With developed economies under stress, the spotlight is on India. Investors have learnt that India is the destination that can deliver higher returns on capital in these trying times, says Sunil Godhwani, Chairman and Managing Director, Religare Enterprises.
Godhwani spoke to BusinessLine of the way the BFSI (banking, financial services and insurance) sector will evolve and how it stands to gain, going forward. Religare Enterprises is a holding company of a diversified financial services group that has presence in SME (small and medium enterprises) lending, capital markets, wealth management, life and health insurance, and asset management. In FY14, Religare’s balance sheet stood at ₹14,139 crore.
I think for the first time investors are looking at India seriously. In the last six-seven years, there has been no positive movement as such, only lateral.
Second, is the need internationally for capital to get higher returns. Every other economy is under stress, be it Europe or China. The US is just recovering and Japan has its own issues. They are realising that they have to focus more on India.
Third, is the demographic dividend that will start playing out. There is a lot of talent which is untapped. This is going to come out and the financial services sector will be the largest gainer.
Fourth, is the feel-good factor in the country. If we have seen the stock market last year, the way it has gone up; one should, however, not be so upbeat if we break it down in a granular manner. Fifth, the SME sector needs to get going. The heart beat of the country is the SME sector. There is a feel-good factor today. There is a realisation to that effect within that sector, but the stress is not over yet. So, if that sector gets going that will change a lot more things here.
What steps have you taken to enhance the productivity of your distribution network in retail broking?
Broking has taken a 180-degree turn in the last three-four years. We realised that the business model has to be changed. We did three things — we brought in efficiency by bringing in technology, and reduced the staff and the number of branches. For instance, Delhi had 22 branches, which we brought down to nine, but the efficiency of these is higher than the earlier 22.
We went into the highest category of compliance and focussed on building un-leveraged businesses. Regulations have changed in the last three years with higher level of compliance coming in.
Five years back a majority of the loans were given against shares. Now, they are far more stable and gives a higher valuation. That business will remain whether markets are up or down.
What is the timeline you have given yourself to exit Aegon Religare Life Insurance JV?
There is no question of waiting. They are very close to disclosing their new partner. Aegon was running it and we were more of a silent partner. They were very good partners, but the business was not run to our expectations. We would have liked it to be run like any of our Tier-1 businesses.
You did not receive a bank licence. Has it made a difference to your business plans?
It has not made any difference. Getting a licence was more from an ambitious perspective. We are practically running like a bank. We take care of all the requirements of our clients other than taking deposits. NBFC guidelines are stricter than those for banks. We will wait for the guidelines for continuous authorisation of universal banks to see what happens.
What happened to US-based Customers Bancorp Inc’s investment in Religare Enterprises? Why did they not subscribe to your warrants of $28 million?
They did not subscribe because of some challenges with their regulators in the US. They were interested in coming if we got banking licence. Delay (in announcement of banking licences) also put them off. They are still a shareholder with an investment of about $24 million, which is a 3-4 per cent stake.
Your board has approved raising equity of up to ₹1,000 crore? What are you looking at?
In our business, the raw material is equity. We really do not need it right now. Religare is a closely-held company and liquidity of the scrip is limited. Now, the company is mature with a stable team and (it’s) time to diversify and widen the shareholder base. We might bring in shareholders at the holding-company level.
When do you expect your health insurance business to generate positive cash flows?
Health insurance is doing very well. It is a joint venture with Union Bank of India and Corporation Bank. In two years’ time we expect positive cash flows. Being a valuation business, if you put in a dollar today, it gives you a 2x multiple after a year.
Correction
This copy has been modified to correct Religare Health Insurance's joint venture partners as Union Bank of India and Corporation Bank, from Canara Bank and Oriental Bank of Commerce.