Reliance Capital Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Forward looking statements

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company assumes no responsibility to publicly amend, modify or revise forward-looking statements, based on any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include determination of tariff and such other charges and levies by the regulatory authority, changes in Government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements have been prepared on a historical cost basis and on the accrual basis and are prepared in accordance with the accounting standards notified under the Companies (Accounting Standard) Rules, 2006, as amended, and other relevant provisions of the Companies Act, 2013 (the Act). The financial statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Act read with the [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.

The management of Reliance Capital Limited ("Reliance Capital" or "RCL" or "the Company") has used estimates and judgments relating to the financial statement on a prudent and reasonable basis, in order that the financial statement reflect in a true and fair manner, the state of affairs for the year.

The following discussions on our financial condition and result of operations should be read together with our audited financial statement and the notes to these statements included in the Annual Report.

Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", "Reliance", "RCL" or "Reliance Capital Limited" are to Reliance Capital Limited.

Global Economic Environment

According to International Monetary Fund, World Economic Outlook, January 2022, global growth is expected to moderate from 5.9 per cent in 2021 to 4.4 per cent in 2022, half a percentage point lower for 2022 than in the October World Economic Outlook (WEO), largely reflecting forecast markdowns in the two largest economies. A revised assumption removing the Build Back Better fiscal policy package from the baseline, earlier withdrawal of monetary accommodation, and continued supply shortages produced a downward 1.2 percentage-points revision for the United States. In China, pandemic-induced disruptions related to the zero tolerance COVID-19 policy and protracted financial stress among property developers have induced a 0.8 percentage-point downgrade. Global growth is expected to slow to 3.8 per cent in 2023.

Indian Economic Environment

The Delta variant of COVID-19 struck India in the beginning of 2021-22 marking the onset of the second wave. Although the second wave of the pandemic in April-June 2021 was more severe from a health perspective, the economic impact was muted compared to the national lockdown of the previous year. The Advanced Estimates of real GDP growth (YoY) in F.Y. 2021-22 at 9.2 per cent confirm the sustained momentum of GDP growth since the second wave. The economy in the current year has recovered 101.6 per cent of the pre-pandemic output of F.Y. 2019-20. This is supported by strong rebound seen in several high frequency indicators in Q3 F.Y. 2021 -22 and rapid progress in vaccination coverage. On the supply side, while agriculture continues to lend unwavering support to economic recovery, manufacturing and construction exhibited a sharp rebound to recover more than 100 per cent of corresponding pre-pandemic output levels. These developments clearly reflect uptick in consumer and investor sentiment, release of pent-up demand, especially in construction supported by growing public capex and housing cycle upturn. On the demand side, the recovery has been broad based. While investment and exports have achieved more than full recovery of corresponding pre-pandemic F.Y. 2019-20 levels, private consumption has also improved to recover 97.8 per cent of corresponding pre-pandemic levels and stands fully recovered in H2 of F.Y. 2021-22. These estimates confirm strengthening of economic recovery on the back of rising capex in public sector, increasing resilience of Indias exports, investment cycle uptick and improved consumption levels. Growth in income coupled with improved mobility and e-commerce augurs well for higher levels of employment. The growth in Government final consumption expenditure at constant (2011-12) prices is estimated at 7.6 per cent in 2021-22 (1st advance estimates), as compared to 3.6 per cent in 2020-21 (1st revised estimates).

Investment, as measured by Gross Fixed Capital Formation (GFCF) is expected to see strong growth of 15 per cent in 2021-22 and achieve full recovery of pre-pandemic level. Governments policy thrust on quickening virtuous cycle of growth via capex and infrastructure spending has increased capital formation in the economy lifting the investment to GDP ratio to about 29.6 per cent in 2021 -22, the highest in seven years.

The credit growth had been declining since 2019.The credit growth was 5.3 per cent at beginning of April 2021 and started to increase since then but was still modest and stood at 7.3 per cent as on December 1 7, 2021. However, the credit growth has picked up sharply in December to 9.2 per cent as on December 31, 2021. In 2021 -22, the risk capital (i.e. money raised from capital markets) has so far been more important than the banks in providing finance to the revival.

On a YoY basis, non-food bank credit registered a growth of 9.3 per cent in December 2021 as compared to 6.6 per cent a year ago. Credit to agriculture and allied activities continued to perform well, registering a robust growth of 14.5 per cent in December 2021 as compared to 7.7 per cent in December 2020.

Credit growth to industry improved noticeably to 7.6 per cent in December 2021 from 0.4 per cent in December 2020. Size-wise, credit to medium industries registered high double-digit growth of 86.5 per cent in December 2021 as compared to 17.1 per cent last year. Credit growth to micro and small industries accelerated to 20.5 per cent in December 2021 from 1.3 per cent a year ago. Credit to large industries recorded a growth of 1.3 per cent in December 2021 against a contraction of 0.5 per cent a year ago.

About Reliance Capital Limited

The Reserve Bank of India (RBI) vide Press Release dated November 29, 2021 in exercise of the powers conferred under Section 45-IE (1) of the Reserve Bank of India Act, 1934 (RBI Act) superseded the Board of Directors of your Company on November 29, 2021 and thereafter appointed Mr. Nageswara Rao Y, ex-Executive Director of Bank of Maharashtra as the Administrator of your Company under Section 45-IE (2) of the RBI Act. Thereafter, RBI vide its Press Release dated November 30, 2021, in exercise of the powers conferred under Section 45-IE 5(a) of the RBI Act, constituted a three (3) member Advisory Committee consisting of Mr. Sanjeev Nautiyal, ex-DMD, State Bank of India, Mr. Srinivasan Varadarajan, ex-DMD, Axis Bank and Mr. Praveen P Kadle, ex-MD & CEO, Tata Capital Limited to assist the Administrator in discharge of his duties and further to also advise the Administrator in the operations of your Company during the Corporate Insolvency Resolution Process (CIRP). As per the framework of the Advisory Committee as approved by RBI, primary responsibility of the Advisory Committee is to guide the Administrator to undertake all steps that will maximize the value for all stakeholders of your Company through a successful resolution.

On December 2, 2021, the RBI had filed the Petition before the Honble National Company Law Tribunal, Mumbai Bench ("NCLT/ Adjudicating Authority") under sub-Clause (i) of clause (a) of Rule 5 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudication Authority) Rules, 2019 (FSP Rules) to initiate Corporate Insolvency Resolution Process ("CIRP") against your Company read with Section 227 of the Insolvency and Bankruptcy Code, 2016 read with the Rules and Regulations framed there under and amended from time to time (the "Code"). Further, CIRP was initiated against the Company under Section 227 read with clause (zk) of sub section (2) of Section 239 of the Code and read with Rules 5 and 6 of the FSP Rules by an order dated December 6, 2021, of the NCLT. In accordance with Section 14 of the Code read with the FSP Insolvency Rules, a moratorium has been effective on and from December 6, 2021, i.e. the date of admission of the Company in the CIRP process for prohibiting institution of suits or continuation of pending suits or proceedings against the Company including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority. The Administrator has taken steps for seeking confirmations from various forums where litigations have been levied on the Company for disposal of assets, that such injunctions will not be applicable during CIRP. The Adjudicating Authority vide the above order, appointed the Administrator to perform all the functions of a Resolution Professional to complete the CIRP of the Company as required under the provisions of the Code. It is also incumbent upon the Administrator, (exercising same powers as Resolution Professional under the Code), under Section 20 of the Code, to manage the operations of the Company as a going concern.

Key Events:

Date Particulars
29-11-2021 Supersession of Board of Directors and appointment of Administrator
02-12-2021 Application by the Reserve Bank of India for initiation of corporate insolvency resolution process against Reliance Capital Limited and commencement of interim moratorium
06-12-2021 Order of National Company Law Tribunal for initiation of corporate insolvency resolution process against Reliance Capital Limited
08-12-2021 Public Announcement for invitation of claims in corporate insolvency resolution process against Reliance Capital Limited
18-02-2022 Invitation for Expression of Interest under Regulation 36A(1) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
11-03-2022 Invitation for Expression of Interest under Regulation 36A(1) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
04-04-2022 Provisional List of Eligible Prospective Resolution Applicants as per Regulation 36A(10) of the CIRP Regulations
19-04-2022 Final list of Eligible Prospective Resolution Applicants as per Regulation 36A (12) of the cIRp Regulations

For the period under review, the Committee of Creditors have met on January 5, 2022, February 2, 2022, February 10, 2022 adjourned to February 1 5, 2022, March 4, 2022, March 22, 2022, March 30, 2022, April 6, 2022, April 1 3, 2022 and April 27, 2022.

The Companys standalone performance has been provided under the head Financial Performance in the Directors report. The consolidated performance of the Company is as follows:

RCLs consolidated total income for the financial year ended March 31, 2022, was at Rs.1 9,30,132 lakh as against Rs.19,30,902 lakh. Staff costs for the year were Rs.1,46,921 lakh as against Rs.1,37,237 lakh in the previous year, a increase of 7.1 per cent. Selling, administrative and other expenses in the year were Rs.23,10,998 lakh as against Rs.23,44,074 lakh in the previous year, a decrease of 1.4 per cent. Interest & finance charges for the year were Rs.2,18,981 lakh as against Rs.2,74,099 lakh in the previous year, a decrease of 20.1 per cent. Depreciation for the year stood flat at Rs.1 1,236 lakh. Tax expenses for the year was Rs.14,694 lakh as against Rs.1 7,250 lakh in the previous year. Total comprehensive income attributable to owners and excluding non-controlling interest for the year was (Rs.8,28,970 lakh) as against (Rs. 9,47,566 lakh) in the previous year.

Key financial ratios:

Debt Equity Ratio: (2), Net Profit Margin (%): (6,942) %. The Interest Coverage Ratio, Debtors Turnover, Inventory Turnover, Current Ratio and Operating Profit Margin (%) are not applicable. Networth for the financial year ended March 31, 2022, was at Rs. (8,71,577) lakh as against Rs. (7,61,052) lakh in the previous year increase in erosion with 14.52% which is due to the loss incurred by the Company in the current financial year. The Company is currently undergoing Corporate Insolvency Resolution Process under the provisions of the Insolvency and Bankruptcy Code, 2016 and is under moratorium under Section 14 of the Code since December 6, 2021. Further, on completion of CIRP, the Company is expected to be compliant with the prudential norms prescribed as per CIC Master Direction - Core Investment Companies (Reserve Bank) Directions, 2016.

Legal Matters

Pursuant to an application filed by the RBI on December 2, 2021, the Honble National Company Law Tribunal bench at Mumbai ("NCLT"), by its order dated December 6, 2021 ("NCLT Order") in CP (IB) No. 1231/MB/2021 has commenced the corporate insolvency resolution process ("CIRP") of the Company as per the provisions of the Insolvency and Bankruptcy Code, 2016 ("Code") read with the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudication Authority) Rules, 201 9 ("FSP Insolvency Rules") and Mr. Nageswara Rao Y has been further appointed as the administrator of RCL ("Administrator") as per the applicable provisions under the Code read with the FSP Insolvency Rules.

As disclosed previously, the Company was prohibited from making any payment to secured or unsecured creditors and to dispose of, alienate, encumber either directly or indirectly or otherwise part with the possession, of any assets except in the ordinary course of business such as payment of salary and statutory dues, vide (a) orders dated December 3, 2019 and December 5, 2019 passed by the Honble Debts Recovery Tribunal; (b) orders dated November 20, 2019 and March 15, 2021 passed by the Honble Delhi High Court; and, Orders dated November 28, 2019, November 4, 2020, and March 5, 2021 passed by the Honble Bombay High Court.

The Administrator, on behalf of the Company has obtained orders clarifying that the above-mentioned orders will not come in the way of the Companys CIRP.

Resources and Liquidity

As of March 31, 2022, the consolidated total assets stood at Rs.63,68,948 lakh.

Reliance General Insurance

Reliance General Insurance (RGI) offers insurance solutions for auto, health, home, property, travel, marine, commercial and other specialty products. RGI is amongst the leading private sector general insurance players in India with a private sector market share of 8.6 per cent. During 2021-22, gross direct premium of the total general insurance industry increased by 11.0 per cent to Rs.2,20,635 crore. During 2021-22, gross direct premium of the private Indian general insurance industry increased by 11.9 per cent to Rs.1,09,658 crore (Source: IRDAI website).

RGIs gross written premium for the year ended March 31, 2022 was Rs.9,505 crore, an increase of 13 per cent over the previous year.

Sector wise Premium Contribution

Profit before tax for the year ended March 31, 2022, stood at Rs.381 crore as against Rs.323 crore in the corresponding period of the previous year, an increase of 18 per cent over the previous year. The distribution network comprised of 128 branches and approx. 67,300 agents and point of sales person (POSP) at the end of March 31, 2022. At the end of March 31, 2022, the investment book increased by 11 per cent to Rs.14,506 crore.

Reliance Nippon Life Insurance (RNLI)

Reliance Nippon Life Insurance currently offers a total of 27 products that fulfill the savings and protection needs of customers. Of these, 24 are targeted at individuals and 3 at group businesses. RNLI is committed to emerging as a transnational Life Insurer of global scale and standard and attaining leadership rankings in the industry within the next few years. In FY22, the Indian life insurance industry recorded new business premium of Rs.3,14,263 crore as against Rs.2,78,278 crore in the previous year, an increase of 13 per cent. During the year, the Indian private sector life insurance industry recorded new business premium of Rs.1,15,503 crore as against Rs.94,103 crore in the previous year, an increase of 23 per cent. RNLI is amongst the leading private sector life insurers with a private sector market share of 1.1 per cent, in terms of new business premium. (Source: Financial Year 2021-22 data, Life Insurance Council website).

The total premium for FY22 stood at Rs.5,037 crore as against Rs.4,736 crore. The new business premium income for the year ended March 31, 2022, was Rs.1,282 crore as against Rs.1,135 crore for the previous year. For the year ended March 31, 2022, the renewal premium was Rs.3,754 crore as against Rs.3,601 crore . The new business achieved profit for the year ended March 31, 2022 was Rs.331 crore as against Rs.356 crore in the previous year.

The total assets under management were at Rs.27,619 crore as on March 31, 2022, as against Rs.24,383 crore as on March 31, 2021. The number of policies sold during the year was approximately 1.56 lakh. The distribution network stood at 71 3 branches and over 46,500 active advisors at the end of March 2022.

Reliance Asset Reconstruction

Reliance Asset Reconstruction Company Limited (Reliance ARC) is in the business of acquisition, management and resolution of distressed debt/assets. The focus of this business continues to be on the distressed assets in the SME and retail segments. The Assets Under Management as on March 31, 2022, rose to Rs.2,230 crore as against Rs.2,213 crore as on March 31, 2021. Its own investment in NPAs stood at Rs.349 crore as on March 31, 2022 as against Rs.340 crore as on March 31, 2021.

Broking and Distribution business

Reliance Capitals broking and distribution business is carried out by its subsidiary viz. Reliance Securities Limited, one of the leading retail broking houses in India that provides customers with access to equities, commodities, derivatives and wealth management solutions. As of March 31, 2022, the equity broking business had over 10,32,377 equity broking accounts and achieved average daily turnover of Rs.9,910 crore for the year. As of March 31, 2022, the commodity broking business had over 1,17,375 commodity broking accounts and recorded average daily commodities broking turnover of Rs.60 crore for the year. The distribution business is a comprehensive financial services and solutions provider, providing customers with access to mutual funds, life and general insurance products, and other financial products having a distribution network of 56 branches and over 1,293 customer touch points across India. Broking & Distribution business reported a profit after tax of Rs.18.18 crore for the year ended March 31, 2022.

Reliance Commercial Finance (RCF)

As of March 31, 2022, Reliance Commercial Finance Limited (RCF), a wholly owned subsidiary of RCL had Assets Under Management (including securitized portfolio) at Rs.9,928 crore as against Rs.10,934 crore as on March 31, 2021. As on March 31, 2022, the outstanding loan book was Rs.9,302 crore as against Rs.10,021 crore at the end of March 31, 2021. RCF reported a loss of Rs.7,079 crore for the year ended March 31, 2022 as against a loss Rs.2,665 crore in the previous year.

The lenders of RCF, with Bank of Baroda, as the lead bank ("ICA Lenders"), entered into an Inter-Creditor Agreement ("ICA") dated July 6, 2019 to pursue a viable resolution plan in accordance with Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions 2019, dated June 7, 2019 ("Stressed Assets Framework").

As part of the debt resolution process, the ICA Lenders and the resolution advisors, had invited Expression of Interest cum bids ("EOI cum Bid") from interested investors by way of an advertisement dated July 28, 2020. In the meeting of ICA Lenders conducted on July 15, 2021, bid submitted by Authum Investment and Infrastructure Limited ("Successful Bidder"/ "Authum") was declared as the successful bid.

At the direction of the Lead Banker; RCF provided a copy of the Successful Bid and the approved distribution mechanism to the respective trustee(s) of Non-ICA Lenders to obtain approval of the non-ICA lenders on the Successful Bid.

The resolution plan was circulated to the Debenture Holders on July 19, 2021. The Debenture Trustee /Vistra ITC India Limited ("Vistra") was unable to conduct voting on the resolution plan due to various reasons including the pendency of a suit (Rajkumar Nagpal & Ors. V. Reliance Commercial Finance Limited and Ors. [Commercial Suit (L) No. 14223/2021] (Suit)) filed by certain individual Debenture Holders (Non- ICA Lenders) with the High Court of Bombay (Court).

Subsequent thereto, the Court by way of an order dated October 28, 2021 (Order) and clarificatory order dated November 1 5, 2021 has directed Vistra to place the settlement, compromise or arrangement as envisaged in the resolution plan and modified by the Order; before the Debenture Holders for vote, as per the procedure laid out in the DTDs.

Pursuant to the said order, Vistra convened a meeting of Debenture Holders on December 8, 2021 to discuss the matter and approve compromise/settlement/arrangement as envisaged in the Resolution Plan proposed by Authum; successful bidder and as modified by Bombay High Court. The Voting results for the Debenture Holders meeting were not published by Vistra in the background of the High Court order dated December 6, 2021 stating that the resolution passed at the meeting shall not be implemented till the Appeal is heard and disposed off. The Appeal was disposed off by its order March 21, 2022 with an observation that SEBI circular cannot have retrospective effect and as such the same is not applicable.

SEBI preferred an S.L.P against the said Bombay High Court order and the same is pending adjudication before the Honble Supreme Court. It is likely to be taken up for hearing once the Supreme Court reopens after the summer vacation.

Reliance Home Finance (RHF)

As of March 31, 2022, Reliance Home Finance Limited (RHF), associate of RCL had Assets Under Management (including securitised portfolio) of Rs.1 1,857 crore as against Rs.1 3,275 crore as on March 31, 2021. The Total Income for the year ended March 31, 2022, was at Rs.293 crore, as against Rs.840 crore for the previous year. As on March 31, 2022, the outstanding loan book was Rs.12,352 crore as against Rs.13,325 crore for the previous year. The business reported a net loss of Rs.5,440 crore for the year ended March 31, 2022 as against net loss of Rs.1,520 crore in the previous year.

Due to sudden adverse developments in the financial services sector and its adverse impact on the liquidity position of majority of the Non-banking and housing finance companies, RHF was adversely impacted resulting in liquidity mismatch and severe financial stress on account of which it was not in a position to service its dues to the lenders.

Consequent to the aforesaid, certain lenders (herein referred to as the "ICA Lenders") of RHF have separately entered into an Inter Creditor Agreement (ICA) for the resolution of debt in accordance with the circular dated June 7, 2019 issued by the Reserve Bank of India on Prudential Framework for Resolution of Stressed Assets ("RBI Directions"), and have approved the Resolution Plan in terms of RBI Directions.

ICA Lenders have selected Authum Investment and Infrastructure Limiteds (Authum) resolution plans as successful resolutions plan to acquire RHF and/or all its assets through a competitive bidding process after several rounds of negotiations between the bidders and the Lenders. The implementation of the resolution plan by the successful bidder is subject to approval of non-ICA
Lenders, shareholders, regulatory authorities and, vacation of existing legal injunctions on RHF. certain Lenders of RHF have entered into an ICA for arriving at the debt resolution plan in accordance with RBI Directions. A Meeting of the Debenture Holders of Reliance Home Finance Limited has been called by IDBI Trusteeship Services Ltd. (Debenture Trustee) on May 13, 2022, for consideration and approval of the Resolution Plan alongwith the Distribution Mechanism approved by ICA Lenders on June 19, 2021.

Risks and Concerns

RCL has exposures in various line of business through its subsidiaries and associate entities. RCL, its subsidiaries and associates are exposed to specific risks that are particular to their respective businesses and the environments within which they operate, including market risk, competition risk, credit risk, liquidity and interest rate risk, human resource risk, operational risk, information security risks, regulatory risk and macro-economic risks. The level and degree of each risk varies depending upon the nature of activity undertaken by them.

Market risk

The Company has quoted investments which are exposed to fluctuations in stock prices. Similarly, the Company has also raised funds through issue of Market Linked Debentures, whose returns are linked to relevant underlying market instruments or indices. RCL monitors market exposure for both equity and debt and, in appropriate cases, also uses various derivative instruments as a hedging mechanism to limit volatility.

Competition risk

The financial sector industry is becoming increasingly competitive and the Companys growth will depend on its ability to compete effectively. The Companys main competitors are Indian NonBanking Financial Companies/Core investment Companies, commercial banks, life and non-life insurance companies, both in the public and private sector, broking houses, mortgage lenders, depository participants and other financial services providers. Further liberalization of the Indian financial sector could lead to a greater presence or entry of new foreign banks and financial services companies offering a wider range of products and services. This could significantly toughen our competitive environment. The Companys wide distribution network, diversified product offering and quality of management place it in a strong position to deal with competition effectively.

Credit risk

Credit risk is a risk arising out of default or failure on the part of borrowers or investee entities in meeting their financial obligations towards repayment of loans or investment instruments debit/credit such as debentures, commercial papers, PTCs etc. Thus, credit risk is a loss as a result of non-recovery of funds both on principal and interest counts. This risk is comprehensively addressed both at the strategic level and at the client level. Necessary standards have been stipulated for evaluation of credit proposals.

Appropriate delegation and deviation grids have been put in place. Proper security, industry norms and ceilings have been prescribed to ensure diversifying risks and to avoid concentration risk. Company has put in place monitoring mechanisms commensurate with nature and volume of activities.

RCL is a Core Investment Company (CIC) and obtained the Certificate of Registration as a CIC. In view of this the investments and lending of RCL have been restricted to and within the Group companies.

The Company has adopted the IND-AS since the financial year 2018-19 for identification of Expected Credit Losses (ECL) and provision thereof.

Liquidity and Interest Rate Risk

The Company along with its subsidiaries is exposed to liquidity risk principally, because of lending and investment for periods which may differ from those of its funding sources. Asset liability positions are managed in accordance with the overall guidelines laid down by various regulators in the Asset Liability Management (ALM) framework. The Company may be impacted by volatility in interest rates in India which could cause its margins to decline and profitability to shrink. The success of the Companys business depends significantly on interest income from its operations. It is exposed to interest rate risk, both as a result of lending at fixed interest rates and for reset periods which may differ from those of its funding sources. Interest rates are highly sensitive to many factors beyond the Companys control, including the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and, inflation. As a result, interest rates in India have historically experienced a relatively high degree of volatility.

The Company seeks to match its interest rate positions of assets and liabilities to minimize interest rate risk. However, there can be no assurance that significant interest rate movements will not have an adverse effect on its financial position.

As stated in Credit risk, being a CIC, all the lending and investments of Reliance Capital Limited are within group companies. Thus, the liquidity position of the company also depends upon the realisation and monetisation of its group exposures

Human resource risk

The Companys success depends largely upon the quality and competence of its management team and key personnel. Attracting and retaining talented professionals is therefore a key element of the Companys strategy and a significant source of competitive advantage. While the Company has a salary and incentive structure designed to encourage employee retention, a failure to attract and retain talented professionals, or the resignation or loss of key management personnel, may have an impact on the Companys business, its future financial performance and the results of its operations.

Operational risk

The Company may encounter operational and control difficulties when undertaking its financial activities. The rapid development and establishment of financial services businesses in new markets may raise unanticipated operational or control risks. Such risks could have a materially adverse effect on the Companys financial position and the results of its operations.

The operations of the Company have been extensively automated which minimizes the operational risk arising out of human errors and omissions. A robust system of internal controls is practiced ensuring that all its assets are safeguarded and protected against loss from unauthorised use or disposition and all its transactions are authorised, recorded and reported correctly. The respective Audit Committee of the Board periodically reviews the adequacy of our internal controls. The Company has implemented SAP systems across functions. With this initiative, along with other key systems and checks and balances established, we believe that our overall control environment has been enhanced. It is pertinent to note that Reliance Nippon Life Insurance, Reliance General Insurance, Reliance Securities have obtained an ISO 9001:2008 certification. They are among the few companies in their respective industries to be ISO certified.

Information security risk

The Company has robust Information Security Risk monitoring systems and tools to guard and protect sensitive customer data and guard against potential hackers and viruses. The Information Security team is governed by the Information Security Risk Management Committee. Robust governance, controls and sophisticated technology is adopted across lines of business to ward off cyber threats and protect information residing within the Company. The Information Security system is in alignment with the respective regulatory requirements.

Information Security has been brought under the Enterprise Risk Management Framework to enhance data protection and ward off cyber risks effectively, thereby making our overall Risk, Control & Governance framework more robust.

Regulatory risk

As a financial conglomerate in the financial services sector, the Company and its entities are subject to regulations by Indian governmental authorities and regulators including Reserve Bank of India, Insurance Regulatory and Development Authority of India, Securities and Exchange Board of India, Pension Fund Regulatory & Development Authority and National Housing Bank. Their laws and regulations impose numerous requirements on the Company, including asset classifications and prescribed levels of capital adequacy, solvency requirements and liquid assets. There may be future changes in the regulatory system or in the enforcement of the laws and regulations that could adversely affect the Companys performance.

The Company has not complied with the regulatory requirements w.r.t. capital adequacy and leverage ratios.

Macro-economic risk

Any slowdown in economic growth in India could cause the business of the Company to suffer. Similarly, any sustained volatility in global commodity prices, including a significant increase in the prices of oil and petroleum products, could once again spark off a new inflationary cycle, thereby curtailing the purchasing power of the consumers.

Internal Control

The Company maintains a system of internal controls designed to provide assurance regarding the effectiveness and efficiency of operations, the adequacy of safeguards for assets, the reliability of financial controls, and compliance with applicable laws and regulations.

The organization is well structured, and the policy guidelines are well documented with pre-defined authority. The Company has also implemented suitable controls to ensure that all resources are utilized optimally, financial transactions are reported with accuracy and in adherence to applicable laws and regulations.

The Company has put in place adequate systems to ensure that assets are safeguarded against loss from unauthorised use or disposition and that transactions are authorised, recorded and reported. The Company also has commensurate budgetary control system to monitor all expenditures against approved budgets on an ongoing basis.

The Company uses information technology adequately in its operations for ensuring effective controls besides economy. It also helps the Company in providing accurate MIS and prompt information/services to its customers and other stakeholders. The Company has implemented enhanced level of Information System Security controls with monitoring systems to address technology risks.

The Company has an independent internal audit function which continuously evaluates the adequacy of, and compliance with policies, procedures, plans, regulatory and statutory requirements. Risk based approach is adopted while carrying out the internal audits. Internal audit also evaluates and suggests improvement in effectiveness of risk management, control and governance process. The Audit Committee of the Board provides necessary oversight and directions to the internal audit function and periodically reviews the findings and ensures corrective measures are taken.

Opportunities

• Low retail penetration of financial services/products in India

• Extensive distribution reach and strong brand recognition

• Opening of financial sector in India along with introduction of innovative products

• Opportunity to cross sell services

• Increasing per-capita GDP

• Changing demographic profile of the country in favour of the young

Threats

• Stress due to Covid -19 pandemic

• Competition from local and multinational players

• Execution risk

• Regulatory changes

• Attraction and retention of human capital

Health Safety and Pandemic Risk

In addition to serious implications for peoples health and the healthcare services, coronavirus (COVID-19) is having a significant impact on the world-wide economy including India in terms of business growth and business models. The disruption has pushed the Financial sector to adopt digital model for sustenance and growth. The company and its subsidiaries have been proactive enough to switch over to fully digital mode since the Covid-19 ensuring employees the best health safety measures and uninterrupted service to the stakeholders. However, the performance of the company and its subsidiaries may be impacted in future because of the lasting effect of this disruption on the economy.

Corporate Social Responsibility

At Reliance Capital, as a socially responsible financial services conglomerate, we strive to improve the quality of life of the underserved sections of society, by focusing on Skill Development, Education, Healthcare and Environment & Animal Welfare for the service of the nation and the greater good of the communities in which we operate.