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How do you rate Religare’s eligibility to bag the Banking license?
Religare has built a strong integrated financial services business in the last 10 years. Our NBFC business is very strong. We have simultaneously built very large asset management, broking and insurance businesses. Thus, we have good reach, ability to manage multiple businesses, comply with the regulatory guidelines and are professionally managed. I think we are quite capable to convert our NBFC- Religare Finvest into a Bank. As a bank, we will be able to support SMEs far better than today. Also, International Finance Corporation (IFC) has invested $75 million in Religare and will support us in our Banking foray as a partner. However, RBI will take the final call on what kind of entities they want to award banking licenses to.
As per the draft guidelines, entities deriving more than 10% of their revenues from the Broking business will not be eligible for the Banking License. Religare Enterprises gets about 12% from the Broking business. How much of a hindrance will that act?
I think RBI’s key concern is regarding the self-dealing aspect and they intend to prevent proprietary trading activities. We do not do any activities at the proprietary level. Hence, we believe this should not act as a hindrance.
Do you think some of the prerequisites such as 25% branches in non-banked areas, priority sector lending, higher provisioning will lead to higher costs and impact the profitability of new banks?
It is very clear that the central bank’s aim is to expand the banking penetration in the country. Any entity entering this space should know that Banking will not generate returns from day one. One has to be patient. Having said that, I think it is a myth that rural branches and financial inclusion dilutes profitability. We are very confident that even with these requirements; we will be able to build a feasible business model.
Will you be applying via the Holding company Religare Enterprises or any other subsidiary for the license?
Religare Enterprise is the holding company for all the entities and that will remain unchanged. We may seek conversion of Religare Finvest into a bank.
What is the outlook on loan growth and margins for Religare Finvest?
Loan growth at Religare Finvest moderated as we are being more cautious and prudent while lending. We may review this stand in FY14 if the macro turns favourable, which could see growth rates improving.
Religare Finvest’s gross NPAs have moved up from 0.69% in December 2011 quarter to 1.22% in the September 2012 quarter. Given that it primarily lends to SMEs, are there significant pressures on asset quality?
Some of our accounts have been lumpy and those are reflected in our numbers. While our broad portfolio remains very healthy, we continue to watch the situation closely.
How are the Broking and Insurance businesses expected to do?
The margin and Broking business has shrunk permanently and we have remodelled that business and bought it back on the profitable path. We launched the health insurance business about six months back and we have been very cost prudent. We will continue to grow our health insurance business very patiently. A strong hospital network and good geographical reach are key positives. The Life insurance industry continues to remain very challenged. We are reviewing the business critically and trying to bring it close to break-even as quickly as possible.
Do you think RGESS scheme will boost retail participation in the stock markets significantly?
We think RGESS Scheme is a very bold and good initiative. But the problem is that the scheme is only for first time investor. Instead, government should make investment upto a certain amount tax free - irrespective of whether one is a first time investor or not. We are promoting this scheme as much as possible and we hope that it becomes successful.
