Sam Ghosh
Executive Director & Group CEO
Reliance Capital
We are open to acquisition, says Mr. Sam Ghosh, ED & Group CEO, Reliance Capital. In an interview to ET Now, Mr. Ghosh says that on the life side, his firm is in the process of trying for some tie ups.
ET Now: For the insurance industry, things are really picking up. A large deal was announced last week. What does that indicate consolidation is around the corner?
Sam Ghosh: If you look at from 2001 or 2002 when the market opened up, we saw that number of companies were not achieving certain volumes and we felt that in 10 years time there would be some consolidation. It did not happen, but at last now the first one being announced. I think automatically we expect that there will be lot more others thinking about what to do in the industry.
So I think it will good for the industry. There should be some of the people who want to exit should exit and the rest who wants to stay in the industry should be able to grow. For us, obviously at Reliance, we would like to be in the industry. We want to be big player and obviously we look that opportunities if they come along.
ET Now: Do you think in order to really remain a big player in the insurance industry, you need to go through the inorganic route?
Sam Ghosh: Not necessarily but obviously inorganic helps you to achieve that faster because if you want to grow quickly, organic growth will give you the 10%-15% growth every year, but inorganic will automatically give you the scale and in certain cases for instances companies like us where we do not have a bank as a partner and obviously with the new corporate agency guidelines, we are bringing some banks and in the next few months, we will be announcing some of those.
But if there is another party which has a significant bank partner, it is always good to try and merge the two because we are very strong on the agency, someone let us say very strong on banker, merge them and you will get the benefits of both.
ET Now: Would you be looking at acquiring an asset in the general life insurance or the life insurance?
Sam Ghosh: On both the businesses, we are open to acquisition. But obviously, on the general insurance side, we are strong on motor, we are strong on health, commercial line we are trying to build up. A bank would normally bring in lot of small retail fire business which is a commercial business which is highly profitable. So again on the general insurance, we have tied up IndusInd Bank, we are tied up with Bank of India so we have two big tie-ups.
We will obviously try and bring some more in. On the life side, we are in the process of trying to tie up. We tried up with some small banks, very small ones, and let us see in the next three to six months you will find that by September 30, we will have certain tie-ups.
But again, as I said, we are 85% agency company. Even if you bring in banks, there will be small banks. They will bring in only 5% to 10% of business.
ET Now: But you need to acquire an asset to broaden your customer base.
Sam Ghosh: It actually helps you in the distribution side. Ultimately, you want more distribution. Distribution brings customers. So you may get a set of customers, but if you have good distribution, it will obviously build more customers to you.
ET Now: You have been open to selling stake in the past. You have sold stake in India Insurance Business. You have sold stake in your AMC business. Are you open to more stake sales in other businesses?
Sam Ghosh: Yes. If you look at it the way I think other companies started off, they started off as joint ventures from day one. But we have started our companies, each of our companies was started by Reliance only, so now the opportunity is there to bring in some, create more value for obviously for our shareholders but also bring in a partner who can help us go to the next level.
Obviously, with Nippon Life coming in both on the life insurance and asset management to 49%, that will obviously not only creates value for Reliance Capital but also brings in expertise which we did not have right in the asset management side, now we got access to the Japanese market, we got access to international markets as well as take the best practices of Nippon Life.
In the life side also, we have taken number of best practices of Nippon Life. Same way on the general insurance side, if you look at the huge opportunities there for us on the general insurance front, we own 100% of the company. We are on the top five-six players. Obviously, we feel that the right opportunity comes, we would like to bring in a partner that will also help Reliance Capital but also help the business itself, more importantly the business will grow.
ET Now: You have been selling some of your non-core investments. Are you looking at selling some of your other non-core investments, Yatra, Paytm; are you looking at monetising some of your non-core assets?
Sam Ghosh: As the Chairman has mentioned in the last AGM, the aim is that Reliance Capital should be a financial services holding company with only financial services assets. So in the past obviously, we were more like a PE fund which had accumulated large number of non-financial services investments which obviously have laid results for us in the past and these ones obviously the ones which we continue to hold.
We will slowly exit over the next 12 to 18 months and we have been doing that if you look at last 12 months also, we managed to exit the RMW, Reliance Media Works, our theatre business and our media services business and going forward obviously we will be looking at other exit from the entertainment business but also from the private equity type fund which we are holding so all the various Paytms, Yatras of the world.
ET Now: So by end of FY17, by end of FY18, you would have exited all your non-core businesses?
Sam Ghosh: Correct. Our aim is by FY18, we should be trying to...
ET Now: What is the value of your existing non-core business?
Sam Ghosh: Somewhere around Rs 3,000 to Rs 4,000 crores worth of value is there...
ET Now: Eventually Reliance Capital wants to become a bank?
Sam Ghosh: No, I think Reliance Capital will remain as a holding company. Obviously, we like to have a bank, like to have asset management business, a life insurance business.
So wherever we hold, we hold 51% plus and obviously the bank would complement it because bank business will obviously give us the customer base, the distribution base which we lack this point.
ET Now: If you eventually have a banking business as part of your subsidiaries which means that you would have more regulations, you would then be regulated by Reserve Bank of India, at least that subsidiary will be regulated by Reserve Bank of India. Is it worth it?
Sam Ghosh: If you look at Reliance Capital, it is regulated by RBI.
ET Now: Of course, banking business is...
Sam Ghosh: We are NBFC and as we have also mentioned, we are going to become a core investment company, CIC. CIC is also regulated by RBI and one stream down also if you look at it today, we have our NBFC business, Reliance Commercial Finance which we are moving down from Reliance Capital so that is RBI regulated.
We have our housing Finance business, an HB regulated and then we have our insurance business. So all our businesses are actually regulated.
ET Now: Banking has different guidelines. I am saying very stringent guidelines both in terms of borrowing, in terms of CASA. I understand that being a bank you will have more universal portfolio. You will be able to borrow cheap. You will have access to retail deposits. Your cost of borrowing will come down dramatically. But apart from that, you also would be exposed to interest rate cycle and all the ups and downs of the economy.
Sam Ghosh: Correct. But to be able to achieve scale as an NBFC, you have only certain limited amount of scale because you are borrowing from either banks or from institutions.
For a bank obviously the fact that you can access retail deposits gives the unlimited scale and that gives you the size which you can get to and ultimately that also helps your other businesses like insurance businesses, asset management businesses, they are all benefit out a bank platform.
ET Now: If I look at the growth rate and the way we look at growth is that we always look at the new premium. The premium growth for your general insurance business has been below industry average. Is that a one quarter phenomenon?
Sam Ghosh: No. In last 12 months, it has happened and we have deliberately tried to do that because we had a large motor portfolio but in the motor portfolio also we had large third party portfolio. So what our intention was that how do we reduce our third party business? If you look at in the industry last year, most of the companies grew their third party motor business.
We de-grew our third party motor business. Our own damage business grew on the motor side, and commercial and health business grew. So our intention was that how we correct that. Now that it has corrected, you will find that now the growth rate will again come back in force.
As told to ET Now