Management Discussion and Analysis
Forward looking statements
These financial statements have been prepared in compliance with the requirements ofthe Companies Act, 1956 and Generally Accepted Accounting Principles (GAAP) in India.However, readers are cautioned that this Discussion may contain "forward-lookingstatements" by Reliance Capital Limited ("RCL") that are not historical innature. These forward looking statements, which may include statements relating to futureresults of operations, financial condition, business prospects, plans and objectives, arebased on the current belief, assumptions, expectations, estimates, and projections of thedirectors and management of RCL about the business, industry and markets in which RCLoperates. These statements are not guarantees of future performance and are subject toknown and unknown risks, uncertainties, and other factors, some of which are beyond RCL'scontrol and difficult to predict, that could cause actual results, performance orachievements to differ materially from those in the forward looking statements. Suchstatements are not, and should not be construed, as a representation as to futureperformance or achievements of RCL. In particular, such statements should not be regardedas a projection of future performance of RCL. It should be noted that the actualperformance or achievements of RCL may vary significantly from such statements.
The following Discussions on our financial condition and result of operations should beread together with our audited consolidated financial statements and the notes to thesestatements included in the annual report.
Unless otherwise specified or the context otherwise requires, all references herein to"we", "us", "our", "the Company","Reliance", "RCL" or "Reliance Capital" are to RelianceCapital Limited and its subsidiaries and associates.
Resilient Indian Economy
The Indian economy continued to show resilience in financial year 2009-10, thanks toproactive measures taken by the policymakers. In concert with similar action by centralbanks across the world, the RBI reduced key policy rates in 2008. This together withfiscal stimulus announced by the Ministry of Finance ensured that the impact of the globalfinancial crisis on the Indian economy was kept to the minimum. Consequently, there was aquick turnaround in business confidence and a rapid revival in capital inflows, leading tohigher resource mobilization, and a smart recovery in the stock markets. This, in turn,helped sustain the growth momentum in the economy.
Buoyant GDP Growth
The GDP growth improved in the first quarter of financial year 2009-10 (Apr-Jun'09) to6.1 per cent from 5.8 per cent recorded during the previous two quarters of financial year2008-09. In the second Quarter of financial year 2009-10, GDP further accelerated to 7.9per cent. The sequential recovery in growth in Q2 was driven by significant turnaround inindustrial output (9 per cent), and services sector (9 per cent), while agriculture sectoralso clocked a modest positive growth despite drought and floods in some parts of thecountry. The lower growth in 3Q GDP is primarily due to decline in agricultural output onaccount of a poor monsoon and a decline in Community and Social Services resulting fromsignificant slowdown in government spending. In financial year 2009-10, GDP of India isprojected to have grown at 7.2 per cent, driven mainly by industrial and service sector.
Robust Index of Industrial Production (IIP)
After moving into negative territory in Dec'08, IIP turned positive in early 2009.Since the start of second half of financial year 2009-10, it has registered a spectacularV-shaped recovery and clocked double digit growth driven mainly by manufacturing, consumerdurables and a lower base effect. The IIP registered a 10 per cent growth during Apr-Febas compared to a mere 3 per cent in the same period the previous year.
Credit growth not only improves but surpasses RBI's target
After growing at 18 per cent at the start of the financial year, the rate of creditgrowth in the economy dropped to 9.7 per cent in October 2009. As a result, RBI revisedits target downwards to 16 per cent. But there has since been a resounding recovery incredit growth in the Jan-Mar 2010 quarter. A massive increase in loan disbursements in thelast month of the fiscal year ending March, 2010 helped banks move back to a growth of 17per cent, surpassed the RBI's earlier Target.
In terms of outstanding credit to deposit ratio, the number increased to 72.2 per centas on March, 2010 from 69 per cent in Sept'09. The most interesting point to note was theincremental credit to deposit ratio in the last quarter in fiscal 2010 stood at 99 percent.
Growing Inflationary concerns
Inflation measured by the Wholesale Price Index (WPI) registered significant volatilityin last one-and-a-half years. From double digit growth in mid-2008 on account of highglobal oil and commodity prices, it turned negative during June-August 2009 primarily dueto the statistical effect of a high base.
Thereafter, WPI again started showing signs of upward movement following a spurt infood prices (aggravated by the drought in 2009) and increase in global commodity prices.Inflation has now spread into manufactured products on the back of a growing demand andthe return of purchasing power to manufacturers. Inflation touched 9.9 per cent year onyear in Mar'10 from 1.3 per cent in Oct'09, led by an increase in the price of fuel andmanufactured products and helped by a low base effect.
Interest Rate/ Policy Rate normalization to continue
With the economy showing signs of revival, the RBI signaled an exit from its easymonetary policy in Oct'09 policy meeting as it withdrew all extraordinary measures (likevarious refinance facilities) and raised Statutory Liquidity Ratio from 24 per cent to 25per cent. Rising inflation and inflationary expectations further added to RBI's concerns.As a result, the Central Bank raised the Cash Reserve Ratio by 75 bps in its Januarypolicy meeting, followed by a hike in policy rates - repo and reverse repo - by 25 bpseach in March as well as April.
About Reliance Capital
Reliance Capital Limited (RCL) is a part of the Reliance Anil Dhirubhai Ambani Groupand is one of India's leading private sector financial services companies, and ranks amongthe top 3 private sector financial services and banking groups, in terms of net worth. Itis a constituent of S&P CNX Nifty and MSCI India.
Reliance Anil Dhirubhai Ambani Group is amongst India's top 3 business houses with amarket cap in excess of Rs.1,25,000 crore (US $ 28 billion), and over 160 millioncustomers. It has a strong presence across a wide array of high growth consumer-facingbusinesses such as Telecom, Financial Services, Energy, Power, Infrastructure, Media andEntertainment.
Reliance Capital has interests in asset management, mutual funds, pension funds, lifeand general insurance, private equity and proprietary investments, retail stock brokingand depository services, investment banking, wealth management, home and consumer finance,financial products distribution, venture capital, exchanges, asset reconstruction,institutional broking and other activities in financial services.
Financial Performance - Overview
The Company's financial performance is discUS$ed in detail under the head"Financial Performance" in the Directors' report. The consolidated performanceof the Company is as under:
RCL's consolidated income from operations for the financial year ended March 31,2010 increased to Rs.6,140.60 crore (US $ 1.4 billion) from Rs.6,019.14 crore (US $ 1.2billion) in the previous year, registering a growth of 2 per cent. The increase inrevenues was contributed by our businesses of asset management, general insurance andconsumer finance demonstrating improved business performance.
Staff costs for the year were Rs.535.35 crore (US $ 118.6 million) as againstRs.554.07 crore (US $ 108.7 million) in the previous year, a decrease of 3 per cent.
Selling, administrative and other expenses in the year were Rs.1,704.03 crore(US $ 377.5 million) as against Rs.1,155.90 crore (US $ 226.9 million), an increase of 47per cent.
Interest & finance charges for the year were Rs.1,332.40 crore (US $ 295.2million) as against Rs.1,263.84 crore (US $ 248.1 million) in the previous year, anincrease of 5 per cent.
Depreciation for the year was Rs.67.63 crore (US $ 15.0 million) as againstRs.56.71 crore (US $ 11.1 million) in the previous year, an increase of 19 per cent.
Profit before tax for the year was Rs.588.32 crore (US $ 130.3 million) asagainst Rs.1,204.15 crore (US $ 236.3 million) in the previous year, a decrease of 51 percent.
Provision for tax for the year was Rs.146.15 crore (US $ 32.5 million) asagainst Rs.181.09 crore (US $ 35.5 million) in the previous year, a decrease of 19 percent.
Profit after tax, minority interest and share of profit of associates for theyear was Rs.434.53 crore (US $ 96.3 million) as against Rs.1,015.67 crore (US $ 199.3million) in the previous year, a decrease of 57 per cent.
The decrease in absolute profits is on account of lower capital gains realizedin the year as the thrust is on increasing contribution from the operating businessestowards profitability and also substantial gains will accrue to Reliance Capital fromplanned stake sales in operating businesses.
Resources and Liquidity
As on March 31, 2010, the consolidated net worth of the company stood atRs.7,711.82 crore (US $ 1.7 billion) as against Rs.7,423.6 crore (US $ 1.5 billion), anincrease of 4 per cent.
The Company has raised Rs.11,958.15 crore (US $ 2.7 billion) during thefinancial year 2009-10 by issuance of Commercial Paper, Non Convertible Debentures (NCDs)and other money market instruments. As on March 31, 2010, the Company had a net debtequity ratio of 1.6:1.
As on March 31, 2010, the consolidated total assets were Rs.26,033.13 (US $ 5.8billion) as against Rs.24,084.06 crore (US $ 4.7 billion), an increase of 8 per cent.
RCL's short term debt programme has been assigned a rating of "A1+" by ICRALtd., the highest credit quality rating assigned by the agency to short-term debtinstruments. Instruments rated in this category carry the lowest credit risk in the shortterm. Fitch assigned the short term borrowing program a rating of "F1+", whichstands for the highest credit quality and indicates the strongest capacity for timelypayment of "financial commitment" - a resounding re-affirmation of ourunwavering and long-standing commitment to financial prudence and conservatism. CARE Ltd.assigned the long term debt programme a rating of "CARE AAA". Instruments withthis rating are considered to be of the best credit quality, offering highest safety fortimely servicing of debt obligations. Such instruments carry minimal credit risk.
Finance & Investments
The Investment portfolio of quoted investments as on March 31, 2010 amounted toRs.3,904.03 crore (US $ 864.87 million), at cost.
Reliance Capital Asset Management (RCAM)
Reliance Capital Asset Management managed Rs.1,47,927.55 crore (US $ 33 billion)as on March 31, 2010, across mutual funds, pension funds, managed accounts and hedgefunds, as against Rs.1,12,014.19 crore (US $ 22 billion) as on March 31, 2009, an increaseof 32 per cent.
RCAM's income from its operations for the year ended March 31, 2010 was atRs.681.68 crore (US $ 151.0 million) as against Rs.454.69 crore (US $ 89.2 million) in thecorresponding previous period, an increase of 50 per cent.
Profit after tax for the year ended March 31, 2010 was Rs.183.86 crore (US $40.7 million) as against Rs.125.71 crore (US $ 24.7 million) in the corresponding previousperiod, an increase of 46 per cent.
RCAM has received approvals from regulatory authorities in United Kingdom andMalaysia to commence investment advisory and asset management operations in thesecountries.
Reliance Mutual Fund
Reliance Mutual Fund (RMF) has maintained its leadership position in thecountry, with a market share of 14.8 per cent at the end of March 2010.
The Industry average assets under management (AAUM) for March, 2010, touchedRs.7,47,338.63 crore (US $ 165.6 billion) from Rs.4,90,826.66 crore (US $ 96.3 billion) inMarch, 2009, an increase of 52 per cent.
The AAUM of RMF for March, 2010 stood at Rs.1,10,412.39 crore (US $ 24.5billion), an increase of 36 per cent from Rs.80,962.93 crore (US $ 15.9 billion) as ofMarch, 2009.
The number of investor folios in RMF stood at 74.8 lakh at the end of March 31,2010 as against 75.6 lakh investor folios at the end of March 31, 2009, serviced across246 locations in India, despite changing regulatory environment in the Indian mutual fundindustry.
The number of Systematic Investment Plan Investors in RMF is 10.9 Lakh.
As on March 31, 2010, RMF had a total of 36 schemes
- 17 equity-oriented schemes, 17 debt-oriented schemes and 2 exchange-traded schemes.
During the year, RMF launched a new product feature -'Reliance Smart Step'. Itwas the first fund house to launch a unique facility to invest across all debt/ liquid& equity schemes based on a scientific model.
In the month of May 2009, RMF launched a new fund - Reliance InfrastructureFund.
o The fund collected around Rs.2,300 crore (US $ 509.5 million) from over 4,20,000investors, which is twice the aggregate amount collected by all Equity NFOs in the Indianmutual fund industry in the preceding 12 months.
o In terms of amount mobilized, ranks 8th amongst the top 10 Equity NFOs in theindustry in past 5 years - In fact 5 of the top 10 Equity NFOs are RMF NFOs.
During the year, RMF won several prestigious awards.
o The Highly acclaimed international award - 'Asia Risk Award for Asset Manager of theYear 2009', for its robust risk management practices. RCAM is the only Indian assetmanagement company to be awarded this prestigious award.
o The Lipper award for "Best Equity India Fund" to Reliance Growth Fund inthe "5 years" category and "Best Fund" to Reliance Regular SavingsFund -Balanced Plan, in the "3 years" category.
o 'CRISIL Fund House Level 1' Rating from CRISIL for its robust processes and corporategovernance practices.
o "Mutual Fund House of the Year" by CNBC TV18 - CRISIL Awards 2009.
o The Reliance Smart Step Scheme was nominated as the "Most Innovative Fund/Feature of the year" at CNBC TV18- CRISIL Awards 2009.
o The Morning Star Award in the India Moderate Allocation category to Reliance RegularSavings -Balanced Growth.
Portfolio Management Services
Reliance Portfolio Management Services is a premium financial service for selectinvestors from the portfolio management division of Reliance Capital Asset Management Ltd.It creates customized portfolios for high net-worth individuals keeping in mind theirrisk-return preferences, and endeavors to generate superior returns.
The AUM of our portfolio management services as on March 31, 2010 increased toRs.36,602 crore (US $ 8.1 billion) from Rs.30,480 crore (US $ 6.0 billion) as on March 31,2009, registering a growth of 20 per cent.
RCAM has been appointed as one of the fund managers by the Employees ProvidentFund Organization (EPFO). A hugely prestigious account, EPFO has entrusted Rs.34,837 crore(US $ 7.7 billion) to RCAM, for investment management.
Reliance Capital Pension Fund Ltd., a wholly owned subsidiary of RCAM, was alsoappointed as one of the six asset managers by the Pension Fund Regulatory and DevelopmentAuthority (PFRDA) to manage money under the new pension scheme. The new pension schemewill be a government regulated pension plan on the lines of the '401K retirement plan' inthe US (a defined contribution plan) and can be availed of by the general public in India.
Reliance Asset Management (Singapore) Pte. Ltd.
Reliance Asset Management (Singapore) Pte Ltd is a wholly owned subsidiary ofReliance Capital Asset Management Limited. It currently manages 6 India dedicated fundsviz. - India Equity Growth Fund, India Equity Long Term Fund, India Equity DerivativeFund, India Multi Strategy Fund, Lawrence India Mauritius Fund and WIOF India PerformanceFund.
The AUM as on March 31, 2010 stood at Rs.9,118 crore (US $ 2.0 billion) asagainst Rs.6,471 crore (US $ 1.3 billion) on March 31, 2009, a growth of 41 per cent.
Reliance Life Insurance (RLI)
Reliance Capital has 100 per cent economic interest in Reliance Life Insurance.
Reliance Life Insurance currently offers a total of 47 products that fulfill thesavings and protection needs of customers. Of these, 39 are targeted at individuals and 8at group businesses. Reliance Life is committed to emerging as a transnational LifeInsurer of international scale and stature and attaining leadership ranking in theindustry in the next few years.
During the year, the Indian life insurance industry recorded new businesspremium of Rs.1,09,290.37 crore (US $ 24.2 billion) as against Rs.87,107.62 crore (US $17.1 billion) in the previous year, an increase of 25 per cent. During the year, theIndian private sector life insurance industry recorded new business premium ofRs.38,399.32 crore (US $ 8.5 billion) as against Rs.34,153.71 crore (US $ 6.7 billion) inthe previous year, an increase of 12 per cent (Source: YTD March, 2010 data, InsuranceRegulatory and Development Authority of India website).
RLI continues to be among the top 4 private sector players in terms of newbusiness premium, with a market share of 10.2 per cent of the total new premium generatedby the private sector.
RLI moved up industry rankings to emerge as the third largest private sectorinsurer in terms of weighted received premium at Rs.3,659.86 crore (US $ 810.8 million).
Total Premium for the year Rs.6,588.34 crore (US $ 1.5 billion ) as againstRs.4,915.34 crore (US $ 1.0 billion) for the corresponding previous period - an increaseof 34 per cent.
For the year ended March 31, 2010, Renewal Premium amounted to Rs.2,684.1 2crore (US $ 594.6 million) as against Rs.1,418.56 crore (US $ 278.4 million) for thecorresponding previous period - an increase of 89 per cent. New Business Premium Incomefor the year ended March 31, 2010 was Rs 3,920.77 crore (US $ 868.8 million) as against Rs3,51 3.98 crore (US $ 689.7 million) in the corresponding previous period, an increase of1 2 per cent - in line with the private sector industry growth.
The Weighted Received Premium (WRP) for the year was Rs.3,659.86 crore (US $810.8 million) as against Rs 3,116.32 crore (US $ 611.6 million) for the correspondingprevious period - an increase of 1 7 per cent. The private sector industry growth for thesame period was 1 3 per cent.
The operating costs excluding commissions for the year stood at at Rs.1,640.92crore (US $ 363.5 million) as against Rs.1,931.19 crore (US $ 379.0 million) for thecorresponding previous period - a decrease of 1 5 per cent. The ratio of operating coststo total premium decreased to 25 per cent for the year from 39 per cent in thecorresponding previous period.
The total funds under management were at Rs.13,660.82 crore (US $ 3.0 billion)as on March 31, 2010 against Rs.6,289.75 crore (US $ 1.2 billion) as on March 31, 2009 -an increase of 1 1 7per cent
The policyholders' funds under management amounted to Rs.13,291.51 crore (US $2.9 billion) as on March 31, 2010 against Rs.5,879.00 crore (US $ 1.2 billion) as on March31, 2009 - an increase of 126 per cent.
During the year, Rs.231 crore (US $ 51.2 million) was infused into the businessas against Rs.1,229 crore (US $ 241.2 million) for the corresponding previous period - 81per cent reduction in capital infusion, reflecting successful steps taken towardsachieving profitability. RLI targets to breakeven in the next financial year. The totalcapital invested till date in this business, is Rs.2,974 crore (US $ 658.8 million).
In financial year 2009-10, RLI sold the largest number of policies in theprivate sector life insurance industry. The number of policies sold during the year were23,26,1 54 as against 22,1 9,678 for financial year 2008-09 - an increase of 5 per cent,as against a decrease of 4 per cent by the private sector life insurance industry.
The distribution network has been increased to 1,247 branches at the end ofMarch 31, 2010, as against 1,145 branches at the end of March 31, 2009.
The numbers of agents at the end of March 31, 2010 were at 1,95,565 as against1,49,613 in the corresponding previous period - an increase of 31 per cent.
During financial year 2009-10, five new life insurance policies were launched,viz. Reliance Jan Samriddhi Plan, Reliance Traditional Group Gratuity Plan, RelianceTraditional Super Invest Assure Plan, Reliance Life Highest NAV Guarantee Plan andReliance Life Super Golden Years Senior Citizen Term 10 Plan.
During the year, RLI reached newer heights.
Rated 'Excellent' with customer satisfaction index of 87 + for 2 consecutiveyears, meeting all key process indicator benchmarks of survey conducted by Neilsen.
Benchmarked service levels to be at par with the best in industry.
o 86 per cent of RLI's policies are issued in three days.
o 100 per cent of claims are resolved within three days of complete documentation.
o Introduced self-help servicing options, empowering customers and channel partners toresolve queries. Currently 41 per cent of all customer requests are processed are throughthe self-help channel.
o Automated underwriting processes to enable faster usage. Over 85 per cent of policiesare auto-underwritten.
o Used technology as an enabler to business. RLI was recognized for its achievements inusing technology and was amongst top 100 companies globally by Chief Information Officer(Global CIO) publication.
Reliance General Insurance
Reliance General Insurance (RGI) offers property, engineering, auto, health,travel, marine and commercial insurance It also offers other specialty insurance products.
During the period from April, 2009 to March, 2010, the Gross Written Premium ofthe entire Indian general insurance fund industry increased by 14 per cent fromRs.30,641.90 crore (US $ 6.0 billion) of the corresponding previous period, toRs.34,755.21 crore (US $ 7.7 billion). (Source: Insurance Regulatory and DevelopmentAuthority of India).
During the period from April, 2009 to March, 2010, the Gross Written Premium ofthe Private Indian general insurance fund industry increased by 1 3 per cent from Rs.12,61 0.60 crore (US $ 2.5 billion) of the corresponding previous period, to Rs.1 4,226.74,crore (US $ 3.2 billion). (Source: Insurance Regulatory and Development Authority ofIndia).
Reliance General Insurance has maintained its position amongst the top three (interms of monthly gross written premium) private sector General insurance companies inIndia, with a market share of 6 per cent of the general insurance market in India and 14per cent market share of the private sector general /insurers.
RGI's Gross Written Premium for the year ended March 31, 2010 was at Rs.1,979.65crore (US $ 438.6 million) as against Rs.1,914.88 crore (US $ 375.8 million) in thecorresponding previous period, increased by 3 per cent. (Source:YTD March, 2010 data,Insurance Regulatory and Development Authority of India).
Net Written Premium (NWP) for the year ended March 31, 2010 was Rs.1,428.72crore (US $ 316.5 million) as against Rs.1,399.56 crore (US $ 274.7 million) for thecorresponding previous period - an increase of 2 per cent.
Loss for the year ended March 31, 2010 was Rs.50.43 crore (US $ 11.2 million) asagainst Rs.52.32 crore (US $ 10.3 million) for the corresponding previous period.
Combined ratio (including third party motor pool) for the financial year endedMarch 31, 2010 was 11 7per cent as against 114 per cent for the corresponding previousperiod.
The increase in combined ratio and consequently the loss was on account of highclaims from health portfolio. RGI only recently has received approval from IRDA tore-price its health products. The Company has significantly reduced its exposure to GroupMediclaim products that were largely unprofitable. This will enable the Company to improveits combined ratio and achieve breakeven in the current financial year.
During the year, Rs.210 crore (US $ 46.5 million.) of capital was infused intothe general insurance business, taking the total capital invested till date to Rs.1,007crore (US $ 223.1 million).
The distribution network composed of 200 branches and 4,641 intermediaries atthe end of March 31, 2010.
Reliance Consumer Finance (RCF)
Reliance Consumer Finance (RCF) offers a wide range of products which includeHome loans, Loans against property, SME loans, Commercial Vehicle loans, loans forConstruction equipment and loans against Securities.
The focus in this business is not just on the growth of credit per se but alsoon the quality of credit. Backed by its long-standing conservative approach, RCF hasdeveloped stringent in-house credit risk management systems to ensure the highest qualityof credit.
RCF has emerged to be amongst the leading lenders in the Indian non bankingfinance sector.
The disbursements for the year ended March 31, 2010 were Rs.5,776.24 crore (US $1 .3 billion) as against Rs.3,927.76 crore (US $ 770.9 million) for corresponding previousperiod - increase of 47 per cent.
As on March 31, 2010, the assets under management (including securitizedportfolio) was Rs.11,041.74 crore (US $ 2.4 billion) as against Rs.8,576.09 crore (US $1.7 billion) as on March 31, 2009 - increase of 29 per cent.
As on March 31, 2010 the outstanding loan book was Rs.9,169.51 crore (US $ 2.0billion) as against Rs.8,576.08 crore (US $ 1.7 billion) as on March 31, 2009 - anincrease of 7 per cent. This loan book is spread across 1,1 7,955 customers from top 16Indian metros.
During the year, the Company securitized loans of Rs.2,504.74 crore (US $ 554.9million).
Reliance Consumer Finance generated revenues of Rs.1,286.81 crore (US $ 285.1million) for the year ended March 31, 2010, as against Rs.1,200.1 9 crore (US $ 235.6million) for the corresponding previous period - an increase of 7 per cent.
For the year ended March 2010, RCF achieved a profit before tax of Rs.1 35.01crore (US $ 29.9 million) as against Rs.91.65 crore (US $ 18.0 million)- an increase of 48per cent.
Reliance Money is one of the leading retail brokerage houses and distributor offinancial products in India.
Reliance Money is a comprehensive financial services and solutions provider,providing customers with access to equities, equity options and commodities futures,wealth management, mutual funds, IPOs, life and general insurance products, offshoreinvestments, investment banking, money transfer and gold coins.
The Company went through a significant re-structuring process - across all itslines of businesses. The focus across all businesses was on profitability through changesin pricing & leaner cost structures & moving towards a more robust &sustainable business model. This exercise is now complete.
Going ahead, the focus will be on the key business verticals of broking,distribution (third party and in-house), wealth management and investment banking.
As on March 31, 2010, Reliance Money has a pan India distribution network ofover 5,000 outlets.
It had 6,40,000 retail broking accounts at the end of March 31, 2010.
Reliance Money daily average stock exchange turnover stood at Rs.2,200 crore (US$ 487.4 million) at the end of March 31, 2010.
Commodities broking daily turnover was at Rs.250 crore (US $ 55.4 million).
In the distribution business vertical, Reliance Money has two distinct arms -third party and in-house.
In the third party distribution, Reliance Money is manufacturer agnostic anddistributes mutual funds, life & general insurance products, loans and precious metalretailing.
o It is amongst the leading Mutual fund distributors of the country distributingproducts of 20 AMCs, with a customer base of over 5,00,000. It is the largest privatesector partner for Western Union Money Transfer in India.
o Reliance Money has tied up with India Post and World Gold Council to sell gold coinsthrough the post office network across the country.
The in-house distribution leverages on the cross sell opportunity.
o Customer base has grown over 200 per cent year on year to 1,50,000 customers.
o Created strong presence through 75 locations across 48 cities in India.
o This division is the largest distributor for Reliance General Insurance and isamongst the top five for Reliance Life Insurance.
Wealth Management and Investment Banking are two new initiatives of RelianceMoney.
In Wealth Management, Reliance Money will assess and create financial investmentopportunities for HNIs. It will create customized individual portfolios based on theirdiverse investment needs and risk profiles. The team is now in place and the AUM as onMarch 31, 2010 increased to Rs.90 crore (US $ 19.9 million).
In Investment Banking, Reliance Money will address the capital requirements ofenterprises through various instruments- IPOs, private placements, mergers &acquisitions.
The Company is in advanced stages of finalizing its investment banking plan.
Reliance Money achieved revenues of Rs.258.54 crore (US $ 57.3 million) for theyear ended March 31, 2010 as against Rs.352.04 crore (US $ 69.1 million) for the yearended March 31, 2009.
The business achieved a profit before tax of Rs.14.94 crore (US $ 3.3 million)for the year ended March 31, 2010, as against Rs.58.07 crore (US $ 11.4 million) for theyear ended March 31, 2009.
Reliance Asset Reconstruction
Reliance Asset Reconstruction Company Ltd. (Reliance ARC) is in the business ofacquisition, management and resolution of distressed debt/ assets. It formally commencedbusiness operations in the first half of financial year 09. The other sponsors /shareholders of Reliance ARC are Corporation Bank, Indian Bank, GIC of India, Dacecroftand Blue Ridge.
As on March 31, 2010; the asset base was over Rs.17 crore (US $ 3.8 million).
Reliance Equities International
Reliance Equities International Private Limited (REIPL) is the institutionalstock broking subsidiary of Reliance Capital. REIPL has been set up to complement RelianceCapital's current financial services businesses.
It aims is to add value to the clients' investment decision making process withthematic and differentiated research, access to corporate managements and lateral inputproviders, and highest standards of client servicing.
In the institutional broking space, Reliance Capital plans to acquire a majoritystake in Quant Capital Group. Reliance Equity International (institutional broking arm ofReliance Capital) and Quant Capital will integrate and increase their scale of operationsthrough business synergies and cost optimization. This proposed transaction is subject tonecessary regulatory approvals.
Quant Capital focuses primarily on the institutional cash equities and equityderivatives business. Apart from traditional fundamental research, it also combinesquantitative and behavioral research to forecast trends and inflection for globalcurrencies, commodities, and equities. Quant Capital has built and implemented state ofthe art trading, risk and operational platforms. The firm employs over 100 professionalswith diverse skills sets.
Reliance Equity Advisors (India) Limited (REAL)
Reliance Equity Advisors (India) Limited which was set up with the objective ofraising a third party, sector agnostic private equity fund.
The fund has received excellent commitments from institutional investors as wellas HNIs, including many first-time PE investors who have willingly adopted the fund intotheir investment portfolios. The fund, whose primary focus is on growth and consolidationcapital in India has made its first investment and is in advanced Discussions to close itssecond.
Fundraising will commence shortly for the international fund, the RelianceAlternative Investment Fund 1 LLC which will co-invest along with the domestic fund. Thefocus will be on garnering commitments from International LPs, and from members of thenon-resident Indian community that believes in the India growth story, and would like toparticipate in returns from high growth companies in the Indian context.
While the fund raising effort continues, REAL will continue to evaluateinvestment opportunities in unlisted/privately held companies in the high-growthsectors.The Company having made its first investment in the promising sector of education,is also evaluating a few attractive investment opportunities in other sectors and intendto complete 34 investments in the current financial year.
Reliance Spot Exchange (RSX)
Reliance Spot Exchange is a new initiative of Reliance Capital in the exchangespace by setting up modern exchanges, in varioUS $egments.
The Company commenced operations by launching Reliance Spot Exchange (RSX) inthe month of October 2009. The first contract on the e-auction platform being metals,subsequently also added spices in the month of December 2009. RSX has successfullycompleted three auctions in metals & pepper.
RSX aims to bring different markets together on a national electronic platformthereby creating transparency, efficiency and infrastructure for spot markets acrossIndia.
Reliance Venture Asset Management (RVAM)
Reliance Venture Asset Management, wholly owned subsidiary of Reliance Capital,is the venture capital arm of the Reliance ADA Group with an investment mandate toincubate or invest into high-growth, new business ideas and is stage, sector and geographyagnostic.
Ranked 30th in the reputed list of US-based, Red Herring Top 100 Global VentureCapital firms in 2009 out of 1,800 global VC firms, from 32 countries, and across 12benchmarks, Reliance Venture is the only Indian Corporate Venture Capital firm to featurein the ranking.
RVAM is also a recipient of the "Excellence Award" from India'sInstitute of Economic Studies, a quasi-government agency started by Members of the IndianParliament, industry leaders, economists and educational leaders.
RVAM currently manages assets of Rs.116 crore (US $ 25.7 million).
RVAM's portfolio companies are considered as category creators and industryleaders. It has spawned companies including household names such as India's largest onlinetravel website 'Yatra.com', 'Suvidhaa' - India's leading service commerce company, 'Stoke,Inc.' - a leader in multi access convergence network, 'Tessolve' - a leadingsemi-conductor testing company amongst many others.
The Company has fostered relations with global premier institutions and is theexclusive India partner for MIT and Stanford University for their entrepreneurship andbusiness competitions. RVAM has also funded two start-ups from MIT.
RVAM endeavors to be the preferred choice and premier partner of all itsportfolio companies and assures its full commitment to them over an unlimited period oftime.
Risks and Concerns
RCL is exposed to specific risks that are particular to its businesses and theenvironment within which it operates, including market risk, competition risk, interestrate volatility, human resource risk, execution risk and economic cycle.
The Company has significant quoted investments which are exposed to fluctuations instock prices. These investments represent a substantial portion of the Company's businessand are vulnerable to fluctuations in the stock markets. Any decline in the price of theCompany's quoted investments may severely affect its financial position and results ofoperations. Even though RCL is exposed to the systematic risk or beta, it has a welldiversified portfolio of stock to mitigate stock specific risk. RCL continuously monitorsmarket exposure and, in appropriate cases, also uses various derivative instruments as ahedging mechanism to limit volatility in its asset returns.
The financial sector industry is becoming increasingly competitive and the Company'sgrowth will depend on its ability to compete effectively. The Company's main competitorsare Indian nonbanking financial companies, life and non-life insurance companies, both inthe public and private sector, mutual funds, depository participants and other financialservices providers. Foreign banks also operate in India through non-banking financecompanies. Further liberalization of the Indian financial sector could lead to a greaterpresence or entry of new foreign banks and financial services companies offering a widerrange of products and services. This could significantly toughen our competitiveenvironment. The Company's competitors may have greater resources than it does and, insome cases, may be able to raise debt in a more cost-efficient manner. The Company'sgrowth will depend on its ability to compete effectively in this context. The Company'sstrong brand image, wide distribution network, diversified product offering and depth ofmanagement places it in a strong position to deal with competition effectively.
Credit risk is a risk arising out of default or failure on the part of borrowers inmeeting their financial obligations towards repayment of loans. Thus credit risk is a lossas a result of non-recovery of funds lent both on principal and interest counts. This riskis comprehensively addressed both at the strategic level and at the client level.Extensive and strict norms have been stipulated in identification of the borrower andevaluation of credit proposals. All critical underwriting activities are automatedExtensive product programme guidelines have been developed to suit various productrequirements. Appropriate delegation and deviation grids have been put in place. Eachcredit proposal is evaluated on various lending parameters both in qualitative andquantitative terms. Proper security, industry norms and ceilings have been prescribed toensure well spreading out of risks and to avoid concentration risk. Cross references tocredit bureau data are made to assess the credit behaviour of the prospective customers.The credit evaluation process is thUS $tandardized and institutionalized.
In our consumer and home finance businesses, we provide various customized products todifferent segment of borrowers. Borrowers are affected by economic and market changes andgovernment policies. Since most loans are secured against assets which are valued byindependent agencies and loan to value ratio is restricted chances of non recoverabilityin case of default are minimized. Any early signal of default is addressed on priority tominimize/ prevent credit loss. The unsecured portfolio has been reduced considerably andwe expect it to be fully wound down in the next 18 months. Regular portfolio risk analysisis done extensively on various financial and policy parameters for making required changesin the credit policy as a proactive approach to risk management. The Indian bankingindustry is highly competitive and we may compete directly with large public and privatesector banks, which have larger retail customer bases, larger branch networks and greateraccess to capital than we do. Large Indian banks have made significant investments inretail credit in recent periods and currently have a larger market share in the retailcredit segment as compared to non-banking finance companies. If we are unable to competewith other retail lenders in the Indian banking sector, by reason of our inexperience inretail lending or otherwise, our business, results of operations and financial conditioncould be affected materially and adversely. With the experience and market knowledge wehave gained over the years in lending business, we are well placed to be the preferredprovider of asset based finance in coming years.
The Company is exposed to liquidity risk principally, as a result of lending to itscustomers for periods which may differ from those of its funding sources. RCL's treasuryteam actively manages asset liability positions in accordance with the overall guidelineslaid down by the management in the Asset Liability Management (ALM) framework.
Interest rate risk
The Company may be adversely impacted by volatility in interest rates in India whichcould cause its margins to decline and profitability to shrink. The success of theCompany's business depends heavily on interest income from its operations. It is exposedto interest rate risk, principally, as a result of lending to its customers at fixedinterest rates and in amounts and for periods which may differ from those of its fundingsources. Interest rates are highly sensitive to many factors beyond the Company's control,including the monetary policies of the RBI, deregulation of the financial sector in India,domestic and international economic and political conditions and, inflation. As a result,interest rates in India have historically experienced a relatively high degree ofvolatility. The Company seeks to match its interest rate positions of assets &liabilities to minimize interest rate risk. However, there can be no assurance thatsignificant interest rate movements will not have an adverse effect on its financialposition.
With the growth of the Company's business, it will become increasingly reliant onfunding from the debt capital markets and commercial borrowings. The market for such fundsis competitive and the Company's ability to obtain funds at competitive rates will dependon various factors including its credit ratings.
There can be no guarantee that the Company will be able to raise debt on competitiveterms, in the required quantum and in a cost effective manner. Any failure to do so mayadversely impact the Company's business, its future financial performance and the price ofits shares. RCL's treasury team actively manages Asset Liability positions as well asinterest rate exposure in accordance with the overall guidelines laid down by themanagement in the Asset Liability Management (ALM) framework. The Company is also hedgedto some extent against this risk through the variable interest clause in its advancesportfolio.
Human resource risk
The Company's success depends largely upon the quality and competence of its managementteam and key personnel. Attracting and retaining talented professionals is therefore a keyelement of the Company's strategy and a significant source of competitive advantage. Whilethe Company has a salary and incentive structure designed to encourage employee retention,a failure to attract and retain talented professionals, or the resignation or loss of keymanagement personnel, may have an adverse impact on the Company's business, its futurefinancial performance and the price of its equity shares.
The Company may encounter operational and control difficulties when commencingbusinesses in new markets. The rapid development and establishment of financial servicesbusinesses in new markets may raise unanticipated operational or control risks. Such riskscould have a materially adverse effect on the Company's financial position and the resultsof its operations. An extensive system of internal controls is practiced by RCL to ensurethat all its assets are safeguarded and protected against loss from unauthorized use ordisposition and all its transactions are authorized, recorded and reported correctly. TheAudit Committee of Directors periodically reviews the adequacy of our internal controls.The Company has embarked on SAP implementation for HR and Finance. With this initiative,we believe that our overall control environment will be enhanced and we will benefit fromthe inherent checks & balances that come with SAP.
The Company is relentlessly focused on quality parameters and has a dedicated qualityteam to proactively identify and address operational issues. The mandate of the qualityteam is also to work closely with various business teams to bring about operationalefficiencies and effectiveness through Six Sigma initiatives.. It is pertinent to notethat Reliance Life Insurance, Reliance General Insurance, Reliance Mutual Fund andReliance Consumer Finance have obtained an ISO 9001:2008 certification. They are among thefew companies in their respective industries to be ISO certified.
As a non-deposit taking NBFC, the Company is subject to regulations by Indiangovernmental authorities, including the Reserve Bank of India, or RBI. Also as the Companyoperates in various lines of businesses, it is governed by different Indian regulatorsacross these businesses.
Their laws and regulations impose numerous requirements on the Company, including assetclassifications and prescribed levels of capital adequacy, cash reserves, solvencyrequirements and liquid assets. There may be future changes in the regulatory system or inthe enforcement of the laws and regulations that could adversely affect the Company.
A slowdown in economic growth in India could cause the business of the Company tosuffer. While the Indian economy has shown sustained growth over the last several years,the growth in industrial production has been variable. Any slowdown in the Indian economy,and in particular in the demand for housing and infrastructure, could adversely affect theCompany's business. Similarly, any sustained volatility in global commodity prices,including a significant increase in the prices of oil and petroleum products, could onceagain spark off a new inflationary cycle, thereby curtailing the purchasing power of theconsumers. RCL manages these risks by maintaining a conservative financial profile andfollowing prudent business and risk management practices.
Internal Control Systems
The Company maintains a system of internal controls designed to provide a high degreeof assurance regarding the effectiveness and efficiency of operations, the adequacy ofsafeguards for assets, the reliability of financial controls, and compliance withapplicable laws and regulations.
The organization is well structured and the policy guidelines are well documented withpre-defined authority. The Company has also implemented suitable controls to ensure thatall resources are utilized optimally, financial transactions are reported with accuracyand there is strict adherence to applicable laws and regulations.
The Company has put in place adequate systems to ensure that assets are safeguardedagainst loss from unauthorized use or disposition and that transactions are authorized,recorded and reported. The Company also has an exhaustive budgetary control system tomonitor all expenditures against approved budgets on an ongoing basis.
Recognizing the important role of internal scrutiny, the Company has an internal auditfunction which is empowered to examine the adequacy of, and compliance with, policies,plans and statutory requirements. It is also responsible for assessing and improving theeffectiveness of risk management, control and governance process.
Continuous audit and verification of the systems enables the various business groups toplug any shortcomings sooner rather than later. It also evaluates the Company's strategicrisk management system and suggests risk mitigation measures for all key operations. Inaddition, the top management and the Audit committee of the Board periodically review thefindings and take any corrective measures that are required.
Low retail penetration of financial services/ products in India.
Tremendous brand strength and extensive distribution reach.
Opportunity to cross sell services.
Increasing per-capita GDP.
Changing demographic profile of the country in favor of the young..
Competition from local and multinational players.
Attraction and retention of human capital.
Across all its business operations, Reliance Capital had a workforce of 22,617 peopleas on March 31, 2010. The business wise break up of the workforce is given below:
|Business Operation ||Number of people |
|Asset Management ||1,024 |
|General Insurance ||1,803 |
|Life Insurance ||17,169 |
|Reliance Money ||1,582 |
|Consumer Finance ||833 |
|Other businesses ||152 |
|Reliance Capital ||54 |
|Total ||22,617 |
Our workforce is young, with an average age of 33 years, and highly qualified. Nearly75 per cent of our workforce are graduates, while 10 per cent are post-graduates andanother 11 per cent management graduates and chartered accountants.
Corporate Social Responsibility
Reliance Anil Dhirubhai Ambani Group is committed to being an ideal corporate citizednand doing more than its fair share to support various deserving causes, in the field ofmedicine in particular; setting up and operating Kokilaben Dhirubhai Ambani Hospital.Reliance Capital supports this and other CSR ventures.
RCL is committed to being a socially responsible company. It works with distressedindividuals, disadvantaged groups, and with civil society at large. Some of itsconstituent businesses pay for critical medical support to needy citizens. Each ofReliance Capital's different businesses vigorously implements their own CSR initiatives.Indeed, their CSR efforts are counted when calculating the business's performance for theyear. Some of the work done by them include Blood donation camps, donation of oldcomputers to varioUS $chools, donations are given to NGOs working with children or theaged or to the Missionaries of Charity across the country , Direct cash aid for paying themedical expenses of life-threatening requirements for some under-privileged people etc.
Other businesses work with self-help groups to provide them with funding and otheradvice to function better. Some other businesses have also worked with educationalinstitutions to promote financial literacy and financial inclusiveness.
This is in addition to supporting the charitable activities of the Reliance AnilDhirubhai Ambani Group, both in healthcare and in caring for older people - Silvers.
The company also follows an active program of energy abatement and recycling of paperand water, to lower its carbon footprint. This is not just in its corporate office, butalso in other large offices in big cities.