Under the draft guidelines, RBI proposes to allow a wide number of firms like supermarkets and telecom companies to set up payment banks while NBFCs and microfinance institutions can set up small banks.
In an interview to CNBC-TV18, Kishore Biyani, CEO, Future Group, said the pre-paid card mechanism can work well on a pan-India basis, especially for the supermarkets.
Biyani said they do not need a telecom partner for the payment bank as they already have technology platform in place to implement the mechanism.
Though he feels that it's too early to talk about capex involved in payment banks business, Biyani said for Future Group, the capex requirement won't be much as they have the infrastructure and technology.
Future Retail 's current debt stands at around Rs 6000 crore. The company plans to raise additional Rs 2500 crore by divesting Future Group's stake in non-core business. The company aims to bring down its debt in range of Rs 1000 -1500 crore.
Speaking on the debt, Biyani said: "We have done a preferential allotment of Rs 400 crore. There's a rights issue of Rs 1600 crore being planned for which we are filing paper. That takes the debt down by Rs 2000 crore."
He said there is further divestment plan of around Rs 2000-2500 crore over the next 12-18 months. "Once we are done with that we should be comfortable at the debt level that we have mentioned," he added.
Below is the transcript of Kishore Biyani interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: I wanted your views on the fact that RBI is allowing supermarkets to launch payment banks, how feasible do you think this idea could be and would the Future Group be interested?
A: We have been going through draft guidelines and it seems that whatever we wanted to do earlier in terms of the prepaid card activity which is an open loop -- we are not able to do quite a few activities and we have a lot of urban poor customers and customers in more than 100 cities and towns where we operate especially northeast where the RBI is putting a lot of focus, we operate in most of the north-eastern states, so we believe the money transfer and the deposit, the prepaid card mechanism can work very well for us as a super market chain. We have the infrastructure in terms of the physical store, we have the infrastructure in terms of the systems and the technology to make it happen very fast.
Latha: Have you all thought through the process then? The promoter can get 40 percent stake initially, have you all thought of other technology partners? Will you be tying up with a telecom company, is that a natural partner, any further thoughts?
A: I don't think we need a telecom partner because we run a brand on telephone also T24 which is our loyalty programme along with Tata Docomo. So we have that service, plus we have the technology already incorporating to our cost. So if somebody wants to operate from tomorrow in terms of money transfer and collection, we have the technology in place.
Latha: At least regulatorywise, the promoter can hold 40 percent, so who would be your natural partner, have you thought that through?
A: I think since the last two-three days there have been some fillers which have been coming in but I don't think we have thought through how we are going to about it.
Latha: What kind of entities would be interested?
A: I do not want to comment on that at this point of time.
Latha: Broadly, sectorally who are the kind of people who are reaching out?
A: Sectorally, people who have done similar kind of things in the other parts of the world. I think there are a lot of things like this in South America and every retailer virtually is a bank there and everything the deposit it linked to buying of products in the store.
Latha: Retailers are reaching out, foreigners are reaching out should we understand or are there domestic guys who are interested?
A: Currently, there are always the intermediateries, which opens up, ideas and thoughts.
Latha: So private equity entities?
A: Not private equity.
Sonia: Since you have been going through the draft guidelines, you will be able to throw some light on what kind of margins these payment banks will eventually generate because the sense we got from a couple of analysts is that, it is fine to start a payment bank but the margins are generally wafer thin?
A: I think our infrastructure cost will be quite minimal in this case. Secondly, money transfer is something which we can do reasonably very well. Thirdly, we already are into prepaid card to some extent but they are close loop cards, we can do an open loop card. So we have a lot of products which we can do but there is a limit of Rs 100,000 of deposit. We don't know what we can charge yet. I think the charges earlier as a correspondent bank we could only do Rs 1,000 and they were very minimal charges. So until the charges are not known, how much can you charge, we don't know the model per se as such.
Latha: I thought the charges would be left to the market in terms of competition deciding how much you can charge. My point was do you find it fundamentally viable because whatever money you collect, the deposits cannot be over one lakh and you can only put the excess cash in government of India securities. What is your understanding, can you pay an interest on the savings account that you will open because they actually behave like current accounts?
A: If you look at the urban poor as a market and the daily wage earners, they need to deposit money somewhere on which they normally buy goods. So there is some mechanism which can be built upon by. It is little early for us to get into details of viability or something like this but we believe it opens up opportunity for a retailer like us to get into activities to build a customer base.
Sonia: Can you give us any ballpark estimate of how much you look to invest into this project as capex?
A: I think it is very early to talk about all these things but capex involvement will be very low for us because we have the physical infrastructure and we have the technology. So I don't think the involvement in terms of capex will be very high for us.
Latha: Where do you expect competition to come from? One of our colleagues was saying that even Google is interested, today an analyst came with an opinion that Reliance Jio could be interested, telecom companies for sure -- I think Airtel also has a product ready to be launched, do you expect this would be a fairly crowded space?
A: I think everybody will have their own customers. If you look at Future Group, we have more than 30 crore people walking into a store every year. We do around Rs 8-9 crore unique transactions every year, we have loyalty programmes in data base of Rs 3 crore people. So it is a large base which we have and we can align some services with our loyal customers.
Sonia: As of now there are no lending activities that can be done for a payment bank but do you think eventually you could get to a stage where not just deposits but even a payment bank can go ahead with giving out loans?
A: I think a small bank they have provided for giving loans of around Rs 25 lakhs and as small bank, we have more than 24,000 vendours supplying to us and most of them are very small enterprises. So idea like this can work a lot for these kind of vendours who are already supplying to us. There can be credit facilities created for them.
Latha: Are you saying that you will therefore look at both banks, a parent bank and a small bank?
A: I am not saying that - today in terms of qualifications, they are wanting to look at small banks from non-banking financial companies (NBFCs) and other players and payment banks are looking at super market chains and telecom operators and other players. So that is the way it has been defined at this moment. I think there are vendours with us, there are a lot of supplies in every part of India and a lot of small enterprises especially on the food side of business.
Latha: Are you saying that you could also be interested in the small bank?
A: We have to look at the guidelines but there would be somebody who can partner definitely with us on that kind of a bank also.
Sonia: The last time we spoke with you, you have indicated that you plan to bring down your debt from Rs 6,000 crore by about Rs 1,000-1,500 crore or so. What is the update on that in terms of sale of non-core assets? What is planned in the next six-eight months and how much you could scale down your debt to?
A: I think we have done a preferential allotment of Rs 400 crore. There is a right issue being planned for which we have been filing papers mostly by today or tomorrow that is Rs 1,600 crore of rights issue that takes the debt down by Rs 2,000 crore. There is further divestment plan over the next 12-18 months of around Rs 2,000-2,500 crore and I think once we are done with that, we should be comfortable at the debt level which we have mentioned earlier.
Latha: Can you elabourate a little more on the rights issue, approximately what is the dilution?
A: I think the rates have not been decided. We are filing the letter offer with the regulatory bodies and once we get an approval, I think during that time we will decide the pricing. Right issue there will be no dilution per se as such because the rights are being offered to every stakeholder.
Latha: Overall equity dilution?
A: I think the preferential allotment would have resulted into some dilution but this Rs 600 crore of rights will not result into dilution per se.
Sonia: If you put together the preferential issue, the rights issue and the divestment which is Rs 400 crore, Rs 1,600 crore and above Rs 2,500 crore, that would mean a little more in Rs 4,000 crore, so you plan to reduce your debt by Rs 4,000 crore in the next 12 months or so, is that what we can expect?
A: That is the plan of the company and that is what we have been mandated for to do over a period of next 12-18 months.
Latha: Any specific assets you are thinking of selling off?
A: We will not comment on that as such but there are many assets, which we hold are well-known and there are some divestments of non-core assets which will definitely happen.
Latha: To come to your general business outlook, have you seen footfalls improve, same-store sales increasing, there is clearly a spring in the step as far as mood is concerned, but is it getting realised at all in footfalls?
A: I think there has been a positivity all around. Big Bazaar has been virtually growing at very high double-digit same-store sales growth, we have seen some exceptional numbers in July in all the lifestyle business. I think everybody in the lifestyle business seems to be enjoying the July month which I believe most of the people are growing at nearly 35-30 percent.
Latha: But don't they come at big discounts? July is also the season of discounts and now with e-retailers in the fray, are margins taking a bit of a crunch?
A: These discount periods are planned and if you look at the markdown strategy of every retailer in the world, if you look at lifestyle retailers 36-38 percent products are markdown in a sense. We have also learned now how to deal with markdowns. So I think it is a planned markdown but I believe the sale might end up early this year because of stocks getting over much faster this time.
Sonia: You spoke about your debt reduction, what kind of interest costs do you think you can pay in the next couple of quarters so from the current Rs 150 crore of interest costs that you pay, how much could it go down to?
A: Ultimately if we come down to the debt level of Rs 1,500-2,000 crore, the interest will be hardly around Rs 40-50 crore per quarter.
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