The board of Reliance General Insurance Company Ltd made a Rs 118 crore provision in the quarter ending December 2023 to provide a one-time incentive to the senior officials of the company, a move opposed by the administrator of parent Reliance Capital, said people with knowledge of the matter.
Reliance Capital is undergoing corporate insolvency, and Reliance General Insurance is its wholly-owned subsidiary and one of the biggest attractions for buyers among the 20 financial companies under its ambit.
Lenders have unanimously voted for the Rs 9660 crore resolution plan given by Hinduja group’s holding company IndusInd International Holdings Ltd, and this is pending approval from the National Company Law Tribunal (NCLT).
The administrator, Y Nageswara Rao, has written to Rakesh Jain, MD and CEO of Reliance Insurance and directors, asking them to reverse the provision and not take any decision or action on distributing the incentives until new management takes charge of the company.
Reliance General Insurance and the administrator of Reliance Capital did not immediately respond to ET’s request for comment.In a board meeting on January 29, Reliance General Insurance passed a resolution to make this provision and review the audit results. It reported a net loss of Rs 33 crore for the quarter ending December 2023 as against a net profit of Rs 80 crore in the corresponding period last year, according to a disclosure made by the company to the stock exchange.”It has come to our attention that the financial statements for the quarter ended December 31, 2023 states that a provision has been made for an estimated amount of Rs 118.4 crore for RGIC to meet its obligations in relation to the one-time special payments proposed to be paid out to the management team of RGIC,” said a letter by administrator to the board of directors.The letter stated that it violated previous directives by the parent company, which requested insurance companies not to take any specific action, such as a one-time payment to employees.
The intent to distribute Rs 118 crore has surprised lenders since the general insurance company sought capital support of Rs 200 crore to maintain a healthy solvency margin.
After repeated presentations by Reliance General Insurance, the lenders provided Rs 200 crore capital to help them raise the solvency margin to 175% from 155%, as first reported by ET on July 20.
This action of yours in provisioning for the same funds contrary to your representations on the solvency ration post-infusion of additional funds, the letter stated.
