IRDAI Approves Stake Sale in RCap's Insurance Arms: Progress Toward Resolution

The Insurance Regulatory and Development Authority or IRDA has approved the transfer of shares in Reliance Capital’s insurance subsidiaries to the Hinduja Group’s Aasia Enterprises. This move is a crucial step towards resolving the Reliance Capital issue according to legal experts.

Abdullah Qureshi, Associate Partner at IndiaLaw LLP explained that the IRDA approval is a major regulatory milestone. IndusInd International Holdings Limited or IIHL needed several regulatory approvals as part of the resolution plan and the IRDA's clearance for changing control in Reliance’s insurance businesses advances the sale process.

Remaining Approvals

Prashanth Shivadass, Partner at Shivadass & Shivadass Law Chambers noted that the Hinduja Group still requires approval from Reserve Bank of India to complete the transaction. Additionally, Hinduja Group must make certain payments in compliance with IRDA’s conditions. IRDA has set a three month deadline for the share purchase in Reliance Nippon Life Insurance Limited. Post transaction Nippon Life Insurance, Reliance Capital and Aasia Enterprises LLP will remain as promoters.

Initially, Insurance Regulatory and Development Authority expressed reservations regarding the proposed structure for Reliance Capital’s insurance subsidiaries. The regulator emphasized the need for promoters to invest their own capital highlighting the priority of protecting policyholder's interests.

Auction and Insolvency Process

In February 2022, 55 companies expressed interest in Reliance Capital with 14 of them submitting non binding bids by August 2022. By December 2022 the final bids came from Hinduja Group, Torrent Investments, Cosmea Piramal consortium and Oaktree Capital. Due to bids being below the liquidation value, an eauction was held where Hinduja Group emerged as the highest bidder.

First Auction: Held in December, the highest bid was ₹8,640 crore by Torrent Investments.

Second Auction: Held on April 26, 2023, IIHL emerged as the sole and highest bidder, surpassing Torrent’s offer. The minimum bid for the second auction was set at ₹9,500 crore with at least ₹8,000 crore in cash.

Insolvency Proceedings

Following payment defaults and governance issues Reserve Bank of India took over Reliance Capital’s board on November 29, 2021. Reliance Capital had borrowed money from 29 banks including amounts from YES Bank, Bank of Baroda and IndusInd Bank. The total owed to creditors as per Morgan Stanley stands at a staggering ₹52,490 crore with ₹21,070 crore owed to banks alone.

Reliance Capital joins the ranks of Dewan Housing Finance Corporation and Srei Group NBFC as the third major non banking finance company facing bankruptcy proceedings initiated by the RBI under the Insolvency and Bankruptcy Code. RBI submitted an application for CIRP initiation against Reliance Capital at the Mumbai bench of the National Company Law Tribunal or NCLT.

Final Words

With IRDA’s approval, a significant regulatory hurdle has been cleared in the resolution of Reliance Capital’s financial troubles. The completion of this share transfer now hinges on RBI’s approval and adherence to payment conditions set by IRDA.