Why are the lenders to Reliance Capital planning to separate commercial finance and home finance units of the company?

The decision to carve out Reliance Commercial Finance (RCF) and Reliance Housing Finance (RHF) into a trust for separate resolution has been taken by the creditors to these two companies. These two companies, which are subsidiaries of Reliance Capital, have total bank debt to the tune of Rs25,000 crore. Now, these companies are bankrupt with a mountain of toxic loans in their books. It is not yet clear how much these assets can generated but then that is the best bet that the creditors have at this juncture.

The idea of this carving out is that the proceeds of the sale from these these 2 companies (RCF and RHF) will flow directly to the lenders to these companies. With a combined debt of Rs25,000 crore, the lenders fancy this as their best hedge against a total washout. The biggest claim made against Reliance Capital is by the Life Insurance Corporation of India which is worth Rs25,333 crore. Currently, there are only 2 potential bidders interested in this distressed asset viz. the Piramal Group and Yes Bank, so recoveries may be bleak.