RBI action may derail revival plans of Reliance Capital's subsidiaries

Authum's plan to acquire Reliance Home Finance and RCFL awaits RBI nod

The Reserve Bank of India’s (RBI’s) move to supersede the board of Reliance Capital (RCap) may derail the revival plans of its subsidiaries — both Reliance Commercial Finance (RCFL) and BSE-listed Reliance Home Finance (RHFL) are undergoing separate debt resolution plans initiated by lenders.

A source close to Anil Ambani Group said with a majority of lenders undergoing a protracted debt resolution, the RBI may not tag the debt resolution of both companies with RCap. The RBI had not cleared both proposals and is looking into the “fit and proper” criteria of Authum Finance.

In July this year, the lenders of RCFL had selected Authum Investment & Infrastructure as the successful bidder after it offered Rs 1,600 crore for the company. Similarly, lenders had also agreed to Authum’s offer for RHFL for Rs 2,911 crore in July.

Authum’s debt resolution plan for RCFL was approved under the RBI’s framework for stressed assets dated June 7, 2019. According to the plan, RCFL’s resolution would have resulted in overall debt reduction of its parent RCap by over Rs 9,000 crore.

Similarly, RHFL had debt of around Rs 11,200 crore and lenders took a large haircut while clearing Authum’s resolution plan.

The lenders had also started the process of unlocking the value of RCap in October last year and had appointed SBI Capital Markets and JM Financial to sell its assets. Although the advisors received good response from global and local investors, none of the transactions could close due to litigation.

The commercial finance business of RCap was demerged into a wholly owned subsidiary RCFL from April 1, 2016. The company was involved in financing of small and medium-sized enterprise loans, structured finance, construction equipment loans under the brand name Reliance Money. By 2019, the company started defaulting on its loans and banks decided to resolve its debt under the RBI framework. RHFL, too, started defaulting on its loans, leading to lenders taking action to resolve bad debt.