Reliance Home Management Discussions


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 Home Finance Limited ("Reliance Home Finance" or "RHF" 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", "RHF", "RHFL" or "Reliance Home Finance" are to Reliance Home Finance Limited.

Post transfer of Companys business undertaking to Reliance Commercial Finance Limited, 100% subsidiary of Authum Investment & Infrastructure Limited (Resolution Applicant), the Board of Directors of the Company had considered and approved the surrender of Certificate of Registration as a housing finance institution to NHB and in-principally approved for voluntary liquidation of the Company, subject to requisite permissions, sanctions and approvals hence outlook, opportunity and threats, developments, risk and concerns has not been provided separately as required under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the Listing Regulations).

Global Economic Environment

The global economy recovered further from geopolitical conflicts and the COVID-19 pandemic in 2022. Despite rising global uncertainty and weak growth, India has maintained its status as the worlds fastest-growing major economy. Certain high-frequency indicators, such as steel production, cement production, cargo handled at major ports, production of commercial vehicles, railway freight traffic, non-oil imports, etc., have not only registered higher growth rates but also demonstrated continuous successive improvements, validating Indias sustained growth momentum. The growth has been further fueled by robust private consumption in response to pent-up demand, a rapid recovery in contact-intensive service industries, and the governments sustained emphasis on capital expenditures. However, steadily increasing inflationary pressures and longer-term projections of higher interest rates could undermine Indias economic growth. According to the National Statistical Office (NSO), Indias GDP growth is expected to be 7.2% in FY 2022-23, compared to 9.1% in FY 2021 -22.

Indian Economic Environment

Indias growth remains resilient despite some of the significant challenges faced globally, like vigorous monetary tightening by US central banks to combat record-high inflation, war between Russia and Ukraine and slow recovery from the pandemic in some parts of the world. However, India managed to continue being one of the fastest-growing economies globally, with a robust estimated overall GDP growth rate of 7% for FY23. India has witnessed consumption-driven growth on the backdrop of a large, young, and rising share of the upper middle-income population, coupled with strengthened corporate balance sheets. The demand fuelled by consumer consumption persists on account of increased customer confidence and higher disposable income. The housing market also picked up, with higher demand for housing loans, declining inventories, and construction of new dwellings.

According to the 2023 Economic Survey, while the rupee is performing better than most other currencies, it faces the challenge of depreciation due to the likelihood of the US Fed increasing policy rates. The current account deficit (CAD) is also expected to widen as global commodity prices remain high and the Indian economy continues to show strong growth momentum.

Inflation remained largely beyond the tolerance levels of the RBI and resulted in a series of rate hikes by the apex bank.

Indias growth outlook for FY24 remains positive, owing to a favourable policy push by the government and sustained private consumption growth. The economy projects a baseline GDP growth rate of 6.5% in real terms for FY24. The opening up of the Chinese economy towards the end of 2022 indicated the gradual normalisation of the global supply chain. A healthy balance sheet of the financial and corporate sectors is expected to kick-start a healthy upward financial cycle. Further, digitalisation reforms and the resulting efficiency gains in terms of greater formalisation, higher financial inclusion, and more economic opportunities will be another reason for the countrys economic growth. It is expected that India will continue to be one of the fastest-growing economies in the world.

The Union Budget for FY 2023-24 includes a well-targeted strategy expected to stimulate cross-sectoral growth via capital investment, infrastructure development, technological advancement, and sustainability. The 33% increase in capital expenditures to 10 lakhs crore reflects the continued emphasis on infrastructure-led development and the resulting multiplier effect. This will significantly propel Indias high growth in 2023 and beyond, with infrastructure development playing a crucial role in facilitating the economic progress. The combination of digitalisation and efficiency-enhancing measures, along with substantial capex expenditures, will eventually increase business productivity. Moreover, Indias financial sector remains strong, supported by improvements in asset quality and robust private- sector credit expansion.

Reliance Home Finance

Reliance Home Finance Limited (RHFL), is promoted by Reliance Capital Limited (RCap), the financial services company of the Reliance Group. RCap is currently under Corporate Insolvency Resolution Process (CIRP).

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

In view of above, certain lenders of the Company (Banks and other Financial Institutions) had entered into an Inter-Creditor Agreement (ICA) on July 6, 2019 with Bank of Baroda acting as the Lead Lender for arriving at the debt resolution plan in accordance with the circular dated June 7, 2019 issued by the Reserve Bank of India (RBI) on Prudential Framework for Resolution of Stressed Assets (RBI Circular), by way of Change in Management. The Lead Bank and the lenders forming part of ICA had appointed resolution advisors, cashflow monitoring agency, valuers and legal counsel. Bank of Baroda as the Lead Lender and on behalf of the ICA lenders had as part of the debt resolution process invited the Expression of Interest (EoI) and bids from interested bidders vide newspaper advertisement dated July 29, 2020 and through the Lead Banks website. Initially nineteen investors had expressed interest through submission of EOIs. The ICA lenders after completing the transparent process of inviting bids from eligible bidders and evaluation, voted upon and selected with overwhelming majority Authum Investment & Infrastructure Limited (Authum) as the final bidder on June 1 9, 2021. The said Resolution Plan of Authum along with the Distribution Mechanism was presented to the Company by the Lead Banker, asking the Company to seek approval of the Debenture holders. The Company had duly made requisite disclosure to the stock exchanges in this regard.

The Company shared the said Resolution Plan along with the Distribution Mechanism with the Debenture Trustees. A meeting of the Debenture Holders of Reliance Home Finance Limited was called by IDBI Trusteeship Services Ltd. (Debenture Trustee) and was held on May 13, 2022, for consideration and approval of the Resolution Plan along with the Distribution Mechanism approved by ICA Lenders on June 1 9, 2021. Further, pursuant to the Order dated May 10, 2022 passed by the Honble High Court of Judicature at Bombay, the results of the voting of the Meeting was submitted before the Honble High Court in a sealed envelope.

The Company had approached the Honble High Court of Judicature at Bombay praying that the Honble High Court exercise powers under Section 151 of the Civil Procedure Code, 1908, to approve the resolution plan of RHFL as was done by the Supreme Court in exercise of Article 142 of the Constitution of India in case of Reliance Commercial Finance Limited in Rajkumar Nagpal (supra). However, the said application was not allowed and disposed off on December 16, 2022 by the Honble High Court stating that "The moulding of relief can only be done

by the Supreme Court under Article 142 of the Constitution of India. This Court under Section 151 of the CPC does not have the powers akin to Article 142 of the Constitution of India".

On an appeal preferred by the Company and others, the Honble Supreme Court of India vide its Order dated March 3, 2023, in exercise of its powers under Article 142 of the Constitution of India, allowed the Resolution Plan of Authum qua the debenture holders, except the dissenting debenture holders.

Further, the Shareholders of the Company at extraordinary general meeting held on March 25, 2023 by passing a special resolution approved sale / disposal of asset(s) / undertaking(s) of the Company for the purposes of implementation of the said Resolution Plan and authorised the Board for the said purpose.

The Resolution Applicant vide its e-mail dated March 8, 2023 had informed that in terms of the Honble Supreme Court of India Order dated March 3, 2023, the Resolution Plan was to be implemented by March 31, 2023 and requested the Company to extend its co-operation for implementation of Resolution Plan and, inter-alia, fix a record date for payment along with extinguishment of RHFL debentures, not later than March 27, 2023.

The Company had fixed March 26, 2023 as the record date and intimated to the stock exchanges that the Debenture Holders will be paid as per the respective entitlement of the debenture holders as on the date of Resolution Plan in terms thereof, in full and final settlement of their dues and claims, towards extinguishment and redemption of the debentures of the Company held by them.

As per the final approved Resolution Plan, the total Resolution amount of the Company was arrived at 3,351 crore.

The entire Resolution Plan has been finalised in terms of RBI Circular No. RBI/2018-19/ 203, DBR.No.BP. BC.45/21.04.048/2018-19 dated June 7, 2019 on Prudential Framework for Resolution of Stressed Assets by the Lenders of the Company, has also been approved by the Honble Supreme Court of India by its order dated March 3, 2023 and the special resolution approved by the shareholders dated March 25, 2023. In view of the same the Company took all appropriate steps towards implementation of the Resolution Plan in compliance with the Order of Honble Supreme Court of India.

The Company in consultation with the Lead Bank, Debenture Trustee, Legal and Financial Advisors, the Company took the following steps towards implementing the approved Resolution Plan:

A. Repaid dues to ICA Lenders as per Final Distribution Mechanism approved by Lenders.

B. Distributed funds to Debenture Trustees for making payments to NCD Holders as per Final Distribution Mechanism approved by Lenders.

C. Executed Business Transfer Agreement (BTA) with Reliance Commercial Finance Limited, 100% subsidiary of Authum Investment & Infrastructure Limited.

D. Executed Resolution Plan Implementation Memorandum with the Lenders, Other ICA Members and Reliance Commercial Finance Limited, 100% subsidiary of Authum Investment & Infrastructure Limited.

E. Executed Resolution Plan Implementation Memorandum with IDBI Trusteeship Services Limited and Reliance Commercial Finance Limited, 100% subsidiary of Authum Investment & Infrastructure Limited.

As per the Resolution Plan and the Distribution Mechanism duly approved and finalised by the Banks, Financial Institutions and other Lenders in terms of the RBI Circular and informed to the Company, the beneficiary position of NCD holders (BENPOS) as of April 15, 2022 had been taken to ascertain the entitlement of 100% of their principal dues under the Resolution Plan to the small debenture holders in the category of individuals and HUFs holding debentures of the principal amount of up to 5 lakhs, as of that said BENPOS date. All other Debenture Holders including Banks and Financial Institutions were paid 27.71% for secured and 20.78% for unsecured, as per the Resolution Plan.

Accordingly, in terms of the RBI Circular and in pursuance of the order of the Honble Supreme Court of India dated March 3, 2023, the total Resolution amount of 3,351 crore has duly been paid to all the financial creditors including debenture holders as per their respective approved entitlements under the Resolution Plan in full and final settlement of their dues and the Resolution Plan stood duly implemented.

The Company had kept an amount equivalent to the respective entitlement as per Resolution Plan in full and final settlement of dues of the Dissenting Debenture Holders in fixed deposit and Debenture Holders would be paid upon receipt of assent to the Resolution Plan.

Post execution of Business Transfer Agreement (BTA) with Reliance Commercial Finance Limited (RCFL), 100% subsidiary of Authum Investment & Infrastructure Limited dated March 29, 2023, the business undertaking of the Company i.e. identified assets and assumed liabilities are transferred to RCFL for total consideration of 180 crore. Accordingly, Assets Under Management as on March 31, 2023 was Nil as against 1 1,857 crore as on March 31, 2022 and as a result there are significant changes in Key Financial Ratios and Return on Networth.

The Companys Net Worth as on March 31, 2023, stood at (73.83) crore, as against (5,481.56) crore for the previous year. The Return on Net Worth as on March 31, 2023, stood at (73.39) crore, as against (0.99) crore for the previous year. The Total Income for the year ended March 31, 2023, was at 391 crore, as against 293 crore for the previous year. As on March 31, 2023, the outstanding loan book was Nil as against 1 2,352 crore for the previous year. The business reported a net profit of 5,419 crore for the year ended March 31, 2023 as against net loss of 5,440 crore in the previous year.

Key financial ratios:

Debt Equity Ratio: (1.35) (previous year - (2.09)), Net Profit Margin (%): (7,598)% (previous year - (1,853)%). The Interest Coverage Ratio, Debtors Turnover, Inventory Turnover, Current Ratio and Operating Profit Margin (%) are not applicable.

The financial statements have been prepared considering after implementation of Resolution Plan and transfer of undertaking to Reliance Commercial Finance Limited, 100% subsidiary of Authum Investment & Infrastructure Limited (Resolution Applicant). Post implementation of the Resolution Plan, the financial statements of the Company represent the assets and liabilities remaining with the Company.

Post transfer of business undertaking, the Board of Directors of the Company had considered and approved the surrender of Certificate of Registration as a housing finance institution to NHB and in-principal approval for voluntary liquidation of the Company, subject to requisite permissions, sanctions and approvals. Further, all activities of the Company are conducted within India and as such there is no separate reportable segment, as per the Ind AS 108 - "Operating Segments" specified under Section 133 of the Act.

Adequacy of Internal Control and Systems

The Company has internal controls aimed at achieving efficiency in operations, optimum utilization of resources, effective monitoring and compliance with all applicable laws. The Management Audit Team undertakes extensive checks, process reviews and also conducts internal audits. The Audit Committee of the Board reviews major findings in the internal audit reports as well as the adequacy of internal controls.

Risk Management Framework

The Company has instituted a Risk Management framework based on identification of potential risk areas, evaluation of risk intensity, and clear-cut risk mitigation policies, plans and procedures both at the enterprise and operating levels. The framework seeks to facilitate a common organizational understanding of the exposure to various risks and uncertainties at an early stage, followed by timely and effective mitigation. The Audit Committee of the Board reviews the risk management framework at periodic intervals.

Corporate Governance

The Companys Code of Conduct policy which has set out the systems, process and policies conforming to international standards are reviewed periodically to ensure their continuing relevance, effectiveness and responsiveness to the needs of investors and all other stakeholders. We maintained the highest standards of corporate governance principles and best practices.

Human Resources

As a part of Business Transfer all employees (except the 3 Key Managerial Personnel viz. CEO, CFO & CS) of the Company have been transferred to Reliance Commercial Finance Limited (RCFL), 100% subsidiary of Authum Investment & Infrastructure Limited (the "Resolution Applicant") with effect from March 31, 2023. The transaction is in pursuance of the implementation of the resolution plan in terms of the RBI Circular.

Corporate Social Responsibility (CSR)

The Company has constituted Corporate Social Responsibility (CSR) Committee in compliance with the provisions of Section 135 of the Act read with the Companies (Corporate Social Responsibility Policy) Rules 2014. The Corporate Social Responsibility Committee has formulated a Corporate Social Responsibility Policy (CSR policy) indicating the activities to be undertaken by the Company. However, during the financial year 2022-23, the Company was not required to spend on CSR pursuant to the provisions of Section 135 of the Act read with the Rules made thereunder.