Insurance companies asked to make provisions for IL&FS, RCap defaults

IL&FS, the dud infrastructure and lending company.
Insurance companies, like banks, will have to provision for their exposure to the cash-strapped IL&FS group and the two downgraded Reliance Capital subsidiaries, said the sector's regulator Friday.
The Insurance Regulatory and Development Authority (IRDAI) said insurers with exposure to Reliance Home Finance and Reliance Commercial Finance will have to make provisions for debt of these companies downgraded by Care Ratings last month.

The the National Company Law Appellate Tribunal (NCLAT) allowed Thursday banks to declare their defaulting accounts of IL&FS (Infrastructure Leasing & Financial Services) and its group companies as NPAs.

The Reserve Bank asked banks last month to disclosure their exposure to IL&FS and its group entities as the NCLAT verdict was pending. "Yes, insurance companies will have to make full provisions for the defaulting accounts of IL&FS," Irdai chairman SC Khuntia told reporters in Mumbai.
Some insurers have already made adequate provisions for all non-standard accounts of IL&FS, he said.

Khuntia flagged concerns on corporate governance at insurance companies and asked them to look into such issues to ensure fairness and transparency.

"I have asked insurers to be careful about related party transactions. It has to be at arm's length," he said. "We have seen what kind of turmoil has happened in the NBFC sector but I am confident that insurance industry will not have that kind of a problem. In fact, insurers are meant to provide stability in times of economic turmoil," he said.

"Earlier IL&FS was downgraded and now two more companies have been downgraded. Insurers with exposure to the debt instrument of these two firms will have to give a similar treatment as they treat their IL&FS accounts," he said.

Care downgraded Reliance Home Finance's long-term debt program from BBB+ to D and that Reliance Commercial Finance's to C from BBB+. Khuntia also asked insurers to focus more on growth and not on market share. "If your growth is high then you don't have to bother about market share. All of us should put our heads together so that the market grows." 

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