Sumitomo Mitsui may take up to 10 pc stake in Reliance Bank

As it awaits final RBI guidelines to apply for a universal banking license, Reliance Capital will consider giving up to 10 per cent stake to its newly-signed strategic partner Sumitomo Mitsui Trust Bank of Japan in its proposed bank.

Besides, the financial services arm of industrialist Anil Ambani-led business conglomerate Reliance Group is also open to the idea of another Japanese partner, Nippon Life, acquiring a further up to 10 per cent stake in its banking venture, as and when RBI's policies permit formation of such a bank.

Reliance Capital last week roped in Sumitomo Mitsui Trust Bank (SMTB) as a strategic partner to collaborate on various businesses. SMTB, Japan's largest financial institution with asset under custody of USD 1.8 trillion, will take an initial stake of 2.77 per cent in Reliance Capital at an investment of Rs 371 crore as part of a "comprehensive long-term strategic alliance between the two companies."

"The deal is likely to close in about four weeks from now. We need clearance from the Competition Commission of India (CCI), while shareholders' approval would be sought at the Extraordinary General Meeting (EGM) scheduled to be held on January 23," Reliance Capital CEO Sam Ghosh told PTI.

"As part of the deal, SMTB will get a 2.77 per cent stake in Reliance Capital, while we have already begun discussions on various areas where we can work together.

"They have come in as a long-term strategic partner at the group company and we are looking into areas of businesses where this partnership can be extended. This would include the banking venture that we intend to start after getting a universal banking licence as and when RBI decides to grant such licenses," he added.

Ghosh said SMTB will certainly be a partner in the banking venture and given their expertise in running a bank and the exposure they will get to Indian banking sector, it would be a win-win situation for both the partners.

Asked about the quantum of stake that SMTB might take in the banking venture, he said the extant regulations, under which RBI has issued two new licenses, a foreign entity can take up to 10 per cent stake and Reliance Capital would like the Japanese partner to take the maximum possible equity.

To a question about another Japanese giant Nippon Life, which is already a partner in Reliance Cap's life insurance and mutual fund ventures, also having evinced interest in partnering in its banking venture, Ghosh said that a new bank can have up to 49 per cent overall foreign stake.

This leaves the scope for another partner to take further up to 10 per cent stake, he said, while adding that no talks were underway at the moment with Nippon in this regard.

Ghosh further said that RBI was likely to come out with its final guidelines about on-tap universal banking license regime by March 2015 and the company will wait for those norms for its foray into banking business.

He also ruled out applying for payment bank or small finance bank license, saying these structures do not fit into its scheme of things and the group was interested in the universal banking licence.

SMTB and Reliance Capital, the financial services arm of diversified conglomerate Reliance Group, will also collaborate in providing solutions for their clients, including inter alia in the area of M&A opportunities in India and Japan, and will assist each other in distribution of their respective financial products through their networks.

Commenting on the deal, Reliance Group Chairman Anil Ambani had said, "We believe Sumitomo Mitsui Trust will play an important role in the future of our company, through their all-round support and long standing experience, and will help accelerate our growth as we tap new opportunities and expand our existing businesses."

This is the second major partnership that Reliance Capital has entered into with a Japanese financial sector giant after Nippon Life, to which it has sold stakes in its life insurance and mutual fund ventures.

The move also follows the new Indian government attaching significant importance to Japan for business relationships, especially after the recent visit of Prime Minister Narendra Modi to that country.

Reliance Capital will also support clients of Sumitomo Mitsui Trust Bank in their supply chain financing and advisory needs in India. On the other hand, SMTB will support Reliance Group across its various listed group companies by providing a wide range of financial and other services in Japan and Asia Pacific region.

Besides financial services, Reliance Group is present across a number of consumer-facing businesses such as telecom, energy, power, infrastructure and media and entertainment.

Sumitomo Mitsui Trust Group is also the fourth-largest bank in Japan (in terms of market capitalisation and corporate loans) and Japan's largest financial institution managing assets of USD 682 billion and assets under custody of USD 1.8 trillion as of September 2014.

Established in 1925 as the former Sumitomo Trust Company, SMTB forms the core of Sumitomo Mitsui Trust Group as a large scale trust bank in most of the business areas of trust banking industry.

Earlier, Nippon Life had also reiterated its commitment to partner the Indian group in its proposed 'Reliance Bank' venture once the banking licence is granted by the RBI.