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Reliance Capital to cut consolidated debt by moving commercial finance business to the proposed banking arm

Reliance Capital would move around three fourth of its current consolidated debt on its books with the transfer of commercial finance business to the proposed banking arm if it gets a licence for entering the sector, Reliance Group (formerly Reliance ADAG) chief Anil Ambani said on Tuesday.

Addressing shareholders of Reliance Capital, Ambani said banking has a long term growth potential but one of the immediate benefits for Reliance Capital, the financial services holding company of the group, would be reduction in debt. He said consolidated debt would decline from Rs 20,000 crore currently to Rs 5,000 crore, upon transfer of its commercial finance business to the proposed bank.

This is expected to improve the company’s debt/equity ratio to a conservative 0.5:1, far lower than industry standards, said the company.

The company said it is adequately capitalised to fund proposed bank and would list the proposed bank in three years as per existing guidelines. Reliance Capital plans to focus on five major businesses – life insurance, general Insurance, health insurance, asset management and banking – for its future growth.

“We presently have no plans to make a capital call, or ask you money to invest in the bank, as your company is adequately capitalised. However, at the end of the three years, we intend to list the proposed bank, as per existing guidelines,” said Ambani.

Welcoming the new Insurance Regulatory and Development Authority (IRDA) guidelines allowing banks to be licensed as insurance brokers, Ambani said such transition will widen distribution and reach for all players, especially newer entrants such as Reliance Life Insurance, and lead to company’s accelerated growth.

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