Loan defaults: Reliance Capital headed for the insolvency courts

RBI supersedes the lender’s board citing serious governance concerns

Reliance Capital reported a consolidated net loss of Rs 1,649 crore.
Reliance Capital reported a consolidated net loss of Rs 1,649 crore.

The Reserve Bank of India (RBI) on Monday superseded the board of the lender promoted by the Anil Dhirubhai Ambani Group, citing loan defaults and ‘serious governance concerns’ which the NBFC was unable to address. Reliance Capital is headed for the insolvency courts; in the interim Nageswar Rao Y, former executive director at Bank of Maharashtra, will take charge as administrator.

In an exchange notice on Saturday, Reliance Capital had said its total financial indebtedness, including short- and long-term debt, was Rs 21,781.01 crore. This amount included interest accrued till October 31. Analysts estimate the consolidated debt at the NBFC at closer to Rs 40,000 crore. Among its creditors are a couple of public sector banks.

Severely hit by the liquidity crisis post debt defaults by Infrastructure Leasing & Financial Services, the lender reported a net loss of Rs 253 crore for the September quarter. In the notes to account, Reliance Capital said it defaulted on debt repayment to lenders and debenture holders against which several lenders have filed cases against the company. In the quarter ended March 2021, Reliance Capital reported a consolidated net loss of Rs 1,649 crore.

“The Company has incurred losses during the current & previous year, which indicate material uncertainty exists that may cast a significant doubt on the Company’s ability to continue as a Going Concern. The Company is in the process of meeting its obligations by way of time bound monetization of its assets in cognizance with Debenture Trustee (Vistra) & Debenture holders,” it said.

The central bank said it would soon initiate the process of resolution for Reliance Capital under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. RBI will also apply to the NCLT Mumbai for appointing the administrator as the insolvency resolution professional, the central bank said.

Reliance Capital is the third non-bank lender after Dewan Housing Finance Corporation and SREI Group companies whose board has been superseded by the RBI.

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