Will use funds for housing fin, commercial fin biz: Rel Cap

A: Today we closed the transaction with Sumitomo Mitsui Trust Bank (SMTB). They have taken 2.77 percent stake in Reliance Capital for Rs 371 crore. One of the big things is that they come in as a strategic partner into Reliance Capital. The main reason for them to come in is to look at how do we get into universal banking together as well as get into other areas of the financial services space where they are strong.

The usage of funds from this strategic investment is primarily towards housing finance and commercial finance business. Because housing finance we want to grow that. We have a fairly small book of housing finance, which is about three years old and commercial finance which is about 7-8 years old but we want to grow that.

Primary focus would be on SME area because we are very strong on SME segment and so is Sumitomo Mitsui Trust Bank. Our intention is that can we do some cross-border support for their SMTB clients.

Q: You said you are going to utilise this for housing finance so have you set a target for yourself say from a year from now how much will that book grow to what percent and so the commercial vehicle business?

A: If you look at our housing finance business today the asset under management (AUM) are about Rs 4,000 crore obviously we look at doubling that in the next 12 months. Commercial finance will go about 20 percent per year so that is our initial focus. We expect that once the Indo-Japanese corridor business starts flowing through the opportunity for us is significant. If you look at over 50,000 Japanese SME clients want to come to India. Large numbers of them banked with SMTB bank so we would like to help them therefore we need to set up here to help them get joint venture partners but also for their financing requirements.

Q: In commercial finance business in the last quarter results mentioned there was a slight marginal increase in the non performing assets (NPAs) on that book. Going forward how are you looking to mend that and what is your NPA targets for the next quarter?

A: If you look at, our NPA levels have remained flat for the last 3-4 quarters. It is about 2.3-2.4 or in 2.5 in that range. I do not think it will go up any further most likely it will start coming down. That was again primarily due to one portfolio which was our commercial vehicle portfolio which we are substantially reducing. If you look at the SME portfolio the NPAs are below 1 percent.

Q: Coming to the bank business you mentioned that you are keen on making the application in fact there was an application that was also made and when you have strategic partners so what will as far as your partners go for the banking business who are you in talks with and at this point in time what is the shareholding pattern like and once they come in what will it come down to?

A: Our intention is in each of our businesses we should have strategic partners who are strong in that business. So for instance our insurance business we have Nippon Life because they have strong asset management business. On general insurance also we will be looking at a strategic partner and once the insurance bill gets passed the health insurance also we will look at a strategic partner.

So similar on the banking side we felt that since we are strong on the SME front, on the lending front as we have apply for universal banking licence we would like to have Sumitomo Mitsui Trust Bank as our key partner or strategic partner. If there are one or two smaller partners who bring in value then we will obviously look at them. But also in the last licensing process Nippon Life had shown interest and we had kept a small stake for them.

Q: How will the shareholding pattern look then say for instances this happens?

A: Let us wait and see what the universal bank guidelines talk about and then we know how to bring a shareholding structure in place.

Q: Coming to your other businesses life and general, the insurance business the bill is expected to pass anytime now. Your sense on what you think this means for the industry as a whole in terms of penetration and also the funds coming in to the business for sure. To what extent you think that you could also be able to capitalise on that?

A: If the insurance bill gets passed which we are obviously hopeful that we will get through, market estimates are nearly over Rs 40,000 crore of capital come into the insurance industry. If we look at across all the insurance companies and their requirements but more important is that penetration levels will go up because life insurance penetration has come down in last few years, they were gone up fairly substantial during the unit links days. But once the capital comes in the companies will be more capitalised and we have to create more distribution so ultimately distribution drives insurance business penetration. As long as you can invest in distribution and you will get more volume of business and penetration will go up. With 49 percent also the foreign partners wherever they want to take up to go up to 49 percent, they also have more of a say in the business but also the companies which want to raise money through IPO also they also have the auction of doing that.