Reliance Capital Blog

Reliance Capital, India's Berkshire Hathaway

Tuesday, February 03, 2009

Reliance Capital gets nod to float NBFC, home finance firm

Reliance Capital has got the regulatory approval to set up a housing finance company (HFC) and a non-banking finance company (NBFC) and intends to kick off operations with focus on small ticket loans. The companies, which will be subsidiaries of Reliance Capital, are in the process of setting up teams and is looking to commence operations in a couple of months.

“The market is not conducive to large-scale business at the moment. We will start slowly, focussing on the small ticket loans, and once things start improving, we will build on it,” said Reliance Capital CEO Sam Ghosh. To start with, funding requirements of both the finance companies is expected to be met though Reliance Capital and based on the business volume, the company will look for other sources of funds.

“At the moment both the companies are well capitalised. If the business volume picks up, to maintain the capital adequacy ratio of 15 per cent, we will look at other options of external funding,” Ghosh told Business Standard. He also did not rule out the possibility of tapping the equity market in a few of years.

At present, the home finance is clubbed with the consumer finance business of Reliance Consumer Finance but the Anil Ambani group sought separate licences to avail of special benefits associated with being a housing finance company regulated by National Housing Bank. The biggest benefit is the facility to tap the refinance window which gives access to cheaper funds. In addition, HFCs can also repossess assets where installments are overdue, can do with a lower capital adequacy ratio and access to external commercial borrowings.

“The approval will help Reliance Capital grow the housing finance business in a more focused manner and achieve certain objectives. Our objective is to be one of the leading housing finance companies over the next three to five years,” the company said in a statement.

Reliance Capital to dilute stake in its broking arm

Reliance Capital wants to strengthen presence in the brokerage of reinsurance products and risk assessment.

Reliance ADAG is in talks to sell a minority stake in its insurance brokerage business to the UK-based insurance broking firm THB.

Even as the diversified Indian group is talking to four international firms including Lockton (world's largest privately held independent insurance brokerage firm based in US) besides two other UK firms-- Howden and Tyser to sell a stake in Standard Composite Insurance Brokers (SCIB), THB is the frontrunner for the deal, which could be worth Rs 250-300 crore, according toa report in The Economic Times.

SCIB is a subsidiary of Reliance Money, the stock brokerage and financial products distribution company of Reliance Capital. Reliance Capital is the public listed financial services firm promoted by Reliance ADAG.

The idea behind the transaction is to build a stronger presence in the brokerage of reinsurance products and in risk assessment vertical, where Reliance Capital is a small player. It is now looking to get strategic expertise from foreign partners who are specialists in the reinsurance business. Some of the big international players in the Indian re-insurance distribution business are Aon Global and Marsh.

Established in 1968 THB provides insurance broking, risk management and underwriting services to wholesale and retail clients and last year acquired Lloyd's broking interests. It went public on the Alternative Investment Market of London Stock Exchange in 2002.

There are two alternatives before Reliance Capital for the transaction: either dilute a minority stake in the existing insurance broking firm SCIB to the foreign partner or form a company which would house the reinsurance and risk assessment businesses where the foreign partner would hold the majority stake.

R-Cap may tap strategic investors

Aiming to become the leading market player in the next 3-5 years, Anil Ambani group's Reliance Capital will look at tapping strategic investors for its home loan and consumer finance businesses in about a year's time or as and when market cond itions improve.

The company last week received the necessary regulatory approval from the National Housing Board for setting up a home loan subsidiary, in addition to RBI's nod for setting up an NBFC subsidiary for its consumer finance business, both of which it plans t o put in place in the next couple of months.

“The company may look into the option of involvement of a strategic investor but not at present. May be in a year's time or as and when market condition improves,” Reliance Capital CEO, Mr Sam Ghosh told over telephone from Mumbai.

“At this point of time the valuations of these entities are not clear. Once the business picks up and the exact valuation of the entities is known, we may consider the option (of strategic investor),” Mr Ghosh added.

He, however, noted that the company had no plans under consideration to tap the equity market for raising funds and added that Reliance Capital had enough capital in hand.

“Going forward the company would like to go for organic growth,” he said.

Both the HFC and consumer finance subsidiary, where prime focus would be vehicle loans and lending to SMEs, would be in place in the next two months, and the employees currently working with the related businesses at Reliance Consumer Finance would be re located to the new entities, he noted.

Reliance Capital is already into the mortgage business through its consumer finance arm.

At present, the home finance business is clubbed with the consumer finance business of Reliance Consumer Finance, a wholly-owned subsidiary of Reliance Capital