reliance capital resolution: Reliance Capital to be divided into four entities? New proposal surprises many

In a move that came as a big surprise to many, Reliance Capital’s administrator has proposed to divide the company into four core investment companies (CICs), changing its very structure.

The bidding process for the debt-ridden company is already at an advanced stage.

There are four companies in the fray for RCAP’s General Insurance and Life Insurance ventures. These are: Piramal, Zurich, Advent Private Equity and Aditya Birla Capital.

According to reports, the administration of RCap has also written to the RBI seeking its views/approval on the proposal.

Under current RBI norms, more than one CIC is not allowed in a company. Therefore, RBI’s green signal would be needed to reconstruct 4 CICs out of Reliance Capital CIC.

The four CICs proposed are: Reliance General Insurance Company (RGIC), Reliance Nippon Life Insurance Company (RNLIC), All other businesses of RCAP, including Reliance Securities, ARC, Private Equity, Investment Real Estate etc and Reliance Commercial Finance and Reliance Home Finance.

As per sources cited by PTI, the sole objective of restructuring is to “help the bidders of RCAP’s insurance businesses circumvent the IRDAI guidelines, related to the five-year lock-in period.”

Current IRDAI guidelines state that “equity contribution of promoters and other investors, including private equity funds, in an insurance company, will have a lock-in period of five years at the time of granting the final approval.”

The IRDAI guidelines related to the lock-in period of 5 years will not apply to the new proposed structure, PTI reported quoting AZB and Partners, the legal advisor to the Administrator.

As per the report, the circumvention of the five-year lock-in period will help companies like Advent Private Equity to exit the insurance venture at any time.

The proposed restructuring has repotedly received the nod of a three-member advisory committee of RCAP Administrator, comprising of former State Bank of India DMD, Sanjeev Nautiyal, former Axis Bank DMD, Srinivasan Varadarajan, and Ex-CEO of Tata Capital Praveen P Kadle.

RBI rules specify a CIC as an NBFC that conducts the business of “acquisition of shares and securities and holds not less than 90 per cent of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies.”

The RBI had superseded the board of RCL following payment defaults and serious governance issues, on November 29, 2021.

In February 2022, the RBI-appointed administrator invited expressions of interest for the sale of Reliance Capital.

Based on PTI reports

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