Reliance Capital rallies on banking licence announcement
Reliance Capital ties up with Sumitomo Mitsui Trust Bank and Nippon Life Insurance for the new venture
Mumbai:Reliance Capital Ltd, the financial services arm of the Anil Ambani-led Reliance Group, on Wednesday said it will apply for a banking licence to the Reserve Bank of India (RBI).
The firm, in an announcement to BSE Ltd, said it had tied up with two Japanese financial institutions—Sumitomo Mitsui Trust Bank Ltd and Nippon Life Insurance Co.—for the new venture.
While Reliance Capital will be the promoter of the bank, Sumitomo and Nippon have proposed to hold stakes of 4-5% each in it. This will be in line with RBI approvals.
“Reliance Capital is delighted to partner with two of Japan’s largest firms—Sumitomo Mitsui Trust Bank and Nippon Life Insurance—for our proposed new bank," said Reliance Capital chief executive Sam Ghosh in a statement.
Nippon Life Insurance is already a strategic partner of Reliance Capital in its asset management and life insurance business with a 26% stake in the firm.
Santosh Singh, an analyst with Espirito Santo Securities India Pvt. Ltd, said that the non-banking financial companies (NBFCs) which have decided against obtaining a banking licence such as Mahindra and Mahindra Financial Services Ltd have extremely good existing business and they see operating problems if they become a bank.
“Companies in financial sector aspire to eventually become a bank. It is positive for Reliance Capital because it has a diversified book . If they get a banking licence they will be able to do lending business at a lower cost. We expect the stock to perform well because it is trading at cheap valuations," Singh said.
On 22 February, RBI had issued norms for the entry of a third set of private banks into the ₹ 73 trillion banking sector.
According to the RBI rules, the minimum capital required by applicants for licences is ₹ 500 crore, and foreign shareholding in the new banks will be capped at 49% for the first five years. The new banks will be set up under a non-operative financial holding company (NOFHC), RBI had said.
The deadline for applications is 1 July.
RBI has received 443 queries from 34 individuals and organizations, it said in a press statement on 3 June. As many as 330 queries from 19 individuals and organizations were received between 5 April and 10 April, RBI had said.
Apart from Reliance Capital, companies that have so far expressed interest in starting banks include L&T Finance Holdings Ltd, India Infoline Ltd, Religare Enterprises Ltd, Videocon Industries Ltd, the Aditya Birla Finance Ltd, LIC Housing Finance Ltd, Shriram Transport Finance Co. Ltd, Bandhan Financial Services Pvt. Ltd, Janalakshmi Financial Services Pvt. Ltd, Tata Capital Ltd, Muthoot Finance Ltd, IDFC Ltd, India Infrastructure Finance Co. Ltd, Bajaj Finserv Ltd, SKS Microfinance Ltd and Srei Infrastructure Finance Ltd.
Kajal Gandhi, an analyst at ICICI Securities Ltd, said: “Reliance Capital does not have a very big loan portfolio so conversion (to a bank) will not be a problem. It will be positive because it already has a rural presence from the AMC (asset management company) business and if it gets a licence it will expand its branches."
The total loan portfolio of R-Cap’s commercial finance business is ₹ 13,650 crore, Gandhi said.
Shares of Reliance Capital closed at R320.70 apiece on BSE, up 2.08% , while India’s benchmark Sensex index slipped 0.41% to 18,552.12 points.
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