a very fast pace, so we would like to put in some capital there. Similarly, we would invest some money in our exchanges business as well.
You said earlier that your general insurance business will break even next year. But Irda has increased the solvency requirement for the motor third-party pool to 150 per cent recently. How will it impact you?
The third-party motor insurance pool is a matter of concern. Initially, we thought the general insurance business would break even by early next year. It might take longer due to the recent Irda guidelines, which will require higher provisioning.
What about the much-talked merger of the general insurance business with Royal Sundaram General Insurance?
We have not signed any agreement with any company regarding merger and amalgamations. We are waiting for the final guidelines to come out.
On commercial finance, 95 per cent of your incremental loans are now secured. The loan book grew by more than 60 per cent to around Rs 10,000 crore as on December 31. How did you manage that?
We are not doing any small-ticket retail loans. We are comfortable in dealing with businessmen and SMEs (small and medium enterprises). These are secured loans, where growing the business by 20-25 per cent is not difficult. For 60 per cent of the business, we have a quarterly reset clause on lending rates, so there are no mismatches in assets and liabilities. Nearly 40 per cent of our commercial business is home finance, where loans are given against properties.
How do you plan to grow this business?
One of the main strategies will be to tap our own ecosystem. For example, tapping contractors already engaged with Reliance Infrastructure and Reliance Power. Right now, 10 per cent of our business comes from internal sources, and we aim to increase it to 20-30 per cent in the next two years.
On your asset management business, over the past few quarters, you have increased the retail debt portion significantly.
The main money earner in our asset management business is equity, which is Rs 37,000-Rs 38,000 crore. Then retail debt, around Rs 20,000 crore. Over the past 18 months, the retail debt portion has increased significantly. That is why our profitability has improved. Going forward, we will continue to mobilise more retail debt.
How do you see the profitability of Reliance Capital?
Apart from the general insurance business, nearly all our businesses are in profits. For the AMC business, our profits are already growing by 25-30 per cent. In our commercial finance business, they were higher by 100 per cent in the last quarter and we hope to maintain that. In broking and distribution, we had doubled profits in the December quarter, and over the next year, profits should go up three times. We reported a small profit in our life insurance business in the last quarter and we hope to break even in the current one.
So, overall, we should double our profits next year and, thereafter, grow by 25-30 per cent.
