Exuding confidence in setting up a profitable banking venture, industrialist Anil Ambani has said the proposed bank will help lower Reliance Capital's (RCap) debt to one-fourth of current levels and would be listed as a separate entity in three years.
The company, which is already present in a host of financial services businesses like insurance, mutual funds and brokerage, submitted an application for banking license in June to the Reserve Bank of India (RBI). RCap is one of the 26 entities that have applied for banking licence.
Addressing shareholders of RCap, the group's financial services arm, Ambani said immediate benefit of the proposed bank would be a reduction in the company's consolidated debt from Rs 20,000 crore to Rs 5,000 crore.
"Apart from the long-term growth potential of the proposed bank as a profitable institution in itself, the immediate benefit to your company will be the reduction in our consolidated debt from approximately Rs 20,000 crore to Rs 5,000 crore, upon transfer of our Commercial Finance business to the proposed bank," Reliance Capital Chairman said.
Ambani said the banking foray would also help improve RCap's debt-equity ratio to "a most conservative level of 0.5-1, which is far lower than industry standards".
Stressing that the company was adequately capitalised, Ambani said there were no plans to ask RCap 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.
RCap 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.
RCap has also proposed to partner with Japan's Sumitomo Mitsui Trust Bank and Nippon Life Insurance for its proposed banking venture, with 4-5 per cent 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.
New licences are likely to be issued sometime next year.