INDIA BUSINESS WORLD - JANUARY 16^th - JANUARY 31^st - 2008

RELIANCE TIES UP WITH CITI TO RETAIL FINANCE, ADAG WAVES NON-COMPETE CLAUSE

Reliance Retail, a Reliance Industries offshoot, has inked a 50:50 joint venture with Citigroup to enter financial services. The JV would cover credit cards, personal loans and institutional loans to its partners and vendors, among other initiatives. Reliance Retail is likely to launch the co-branded credit card with Citi sometime in February, a company official said.

The Reliance Retail spokesperson declined to comment on the company's financial services plan and also if the venture would violate the noncompete clause between Reliance Retail chairman Mukesh Ambani and ADAG chief Anil Ambani.

However, when the same question was posed to ADAG, it termed the Reliance Retail-Citi JV a breach of the non-compete clause. "This would clearly violate the non-compete agreement and we will take appropriate measures to protect our interests," the Reliance Capital spokesperson said.

A company insider, however, said the non-compete clause was meant to cover the two groups' businesses in 2005. The retail business, of which financial services is a part, did not exist then, the official added.

"So the non-compete clause does not apply in this case.

Moreover, the company insider said just as ADAG is into exploration of oil and gas (a core RIL activity) as an 'ancillary part' of its power business, Reliance Retail's financial services business is ancillary to its retail venture.

According to a company source, the scope of the JV would cover the entire gamut of consumer financial services besides select areas of institutional lending. The JV will not restrict itself to lending to in-store purchases of Reliance Retail customers, but also cater to their needs, which may not be fulfiled by its outlets.

ADAG's presence in the financial business is through Reliance Capital, which is engaged in financial products including insurance, mutual funds, private equity, brokerage, and credit cards, among others.In October '06, ADAG too had announced the launch of credit cards in association with Citibank. A senior Citibank India executive, who didn't wish to be named, confirmed that the US-based bank is pursuing a venture with Reliance Retail but argued, "There's no conflict of interest as the existing relationship with ADAG does not cover any cobranded card."

Incidentally, when ADAG announced its credit card launch, it had said: "The card is being launched as a co-branded card with Citibank in association with Visa International."

As for Reliance Retail, it is expected that the company itself would manage sales, customer service operation and collection.

This JV would also cover lending products. The JV's consumer side would include credit cards, personal loans, auto loans, mortgage loans, besides lending for Reliance Retail's in-house products. Also, the JV will also cater to institutional lending with products covering SME/channel finance, vendor finance, sales finance etc.

The JV would also cater to Reliance Retail partners like suppliers and farmers who may require tailored lending products.

If the JV does succeed, Citibank could gain from the reach of its products across the country currently limited by checks on branch expansion. It could also regain its position as the top credit card company, a position it lost to homegrown financial powerhouse ICICI sometime ago.

Consumer finance is among the fastest-growing segments in the financial services sector, boasting of an annual growth rate of 30-40%. Annual credit card spends in India are estimated to be more than Rs 50,000 crore, and the size of the consumer finance business is believed to be much higher.