Piramal Group not eligible to acquire Reliance Capital, says Irdai

Group has promoter stake in Pramerica Life Insurance

The Insurance Regulatory and Development Authority (Irdai) has written to Reliance Capital’s administrator flagging concerns over Piramal Group’s bid for the firm, pointing out that the latter already has a promoter stake in a life insurance firm and cannot pick up a similar stake in another life insurer.

With the acquisition of DHFL last year, Piramal Group has a promoter stake in Pramerica Life Insurance, and if it acquires RCap it would also become the promoter of Reliance Nippon Life Insurance.

In the letter dated May 12, Irdai said: “Since Reliance Capital is the holding company and promoter of Reliance Nippon Life Insurance, in case Piramal Group acquires Reliance Nippon Life Insurance company, through its acquisition of Reliance Capital, it will result in it being a promoter of two life insurance companies i.e., Pramerica Life Insurance Company and Reliance Nippon Life Insurance Company. As indicated above, this would be contrary to the regulatory framework in place in the insurance sector”.

An email sent to the Piramal Group did not elicit a response. However, sources said the group is in touch with the administrator and Irdai on this issue.

Reliance Nippon Life Insurance is a joint venture between Reliance Capital and Nippon Life, where RCap holds a 51 per cent stake. Irdai does not allow any entity to act as a promoter of more than one insurance company in the same line of business — life insurance, general insurance, and health insurance.

WHAT’s THE ISSUE

• Deadline for submission of bids for Reliance Capital was extended till June 30
• Eight entities, including Piramal Group, had a shown interest
• Irdai has said if Piramal acquires RCap, it will become promoter of two life companies
• But one entity cannot be promoter of two life firms
• Piramal has 50% stake in Pramerica through DHFL Investments, a wholly owned subsidiary of Piramal Capital & Housing Finance

Pramerica is a joint venture between DHFL Investments, a wholly-owned subsidiary of Piramal Capital and Housing Finance, and Prudential International Insurance Holdings. Piramal Enterprises holds 50 per cent in the life insurance firm.

Further, through its indirect investment of 20 per cent in Shriram Capital, which is the holding company of Shriram Life Insurance Company with 74.56 per cent stake, the Piramal Group has an indirect shareholding of 14.9 per cent in Shriram Life Insurance.

This, too, is not permitted under the Irdai guidelines, which says, an investor cannot individually hold more than 10 per cent and jointly 25 per cent of the paid up equity share capital in an insurance company.  

However, it had told Irdai that it would dispose or bring down its stake within the prescribed limits – 10 per cent – within 18 months, effective May 4, which Irdai has accepted.

Deadline extended

RCap’s lenders have extended the deadline to submit bids till June 30 as they received a tepid response from prospective bidders, with only eight of the 54 prospective resolution applicants engaging with them.

Of the eight, five sought clarifications on certain issues, while the other three – which included Piramal, YES Bank, and HDFC Ergo —held meetings regarding resolution plans.

Last November, the Reserve Bank of India (RBI) superseded the RCap board because of defaults and governance issues, and referred the company for insolvency proceedings, making it the third financial services company to be placed under insolvency proceedings after DHFL and two Srei group entities.

Piramal Enterprises acquired DHFL through the insolvency process for a consideration of Rs 34,250 crore.

The RBI had appointed Nageswara Rao Y, former executive director of the Bank of Maharashtra, as the administrator of RCap.