R-Cap rejigs model to apply for banking licence

With an aim to becoming a bank, Reliance Capital on Thursday said it would convert its commercial finance division into a wholly-owned subsidiary directly under the Capital umbrella, making the parent a core investment company, which then can apply for a banking licence.

The business would be merged with the wholly-owned subsidiary Reliance Gilts and the combined entity would then be renamed as Reliance Commercial Finance.

Except the commercial finance business, which had assets under management of Rs 15,049 crore as of December 31, 2015, all other businesses of Reliance Capital are held as wholly-owned or majority-owned subsidiaries and the move to make the commercial financial business subsidiary would align the overall operating structure, said Sam Ghosh, executive director and group chief executive officer of Reliance Capital.

This would facilitate the treatment of the company as a core investment company (CIC) by the Reserve Bank of India (RBI), Ghosh said.

Under RBI rules, entities or groups are required to set up a bank through a wholly-owned Non-Operative Financial Holding Company (NOFHC). In this case, Reliance Capital will act as the NOFHC.

"Reliance Capital would be applying to RBI for registering itself as a CIC post the transfer and this move would also facilitate the application of banking licence, as and when RBI policy permits," a statement from Reliance Capital said.

By bringing the commercial finance arm in the holding company structure, the firm expects to "enhance management focus on Reliance Commercial Finance and also provide flexibility to the company to unlock value through stake sale," Reliance Capital said, adding the transfer proposal of the commercial finance business, which is into asset-backed lending, was approved by the board on Thursday and the company would file for requisite approvals with an aim of making it effective starting April 1.

"Reliance Commercial Finance has about 900 employees and the proposal will enhance employee engagement and retention through an ability to grant ESOPs (employee stock ownership plans) in the business," said Ghosh.