Reliance Capital will exit the lending business as shares hit a two-decade low

Financial Services Company, Reliance Capital Limited fell over 12.3 percent on Monday, 30th September 2019 to over a 2-decade low after the Chairman of the group Mr. Anil Ambani said that the company will be exiting the lending business. Reliance Capital Limited is a diversified Indian financial services holding company owned by Reliance Anil Dhirubhai Ambani Group. The company Reliance Capital Limited is a part of the Nifty Midcap 50 and the MSCI Global Small Cap Index. The company is a part of the Reliance Group of Industries.

Anil Amban, Chairman of the group, said in a statement at the company’s annual general meeting that "As part of the transformation process, Reliance Capital will no longer be in the lending businesses and they are working closely with lenders to finalize to resolution plan. The plan is expected to be completed in the next few months by December 2019."

The Shares of Reliance Capital have fallen around 90 percent since the beginning of this year. On Monday 30th September 2019, the stock dropped more than 13.6 percent in intra-day deals to their lowest since 30th March 1999, at Rs 24.20. The stock ended up 12.3 percent lower at Rs 24.5 per share. In comparison to this, the BSE Sensex fell 0.4 percent or 155 points to 38,667.

In June 2019, the auditors had raised too many red flags around the company’s fourth-quarter results, such as a complete lack of clarity in related party transactions and accounting methodology of the company. This comes as the non-banking financial company had faced 'collateral damage' due to a slowing economy and a lending crisis in the sector, The Business Tycoon Anil Ambani said.

Reliance Capital currently takes part in lending to small and medium enterprises, this lending happens through Unit Reliance Money. The company also lends to prospective homebuyers through Reliance Home Finance. Both companies had a share of about 15% of the company's revenue in the previous year. The Reliance Capital company also has an interest in Asset Management and General Insurance Businesses apart from lending money.

The company has been actively divesting its assets this year. It has reduced its stake in the asset management arm of Reliance Group, Reliance Nippon Life Asset Management to only over 4 percent from about a quarter. “It is very unfortunate that during all this noise, the true value of our businesses has still not been recognized,” Ambani said in a statement.

At the AGM, Ambani explained that the Reliance group has repaid a debt of over Rs 35,000 crore in the previous 14 months till May 2019 and it will be paying another Rs 15,000 crore ($150 billion) till March 2020. He even added that the Reliance group has over Rs 60,000 crore receivables stuck in the various Regulatory & Arbitration matters of the company. "We are in the process of transforming Reliance Capital. Sale of stake in life insurance biz brought Rs 6000 crore, which was used for debt reduction," he added. The credit rating of the company has been downgraded by the local companies to default.

As it abandons lending, Reliance Capital will be a financial shareholder in its Reliance Commercial Finance and Reliance Home Finance businesses, while the parent will rely on its insurance business as a “long-term value creator,” Anil Ambani said in a statement on 30th September 2019, Monday.

The Reliance Group has been huge in debt as Ambani tries to save the rest of his businesses from collapsing such as the wireless service, Reliance Communications Ltd. became insolvent in the earlier part of this year. Excluding the Phone Company of the Reliance Group, the other four businesses of the company had an accumulated debt of around 939 billion rupees.

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