Sam Ghosh of Reliance Capital explains on CNBC-TV18, after the announcement of quarterly results, that the company was able to post a profit of over Rs 100 crore due to an effective turnaround in each of its businesses. The company's general insurance business broke-even in the current quarter with a PBT and PAT of Rs 15 crore on marginally reducing the third-party motor pool segment in the overall portfolio and shifting to more commercial lines of business.
Ghosh adds that the company looks forward to receiving a bank licence and reveals that the company stands to qualify according to the draft guidelines. However, he concludes that a clearer picture would emerge only when the final guidelines are announced.
Below is an edited transcript of the interview on CNBC-TV18
Q: Could you explain what happened on the subsidiary front this quarter?
A: Reliance Capital recorded a profit of over Rs 100 crore, posting nearly 68-percent growth compared to last year indicating significant improvement in each of our businesses. General insurance posted a turnaround and this quarter it has posted a profit of Rs 15 crore. Commercial finance increased profits by 29 percent at Rs 84 crores and the broking and distribution arm also grew nearly 200-percent to Rs 10 crore.
In the life insurance arm, the profit booked is in the participating business which is about Rs 40 crore, recording a growth of nearly, 300 percent. The non-participating business has shown a profit of about Rs 85 crore which will accrue in the last quarter. Finally, our asset management business booked a profit of Rs 58 crore.
So, all our businesses are on track and have shown an increase in profit compared to last year. The asset management arm requires investment in smaller towns to enable us to earn disproportionate revenue. We have already recruited people as well as opened branches and the profits from this arm will accrue in the next few quarters.
Q: Your general insurance business has broken even in the current quarter. What do you lies ahead in the next two quarters?
A: Our general insurance business recorded a quarterly profit of about Rs 15 crore in PBT and PAT. We expect that the level of profit to start increasing on a quarter-on-quarter basis. The primary reason for improved performance was due to the complete booking of the third-party motor pool provisioning requirements last quarter. Our combined ratio will also come down.
Some of the key improvements implemented in this business include moving to more commercial lines of business and marginal reduction of the third-party motor pool which constitutes nearly 65 percent of our portfolio. Health insurance, which is again a retail line of business, has been maintained at about 15 percent. So the balance is from commercial lines of business which have started to grow aggressively. So this will certainly help improve profits going forward.
Q: The market is keen on knowing whether or not you are looking for a partner on the general insurance side when the Bill is cleared and the FDI percentage in insurance is increased. What is your game-plan?
A: We plan to bring in a partner if the FDI level is hiked to 26 percent. But I don't know how the Bill may finally turn out to be. A turnaround in our businesses was also eagerly awaited. Now that the turnaround has been affected this quarter, we expect to see quarter-on-quarter improvement in terms of profitability. This now makes it easier to bring in a strong entity interested in partnering with us in this business.
Q: The finance ministry seems not to be terribly opposed to companies with exposure to broking or real estate in terms of handing out banking licences. What are your intentions and do you think you may just be able to fit the bill?
A: Reliance Capital, as our chairman has stated in the past, is interested in getting a banking licence. So we would certainly like to apply as and when the guidelines allow us to. In terms of the broking issue raised earlier, the draft guidelines mention that the broking business cannot be more than 10 percent of total revenue.
Our broking business is lower than that level. So, from that perspective we obviously qualify but we will have to wait and see what the final guidelines state before deciding how to go forward with the application for a banking licence.