RBI Supersedes The Board Of Reliance Capital
Reserve Bank of India has decided to supersede the board of Anil Ambani-owned Reliance Capital Ltd. The decision came after the company was unable to meet payment obligations to various creditors and owing to serious governance concerns at the company.
"The Reserve Bank has today superseded the Board of Directors of M/s Reliance Capital Ltd (RCL) in view of the defaults by RCL in meeting the various payment obligations to its creditors and serious governance concerns which the Board has not been able to address effectively," the RBI said in a release.
Nageswar Rao Y, former executive director of Bank of Maharashtra, has been appointed administrator. The RBI will initiate insolvency proceedings shortly, it said.
Reliance Capital is the third non-bank lender against whom insolvency proceedings will be initiated under a special window of the Insolvency and Bankruptcy Code. Dewan Housing Finance Corp. and two Srei Group entities have also seen their board superseded and insolvency proceedings initiated.
In an exchange statement, Reliance Capital said that pending cases in various courts have stalled resolution over the last two years.
"The complexity of litigation initiated by certain secured and unsecured lenders, resulting in the pendency of over 10 cases in various fora, including the Hon’ble Supreme Court, Mumbai High Court, Delhi High Court and DRT, has effectively stalled the resolution of the company’s debt, despite its best efforts for the past over two years," the statement said.
According to Reliance Capital it has no borrowings from banks and nearly 95% of its debt comes from debentures. The company welcomed the RBI's move and said it will fully cooperate with the administrator.
Reliance Capital's Business
Reliance Capital, according to its website, obtained its registration as an NBFC in December 1998. Since then, it has diversified its activities into areas such as asset management, insurance, commercial finance, industrial finance, stock broking, among others.
According to consolidated earnings for the quarter ended September, the company reported a net loss of Rs 1,156 crore. The segmental results show that much of the loss originated from the "finance and investments" and "commercial finance" divisions.
The operating segments which are consolidated into Reliance Capital's financials include:
Finance and Investments - This includes the corporate lending and investment activities.
General lnsurance - This includes the general and health insurance business.
Life lnsurance - This includes the life insurance business.
Commercial Finance - This includes the commercial finance business.
Others - This includes other financial and allied services.
In disclosures made in the notes accompanying the second-quarter earnings, the company said Reliance Commercial Finance had incurred a net loss of Rs 913 crore in the second quarter. It added that a debt resolution plan is being worked upon in the case of Reliance Commercial Finance and Reliance Home Finance.
The disclosures also speak of related party lending via Reliance Home Finance and Reliance Commercial Finance in the past.
Reliance Commercial Finance had given general corporate purpose loans to certain body corporates on an arms-length basis, some of which were further on-lent to companies which are identified as group companies. Reliance Home Finance, too, had given general corporate purpose loans to certain body corporates on an arms-length basis, some of which were on-lent to companies identified as group companies.
Liabilities Of Reliance Capital
The balance sheet of Reliance Capital pegs its total liabilities at Rs 79,031 crore as of Sept. 30, 2021. This includes:
Debt securities worth Rs 18,320 crore.
Borrowings other than debt securities worth Rs 8,585 crore.
"Other" financial liabilities worth Rs 49, 220 crore.
Trade payables worth Rs 2,281 crore.
According to a March update from CARE Ratings, the debt securities of Reliance Capital are already pegged at default grade. The rating agency has also marked the company's rating as "issuer not cooperating", citing multiple instances where it has sought information from the company but has not received responses.