IRDAI flags Hinduja Group-led IIHL’s acquisition of Reliance Capital, says plan ‘not in line with regulations’

IIHL’s ₹9,650 crore resolution plan, to acquire bankrupt Reliance Capital Ltd is not in line with insurance regulations, said IRDAI in a recent communication to  Nageshwara Rao Y, Reliance Capital’s administrator. The insurance regulator also expressed concerns over the exceeding limit of Foreign Direct Investment (FDI) in the debt-ridden company.

Earlier, IRDAI has sought details of IIHL shareholders in connection with the matter. It also sought clarifications regarding the capital IIHL is planning to infuse into the debt-ridden insurance company. Moreover, the IRDAI has expressed reservations about debt that IIHL plans to raise to fund the Reliance Capital acquisition, sources told PTI.

Protection of policyholders top priority

The promoters should invest their capital in such plans as insurance firms deal with policyholders’ money and as a regulator protection of policyholders is the top priority, suggested the regulator. 

Apart from seeking information about the source of capital infusion, the insurance regulator asked for clarification on the structure of IIHL’s borrowing plans, including the rate of interest, the instruments to be issued and the proposed subscribers etc. The exceeding limit of 100% Foreign Direct Investment (FDI) after the takeover has also caught IRDAI’s attention as it expressed apprehensions over the rise in FDI following the transfer of the stake of Reliance Capital to IIHL.

IRDAI raises concerns over 100% FDI 

“In other words, RCL (Reliance Capital Ltd) will have 100% FDI. Please confirm if the same is permissible as per extant FDI law. Please provide reference to the said law that permits the same,” the communication said.

In February, the National Company Law Tribunal (NCLT) greenlit Hinduja Group firm IndusInd International Holdings Ltd’s ₹9,650-crore resolution plan for Reliance Capital.

In November 2021, the Reserve Bank of India superseded the board of Reliance Capital on governance issues and payment defaults by the Anil Dhirubhai Ambani Group company. Later, Nageswara Rao Y was appointed as the administrator of Reliance Capital. Rao invited bids in February 2022 for the bankrupt company’s acquisition.

Reliance Capital debt woes

Reliance Capital is burdened with over ₹40,000 crore debt. Before the finalisation of IIHL, the committee of creditors had rejected four applicants who had initially bith with resolution plans due to lower bid values. Later, IIHL and Torrent Investments participated in a challenge mechanism, after which the Hinduja Group firm was selected by the committee for its bid of ₹9,661 crore upfront cash.

Milestone Alert!
Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!

Published: 07 Apr 2024, 04:48 PM IST