The exposure of insurance companies to the non-convertible debentures (NCDs) of debt-ridden Dewan Housing Finance (DHFL) will be written off using due process, said the Insurance Regulatory and Development Authority of India (IRDAI) Chairman Subhash Chandra Khuntia.
While the exact figure is not publicly available, it is estimated that insurers have around Rs 50-70 crore worth DHFL NCDs. But the identity of these insurers is not known. A structured process of writing the exposure down will be followed in due course.
Speaking on the sidelines of an Assocham event on December 6, Khuntia said that the insurance subsidiaries of DHFL have adequate solvency and that there is no cause for concern.
According to the public documents of DHFL Pramerica Life Insurance, the solvency margin at the end of Q2FY20 stood at 338 percent while that of DHFL General Insurance stood at 230 percent. Regulatory requirement for solvency is 150 percent.
"Even if DHFL goes through a process of liquidation, it will be sold and someone else will take over," he added.
DHFL is currently facing insolvency proceedings and Reserve Bank of India had appointed a three-member advisory to assist the administrator of the mortgage lender.
Going forward, Khuntia said that they have advised insurers to not merely rely on credit rating of such investment instruments and to do an independent review of the company and its financials.
On listing
On the listing of insurance companies, Khuntia said looking at the valuations which the listed insurers are seeing should be a cue for other insurers to list.
"We would like insurance companies to be listed. Earlier, while we had brought a set of guidelines that said that insurers completing 10 years should be listed. However, some companies had not crossed the critical size even after 10 years and hence these norms could not be finalised. Right now, while we are forcing insurers but I am nudging them to list," he added.
At present, only five insurers and one reinsurer is listed on the stock markets. Khuntia said that while the regulator had given their nod for the initial public offer (IPO) of Reliance General Insurance, he added that this may not go through considering the financial troubles of Reliance Anil Dhirubhai Ambani Group.
Bank consolidation
With respect to the bank consolidation, the IRDAI chairman said that they studying a slew of proposals. This includes paring down stake or giving up promoter control.
Public sector banks, which are merger candidates in the second round of PSU consolidation, are required to pare their stakes in insurance companies to meet regulatory norms.
On August 30, Finance Minister Nirmala Sitharaman announced the merger of 10 public sector banks (PSBs) -- Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank of India; Union Bank, Andhra Bank and Corporation Bank; Canara Bank and Syndicate Bank; Indian Bank and Allahabad Bank; under four separate entities.
Among these, OBC, PNB, Canara Bank, Union Bank and Andhra Bank are promoters in life insurance companies.
Under existing rules, one bank cannot be a promoter in multiple insurance companies of the same segment. However, they can sell products of three life, non-life and standalone health insurers each.
“For banks, we may allow them to hold more than 10 percent stake but they have to give up management control. For instance, if they give up the directorship in the board so that they don’t take part in the decision making then they could hold stake. This is an option that is being considered,” added Khuntia.
However, he said that the banks would be given adequate time to transition into the new phase once they decide on the future course of action.
On taxes
IRDAI has requested the goods and services tax (GST) to be reduced to 5 percent from the current 18 percent.
"A reduction in taxes will help policyholders to save costs and make insurance an attractive proposition," he added.
GST is applicable at the time of payment of the insurance premium.
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