The Insurance Regulatory and Development Authority of India (IRDAI) has expressed concern over the resolution plan of Indusind International Holdings Limited (IIHL) for the acquisition of Reliance Capital.
Holdings (IIHL) for the acquisition of Reliance Capital
The IRDAI has expressed apprehension regarding the proposed acquisition of Reliance Capital Limited by the Hinduja Group company IIHL. According to sources reported by PTI, IRDAI said that IIHL’s INR 9,650 Cr resolution plan is not in line with IRDAI norms. The regulator has also highlighted concerns regarding exceeding the foreign direct investment (FDI) limit in financially distressed Reliance Capital.
Also Read | RBI to Investigate Google Play Billing System Over Reported Violations
Details Sought by IRDAI
Ahead of the deal, IRDAI had sought a complete set of shareholder information from IIHL as the deal was about to be finalised. Additionally, the regulator sought clarification regarding the equity placement and debt arrangements used by IIHL for the buyout.
Emphasizing the paramount importance of safeguarding policyholders, IRDAI suggested that promoters should invest their own capital in such plans. As insurance companies handle policyholders’ funds, ensuring their protection remains the regulator’s top priority.
Concerns Over FDI and Borrowing Plans
IRDAI has also expressed concern about the structure of IIHL’s lending schemes, including aspects such as interest rates and offered customers. The regulator highlighted the issue of foreign direct investment (FDI) beyond 100% post-acquisition and requested clarification on its permissibility under existing FDI laws.
NCLT Approval and Reliance Capital’s Debt Woes
In February 2024, the NCLT approved IIHL’s INR 9,650 Cr plan for Reliance Capital, which was saddled with INR 40,000 Cr of debt. The Reserve Bank of India intervened in November 2021 due to governance issues and payment defaults and appointed Nageswara Rao as the administrator of Reliance Capital.
Also Read | Godrej Properties Acquires Prime Land in Hyderabad’s Kokapet for INR 1,300 Cr
Selection Process and Resolution
In contrast, the resulting bids from the first 4 applicants were below the respective contract value, consistent with the IIHL and Torrent Investments challenge mechanism. Therefore, Indian Forest Industries, with a proposal of INR 9,661 Cr in upfront cash provision, emerged as the winner of the bidding in June 2023. Along with the additional cash infusion of INR 500 Cr, Reliance Capital had also set aside an amount for lenders as part of the restructuring exercise.
IRDAI’s caution towards IIHL’s resolution plan reflects the tight regulatory control exercised by the regulator on mergers of distressed entities as it relates to services that are essential to public welfare such as insurance.
