Hopeful of getting a banking licence for 'Reliance Bank', industrialist Anil Ambani today said this proposed venture will help lower Reliance Capital's debt to one-fourth of current levels and would be listed as a separate entity with an IPO after three years.
Addressing shareholders of Reliance Capital, the group's financial services arm, Ambani also exuded cofidence in the long-term growth potential of the proposed bank as a "profitable institution in itself".
"We are in constant touch with the regulator (RBI) to ensure that all queries are answered (with regard to our application for a banking licence). We are hopeful that we will be among the first few recipients of the banking license," the Reliance Capital Chairman said.
Replying to queries about possible listing of various subsidiaries of Reliance Capital, Ambani said that the parent company would remain a listed entity and there was no proposal to list any other entity except for the proposed bank.
"As and when we get the licence and when the three-year period lapses, at that stage, as per the regulations there will be an IPO and we will list Reliance Bank," he said.
The licences are expected to be finalised in 2014.
Ambani said that immediate benefit of the banking foray would be a reduction in Reliance Capital's consolidated debt from Rs 20,000 crore to Rs 5,000 crore, due to transfer of its Commercial Finance business to the proposed bank.
The company, which is already present in a host of financial services businesses like insurance, mutual funds and brokerage, submitted an application for banking licence in June to the Reserve Bank of India (RBI). R-Cap is one of the 26 entities that have applied for banking licence.
Ambani said that the banking foray would also help improve R-Cap's debt-equity ratio to "a most conservative level of 0.5-1, which is far lower than industry standards".
Emphasising that the company was adequately capitalised, Ambani said there were no plans to ask R-Cap shareholders for providing initial capital for the bank.
"We presently have no plans to make a capital call, or ask you for money to invest in the bank, as your company is adequately capitalised.
"However, at the end of three years, we intend to list the proposed bank, as per existing guidelines, and you may be assured we will fully explore all avenues to benefit our over 12 lakh shareholders at that time," Ambani said.
R-Cap plans to focus on five major businesses - life insurance, general insurance, health insurance, asset management and banking - for future growth, he added.
Ambani-led Reliance Group is present across various consumer-facing businesses like financial services, telecom, energy, power, infrastructure, media and entertainment.
R-Cap has also proposed to partner with Japan's Sumitomo Mitsui Trust Bank and Nippon Life Insurance for its proposed banking venture, with 4-5% stake to each of the two.
RBI has decided to issue fresh banking licences after a decade and the other contenders in the race include Tatas, Aditya Birla group, L&T, India Post, LIC Housing Finance, Bajaj, Edelweiss, IDFC, IFCI, Indiabulls, India Infoline, Muthoot Finance, Religare, Shriram Capital, SREI Infra, UAE Exchange, Tourism Finance Corp of India and JM Financial.
Ambani also welcomed the new guidelines of insurance regulator IRDA that allow banks to be licenced insurance brokers.
"We welcome the IRDA's new regulations encouraging banks to become brokers and not remain just as corporate agents. Such a transition will benefit hundreds of millions of customers by providing them a wider choice of products from several life companies from each bank.
"This change will also widen distribution and reach for all players, especially newer entrants such as Reliance Life Insurance, and lead to our accelerated growth across the country," he said.
Ambani said that R-Cap delivered robust financial performance in the last fiscal, despite tough economic conditions.
Its total income rose by 13% to Rs 7,519 crore in the last fiscal, while net profit grew by 77% to Rs 812 crore. Its total assets rose 15% to Rs 40,588 crore, while net worth has grown by 3% to Rs 11,991 crore.
Ambani said that the banking foray "will dramatically change and transform Reliance Capital's future prospects" and the company would have a "very strong" financial position with its asset management, life and general insurance businesses.
Reliance Capital Chairman also said that the group is open to more partnerships, and the focus would be health insurance business and to gain expertise in it.
"Reliance Capital has all its financial capital in place. We are not looking for partnerships to enhance our financial capabilities but more for technical knowledge and domain expertise," he added.