RBI action against RCL: All you need to know about Reliance Capital

The Reserve Bank of India (RBI) has superseded the board of Reliance Capital Ltd (RCL) given the defaults in meeting various payment obligations to its creditors and serious governance concerns which the board was not able to address effectively. The RBI will shortly initiate the process of resolution of the company under the Insolvency and Bankruptcy Code (IBC).

Holding company in financial services biz

Reliance Capital is registered as a core investment company with the RBI, with businesses like insurance, asset reconstruction, wealth management, etc. The company claims to have consolidated total assets of Rs 64,878 crore in 2020-21. The company's stock is down in the dumps at Rs 19.05 per share, while its market capitalisation is struggling at Rs 481 crore. There is a non-promoter group, with a substantial stake with public shareholders holding a majority of 97.8 per cent of the equity in the company.

Incurring huge losses

The company has been incurring losses year after year. The debacle of IL&FS on account of asset-liability mismatches impacted the NBFC sector severely. The slowdown in the economy also contributed to higher delinquencies in the non-banking space. In 2020-21, the company's consolidated revenues stood at Rs 19,308 crore, with a net loss of Rs 9,287 crore.  A year before, it earned revenue of Rs 18,359 crore, with a net loss of Rs 1,199 crore.

Impact of harsh rating action

Two years ago, the rating agency CARE downgraded the company's entire outstanding debt to the "default" rating. RCL reacted strongly to the downgrade terming it completely biased, unwarranted, and unjustified rating action. "This rating downgrade was made, even though there were no overdue on principal or interest payment to any lender," it said.  It blamed the rating agency for "a cascading effect", which led to an acceleration of various facilities by certain lenders and consequential demands for immediate payment of amounts that were otherwise due and payable in a phased manner over the next 8 years till April 2028, as per original terms of lending.

2 RCL firms undergoing resolution

Two of the companies under the RCL-fold are already undergoing resolution -- Reliance Commercial Finance (RCF) and Reliance Home Finance (RHF). The lenders have recently selected Authum Investment and Infrastructure as the successful bidder for both these companies.

Delay in assets monetisation

The company also has two insurance subsidiaries and an asset reconstruction company. The company's general insurance arm reported a gross written premium Rs 8,405 crore for the year ended March 31, 2021. Reliance Nippon Life Insurance, another insurance arm in life insurance, recorded a net premium of Rs 4,712 crore in 2020-21 against Rs 4 418 crore the year before. Reliance ARC, which is into asset reconstruction or the resolution of bad loans, is focusing on the distressed assets in the SME and retail segments. The company had assets under management of Rs 2,213 crore in 2020-21 against Rs 2,020 crore the year before. Reliance Capital has faced delays in the monetisation of other assets.

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