India's insurance regulator has objected to Hinduja group-owned International IndusInd Holdings Ltd.'s (IIHL) proposal to raise money by pledging shares of Anil Ambani-promoted Reliance General Insurance Co. and Reliance Nippon Life Insurance Co. to acquire bankrupt Reliance Capital Limited (NSEI:RELCAPITAL), said people with knowledge of the matter.

In response, lenders have asked the Hinduja group to submit a revised proposal that would not involve leveraging shares of the insurance companies to acquire Reliance Capital, the people cited above said. Hinduja Group is in talks with offshore lenders to raise $800 million (INR 66,600 million equivalent) to acquire the finance company under the Insolvency and Bankruptcy Code, the people said. Lenders have unanimously voted in favour of a INR 96,600 million plan offered by IIHL in June.

IIHL and Insurance Regulatory and Development Authority of India (IRDAI) did not respond to ET's request for comments. Reliance General Insurance is 100% owned by Reliance Capital and is among the most valuable assets. Reliance Nippon Life Insurance is 51% owned by Reliance Capital and 49% owned by Nippon Life Insurance.

IIHL had applied to IRDAI seeking approval for a 'change in control' of the two insurance companies. IRDAI has indicated that IIHL's application for 'change in control' would not be considered 'favourably' if the source of funds for acquisition is the creation of a pledge over the shares of insurance companies, said people cited above. This issue was discussed among the committee of creditors, following which the administrator directed IIHL to submit a revised offer.

"We have asked IIHL to submit a plan which provides details on the source of funds, and which does not envisage the creation of pledge over shares of insurance companies," one of the persons cited above said.