The Insurance Regulatory and Development Authority of India (IRDAI) has raised queries over the Hinduja Group Ltd.?s proposed takeover of Reliance Capital Limited (NSEI:RELCAPITAL) (RCap) and sought clarifications from the company. With regards to the group's plans to borrow funds for acquisition of RCap, the regulator has sought clarifications and asked why this should not be construed as non-compliance of rules of registration. It has also sought the structure of the proposed borrowing, instruments to be issued, proposed subscribers, the rate of interest and tenure, among others.

The interest on the debt (borrowings) would also create a liability or obligation for RCap, which would restrict its ability to provide for the future capital requirements of the insurance companies, Irdai said, seeking clarity on RCap's ability to meet the future capital requirements of insurance firms. The regulator has also sought details of Aasia Enterprise's structure that would change following the deal. Details including the quantum of consideration to be paid by Aasia, details of the recipient and source of the funds, among others, have also been sought. The regulator has sought clarifications on RCap being owned by entities based overseas.

RCap would entirely be held by foreign entities, it said, adding whether this was permissible as per the extant foreign direct investment regulations. The Hinduja Group had earlier sought approvals for transfer of shares from RCap to Aasia, a group company. Applications were filed last year by Reliance General Insurance Company Limited, Reliance Nippon Life Insurance Company Limited and Reliance Health Insurance Limited.

The regulator, in its letter dated March 20, also wanted clarification on RCap being a core investment Company (CIC). It sought details on whether RCap will continue to remain as a CIC after the acquisition by IndusInd International Holdings Ltd. (IIHL). Hinduja Group had placed its bid for RCap through IIHL, a group firm.

On RCap becoming a wholly owned subsidiary of another company, the regulator wanted clarification on why the same should not be construed as non-compliance with the rules of registration.