Shachindra Nath of Religare Enterprises says that their business would be built around the financial inclusion goal of the banking regulator and ensured compliance with all the norms of of the RBI.
Religare Enterprise, which is very keen on a banking license, believes that the clarifications issued by the Reserve Bank of India (RBI) are on expected lines and the company will comply with all the RBI norms.
Speaking to CNBC-TV18 about its non banking financial company (NBFC) Religare Finvest, Group CEO Shachindra Nath said that the firm’s average disbursement annualy is Rs 6,000 crore; out of which Rs 1,000 crore qualify as priority sector lending.
"For Religare Finvest capital adequacy we are at the moment roughly in the range of 20 percent; 19.5 to 19.8 percent. So we have a sufficient capital adequacy cushion," he added.
Meanwhile, the company would utilising facilities of Religare Infrastructure or Religare branches, operating in 600 cities and 1800 locations to expand their NBFC business (Religare Finvest) to fulfil the parameters set by the RBI.
"We would inject an non operating financial holding company (NOFHC) below Religare Enterprises and all our subsidiaries would become the subsidiary of the NOFHC; Religare Enterprises as the promoter would hold 100 percent of NOFHC," he added.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Will this commitment of statutory liquidity ratio (SLR), cash reserve ratio (CRR) and more importantly priority sector; no let up on all this, be a very big headache?
A: I don’t think so. From day one the Reserve Bank of India (RBI) has made it very clear that the policy objective is to achieve financial inclusion and also to make sure that new banks commit themselves in the form of capital, and deploy their assets into priority sector lending.
Religare Finvest which is our large non banking financial company (NBFC) has a portfolio on small and medium enterprise (SME) financing. We do roughly around Rs 11,000 crore of assets towards SME.
Once there is an approval, we will initiate a bank. We will have to look at on board assets, which is largely in the priority sector (lending) to balance out the portfolio. We also do a lot of priority sector business which get securities to other banks and then we have to hold on the asset in our book.
For a short period of time, the cash earning in the NBFC would get deployed towards maintaining these priority sector loans and SLR requirement. But if one intends to build a bank which is a long gestation business and you want to commit yourself for five to ten years that shouldn’t bother a player which is intending to become a bank.
Q: Could you tell us for Religare Finvest, currently what the CRR, SLR and what portion could at current reckoning be perhaps constituted as priority sector lending. Just to understand how much further the bank if you do get, will need?
A: If one looks at our capital adequacy we are at the moment roughly in the range of 20 percent; 19.5 to 19.8 percent. So we have a sufficient capital adequacy cushion.
With respect to the priority sector loans, we do roughly around out of an average disbursement of Rs 6,000 crore every year. We do around Rs 1,000 crore which can be considered for priority sector lending.
But the machinery and the infrastructure which our NBFC has got, has the ability to take it up further to make sure that we confirm to the 40 percent priority sector lending norm.
Q: What about the distribution of your branches that 25 percent will have to be in unbanked areas? How is the current layout of your branches and do you see some problems over there in terms of not getting a branch licence for some of your tier I branches?
A: These are some of the commitment for the benefit of being a bank. Everyone has to be ready to take some of these obligations as a business call rather than just to qualify.
Q: What is the break-up at the moment?
A: Religare Finvest operates roughly around 60 markets but it does not operate into the market which would get qualified into those areas where what RBI wants.
Religare Infrastructure or Religare branches are operating in 600 cities with 1800 locations and we have to see how some of that infrastructure is utilized towards expanding our branch network for our NBFC.
In our application process we would put up some proposal that how do we intend to achieve that. Within that time frame we would achieve 100 percent. We don’t see it as a challenge because we have taken that as a business call.
Where we think that inclusion is just not for the purpose of getting the licences, inclusion has to be a prime business objective and we will build business around it.
Q: The other issue which some analysts have been pointing out is the return of assets (ROA) and other ratios of NBFCs being higher than what the banks have. One analyst has very clearly asked; is there a benefit in applying for a licence in all cases? What about you?
A: If one looks on a short-term basis, between one to two years, probably three years; one would find that continuing to run an NBFC is far more attractive on basis of ROA and ROE. But there is a limiting factor. NBFCs in the current environment, once you cross the threshold of Rs 25,000 crore of asset; beyond that it is very difficult to grow.
It is difficult to manage the liability side of the balance sheet because you are wholesale funded. So, the funding is available only through public sector and private sector banks or to that extent capital market. One can’t build a large institutionalised business in the NBFC format.
I think given somebody like Religare which has an eco system of across every segment and sector of the financial services industry, bank becomes a fulcrum to build much larger business and being able to service each segment of our customers.
We are here as an institution to play the long-term innings and make sure that every segment of the customer which we serve, whether it is rural, mid-market corporate, SMEs or large corporate we should be able to provide them wholesome service.
From that perspective, we think in five years time, having a bank is far more beneficial purely from a return on equity to the shareholders versus just being an NBFC.
Q: Who will own the non operative financial holding company (NOFHC), will it be the listed entity? L&T was hinting that the listed entity the businesses will be de-merged to levels below and you will own the NOFHC?
A: Lot of players have to do lot of reorganization and restructuring. Fortunately, for us, we have always operated in last 13 years exactly in the same manner as RBI wants.
So, Religare Enterprise is an investment holding company which is listed. We don’t operate any business. Each of our business is segregated subsidiary of Religare Enterprises.
So, we would inject an NOFHC below Religare Enterprises and all our subsidiaries which are currently the subsidiary of Religare Enterprises would become the subsidiary of NOFHC and Religare Enterprises as the promoter would hold 100 percent of NOFHC.
Q: The indication is that the share of NOFHC shall not be transferred to an entity outside the promoter group. Does that mean that the promoters perhaps can never monetize their holding or they can by issuing fresh shares? Can clarity on that about the monetisation of the NOFHC?
A: Religare Enterprise is a listed investment holding company which is registered as NBFC. We would it convert into a core investment company. The promoter will own 71 percent and balance is to be held by public including institutional investor like IFC.
The monetisation of shareholding for any shareholder including the promoter is through the listed company itself because NOFHC would be a 100 percent subsidiary of Religare Enterprises. All our businesses would be subsidiary of that. If they want to monetise their shareholding they can always monetise from Religare Enterprise itself.
Q: What is your percent of revenues from the NBFC, from the securities company –which will be the top three contributors?
A: NBFC contributes roughly around 72 percent of our consolidated revenues. Our securities business contributes around 11 percent and rest is between our asset management, life insurance, health insurance and global asset management.