Shachindra Nath, group chief executive officer, Religare Enterprises, tells Sheetal Agarwal the company is confident of securing a banking licence. He attributes the moderating loan growth at Religare Finvest to the company’s cautious and prudent approach. Edited excerpts:
How do you rate Religare’s eligibility to secure a banking licence?
In the last 10 years, Religare has built a strong integrated financial services business. Our non-banking financial business is very strong. Simultaneously, we have built very large asset management, broking and insurance businesses. Therefore, we have good reach, the ability to manage multiple businesses and comply with the regulatory guidelines and are professionally managed. I think we are quite capable of converting our non-banking financial company, Religare Finvest, into a bank. As a bank, we would be able to support SMEs (small and medium enterprises) far better. International Finance Corporation has invested $75 million in Religare and would be a partner in our banking foray. However, the Reserve Bank of India (RBI) would take the decision on which entities they want to award banking licences to.
According to the draft guidelines, entities deriving more than 10 per cent of their revenues from broking activities wouldn’t be eligible for banking licences. For Religare Enterprises, broking accounts for about 12 per cent of its revenue. Would this be a hurdle?
I think RBI’s key concern relates to the aspect of self-dealing and it intends to prevent proprietary trading activities. We do not carry out any activity at the proprietary level. Hence, we believe this should not act as a hindrance.
Do you think prerequisites such as 25 per cent branches in non-banked areas, priority sector lending and higher provisioning would lead to higher costs and impact the profitability of new banks?
It is very clear the central bank’s aim is to expand banking penetration in the country. Any entity entering this space should know banking wouldn’t 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 dilute profitability. Even with these requirements we are very confident, we will be able to build a feasible business model.
Would you be applying for the licence through the holding company (Religare Enterprises) or a subsidiary?
Religare Enterprises is the holding company for all our entities and that would remain unchanged. We might seek the conversion of Religare Finvest into a bank.
What is the outlook on Religare Finvest’s loan growth and margins?
Loan growth at Religare Finvest moderated, as we were being more cautious and prudent while lending. We might review this stand in FY14 if the macro economy turns favourable and growth rates improve.
Religare Finvest’s gross non-performing assets rose from 0.69 per cent as of December-end 2011 to 1.22 per cent as of September-end 2012. Given it primarily lends to SMEs, is there significant pressure on asset quality?
Some of our accounts have been lumpy, as 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 fare?
The margin and broking business has shrunk permanently. We have remodelled that business and bought it back to a profitable path. About six months ago, we launched the health insurance business and 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 face challenges. We are reviewing the business critically and trying to bring it close to break-even as quickly as possible.
Do you think the Rajiv Gandhi Equity Savings Scheme (RGESS) would boost retail participation in the stock markets significantly?
We think RGESS is a very good and bold initiative. But it is for first-time investors alone. The government should make investment up to 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 it becomes successful.