TOI: ‘Insurers must provide for IL&FS hit’

6 March 2019: Chairman of the Insurance Regulatory and Development Authority of India (IRDAI), Subhash Chandra Khuntia, has said that insurers must make provisions on their exposure to IL&FS.

Although insurance companies were required to make provisions earlier, IRDAI’s reiteration comes in the wake of a tribunal order that IL&FS and group companies should not be classified as non-performing assets (NPAs). 

Addressing the media on the sidelines of the 20th Global Conference of Actuaries, Khuntia said that insurance companies need to be proactive to protect the interest of policy holders. He said that IRDAI required insurance companies only to invest in better rated companies.

“Now that the IL&FS rating has changed, they will have to keep a watch on what to do with those investments and make required provisions,” said Khuntia. 

He added that while insurers are required to ensure that they put money only in investment-grade bonds, the regulator expects them to use their own judgment and not go by the views of rating agencies alone. Khuntia said this in the context of IL&FS being a top-rated paper before it was downgraded to default category. 

Last month, the National Company Law Appellate Tribunal (NCLAT) had ordered that IL&FS and its group companies will not be classified as NPAs until further orders. Although the order did not give the rationale, many lenders feel that this is because of the moratorium on repayment that prevents IL&FS group companies from repaying.

Ensuring that the loans are not classified as NPAs will prevent lenders from initiating hundreds of separate recovery proceedings against the group companies. 

The IL&FS group has over Rs 90,000 crore of debt. A large part of this is with banks, insurance companies and mutual funds.

A report by audit firm Grant Thornton has identified irregularities in loans worth Rs 13,000 crore disbursed by the parent. 

On Tuesday, Khuntia said that the LIC will have to eventually pare its stake in IDBI Bank to 15%. This will be in keeping with IRDAI’s investment limit, which prevents an insurer from holding more than 15% in an investee company.

“They are preparing a road map and, when it is ready, they will communicate it to us,” said Khuntia.

Incidentally, the RBI has also said that LIC should divest stake in the bank in keeping with RBI’s norms for promoter shareholding. LIC’s investment in IDBI Bank will also force the lender to sell stake in its life insurance company — IDBI Federal Life Insurance. “This is something temporary (IDBI Bank stake in IDBI Federal Insurance). There are various methods to sort this out. Suppose they sell it, there should not be any conflict of interest,” said Khuntia.

He pointed out that IDBI Bank had already initiated plans to sell the stake in the insurer but they got shelved.Earlier, addressing the actuaries’ conference, Khuntia said the role of actuaries will increase manifold with the emergence of technologies like data analytics. “The role of actuaries is more important in innovating insurance products that are transparent and understandable to a common man,” he said.

The Times of India reported



Categories: General News, India Bankruptcy

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