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As per the extant RBI rules, more than one CIC is not allowed in a company. Therefore, to split Reliance Capital into four CICs would require a green signal from the RBI. The administrator has proposed to form four CICs from Reliance Capital. A PTI report quoted sources as saying that the exercise is aimed at helping the bidders for Reliance Capital’s insurance business. This will give them an opportunity to avoid the five-year lock-in period rule imposed by insurance regulator IRDAI.
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what will be the benefit
As per the existing IRDAI guidelines, there will be a lock-in period of five years for equity contribution by promoters and other investors in an insurance company. But according to the administrator’s legal advisory firm AZB and Partners, this rule will not apply to the proposed structure of Reliance Capital. This will allow companies like Advent Private Equity to exit the insurance venture at any time. The three-member advisory committee of administrators is understood to have approved the restructuring of Reliance Cap. The committee includes former State Bank of India DMD Sanjeev Nautiyal, former Axis Bank DMD Srinivasan Varadarajan and former Tata Capital CEO Praveen K Kandle.
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What is CIC
As per RBI norms, CIC is an NBFC engaged in the business of acquisition of shares and securities. More than 90 per cent of its net assets are invested in group companies in the form of equity shares, preference shares, bonds, debentures, debt or loans. Reliance Capital has around 20 financial services companies. These include securities broking, insurance and an ARC.
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The RBI had on 30 November 2021 dissolved the board of the heavily indebted Reliance Capital and initiated insolvency proceedings against it. The Central Bank had appointed Nageswara Rao as the administrator of the company. In February, he started the process of selling Reliance Capital. Rao had given the option to the bidders to bid for the entire company or individual companies. The last date to submit the resolution for this was August 29. The administrator has verified the claims of financial creditors of Rs 23,666 crore. LIC has claimed Rs 3,400 crore.
