HOW HINDUJA GROUP'S BID TO ACQUIRE RELIANCE CAPITAL VIOLATES INDIA'S FDI, INSURANCE NORMS

The bid structure has come into question with the insurance regulator pointing out that it not just allows Hinduja Group-backed foreign entities to own 100 per cent in Reliance Capital’s insurance business but also lets them bid on borrowed money in total disregard of Indian laws and norms

- Palak Shah

CAN YOU imagine the Hinduja Group, which is said to be among Europe’s wealthiest families with more than $30 billion in net worth, having to borrow a little over $1 billion to fully fund its acquisition of an insolvent company in India? India’s Insurance Development and Regulatory Authority (IRDA) believes that Hinduja Group’s Rs 9,661 crore bid structure to acquire Reliance Capital (RCL) “that hinges on foreign borrowings” is likely to be in violation of several norms with regard to the acquisition of insurance business in India and also the country’s FDI (foreign direct investment) norms. Hinduja Group’s deal to acquire RCL cannot be concluded till IRDA and other regulatory authorities give a final clearance.

As per IRDA, Hinduja’s bid structure violates India’s FDI norms in the insurance sector and also key regulatory clauses of IRDA’s rules on acquisition of insurance business. Reliance General Insurance (RGIC) and Reliance Nippon Life Insurance (RNLIC) fall under RCL, which comes directly under the ambit of IRDA.

In 2021, India’s Parliament capped FDI in the insurance sector at 74 per cent. But the Hinduja Group’s bid structure for RCL would result in 100 per cent ownership of RCL’s insurance business by foreign entities. IRDA has raised its concern over this with the RBI-appointed administrator for RCL, Nageswara Rao Y, in a March 20 letter. Also, the IRDA (Registration of Indian Insurance Companies) Regulations, 2022 disallows promoters or investors to bid for an insurance company “with borrowed money”.

Bid Structure Under a Cloud