General insurance arm stake sale by December: Sam Ghosh

Interview with Chief Executive Officer, Reliance Capital

Reliance Capital has posted a decline in the net profit for the quarter ended March due to a onetime gain that has accrued in the fourth quarter of 2011-12 by of selling stake in the life insurance company. Sam Ghosh, chief executive officer of Reliance Capital – which is an aspirant for getting a banking licence-- discusses the bank’s earnings and future plans with Manojit Saha.

Reliance Capital consolidated profit for the fourth quarter of FY13 came down to Rs 265 crore from Rs 329 crore.  What was the reason for the decline?
Is Q4 of last year, we have the profit from selling stake in the life insurance company.  That was a onetime gain. This year, it is profit from the businesses only.

In addition, in Q4 of FY12, for the general insurance business, there was a loss of Rs 248 crore. But, now we have made a profit of Rs 17 crore.

Overall profit for the company has been Rs 812 crore for the whole year which is an increase of 77% as compared to the previous year.

How have the asset management and the lending business fared in the fourth quarter?
For AMC business, profit growth was by 10% to 115 Rs crore. On the life side we have a slight dip, because, in FY12 Q4, we were doing more non-participating business. This year we did participating business. Most NBFCs book profit from non-participating business in the last quarter.

But, if you look at the full year, profit of the life insurance company is slightly higher than the previous year.

In commercial finance, profit has increased to Rs 170 crore from Rs 133 crore.

Why was there was a dip in profitability in the broking business?
In broking and distribution, there is a dip in profit from Rs 35 crore to Rs 19 crore. The reason for it we had set up large number of branches on the distribution front, and we added about 1,000 people. We expect the revenues from this investment coming in the next 2 quarters.

The AUM of lending business has grown by 9% to Rs 15,500 crore.

With the interest rates softening, was there a favourable impact on your margins?
We have benefitted from the falling interest rate in the last few quarters, as our cost of funds have fallen which has given additional flip on the profit.

The net interest margin is about 4.3% for the whole year but for the last quarter it was 4.9%. If interest rates come down profit will be better.

You are also in the gold loan business. What has been the impact due to the fall in gold prices?

Our gold loan book is very small, which is around Rs 70 crore. So, there was not much of an impact due to the fall in gold prices. Our LTV ratios are very conservative, at about 55%, as compared to RBI’s norm of 60%.

You were looking to sell about 26% stake in the general insurance business? What is the status on that?
On the general insurance side, we are still looking for bringing in a partner. We want to complete the process over the next two quarters, that is, by December.

Reliance Capital is keen to enter the banking sector. Do you think converting the existing NBFC into a bank – as the Reserve Bank of India’s final norms mandated -- will be challenge for you?

I suppose that is one of the queries that all NBFCs will have with RBI. So, we have to see how RBI responds to that. Will RBI give time or that has to be done from day 1. However, to give just some guidance, NBFCs with smaller AUM will find it easier than the large ones.

So, front that point of view, Reliance Capital is in an advantageous position…
It looks so. But let us wait and see if the regulator clarifies on this issue.