Irdai may allow banks to hold over 10% stake in multiple insurance firms

The insurance regulator may allow public sector banks to hold over 10 per cent stake in multiple insurance companies, given that they limit their promoter control to one entity and remain just an investor in others with no say in management decisions.  

According to rules, a bank can’t promote more than one insurance company in the same segment. The merger of 10 public sector banks, however, has created a problem as many of these banks are promoters of insurance firms. “It is not prohibited by regulation but it is prohibited because there will be conflict of interest. We can take care of this by allowing them not to participate in decision-making,” Insurance Regulatory and Development Authority of India (Irdai) Chairman Subhash Chandra Khuntia said on Friday.

 “If they give up seats on the board and don’t take part in the decision-making process, they can still hold stake in as many firms as they may feel,” he added.

Problem for anchor banks

According to the government’s merger plan, Union Bank will absorb Andhra Bank and Corporation Bank. Union Bank has a 25.10 per cent stake in Star Union Dai-Ichi Life Insurance, while Andhra Bank has 30 per cent in IndiaFirst Life Insurance.

Similarly, Punjab National Bank (PNB), Oriental Bank of Commerce (OBC), and United Bank of India will amalgamate into one, with PNB as the anchor bank. PNB has a 30 per cent stake in PNB Metlife and OBC has 23 per cent in Canara HSBC OBC Life Insurance. Syndicate Bank will merge into Canara Bank and Indian Bank will absorb Allahabad Bank. Canara Bank has 51 per cent in Canara HSBC OBC Life.

An entity holding over 10 per cent in an insurance company is categorised as a promoter while one holding below that limit is termed as an investor. If Irdai allows banks to hold more than 10 per cent in multiple insurance companies, the banks will be promoters of the companies and may continue as an investor in other companies.

“The policy is yet to be formulated. But we are working to find reasonable solutions that will satisfy both the insurers and banks and at the same time protect the policyholders interest,” said Khuntia.

‘No trouble for DHFL’s insurance arms’

The chairman said insurance companies having exposure to the troubled Dewan Housing Finance (DHFL), which is currently under insolvency proceedings, will have to take make provisions for their exposure in accordance with Irdai norms, just like they did in the case of IL&FS.

Earlier, Irdai had sought data from the insurance firms on their exposure to IL&FS, DHFL, Indiabulls and Anil Dhirubhai Ambani Group companies.

On the fate of the two firms (life and general) promoted by DHFL, Khuntia said, “Insurance firms are independent. So, DHFL going to the NCLT (National Company Law Tribunal) will not affect the insurance companies for the time being. Things are all right there is no problem.”

Even if DHFL is liquidated, new promoters will take over the two insurance companies. Moreover, going forward, the regulator has asked the insurers to be very prudent and not base their investment decision on the credit rating given by the credit rating agencies but they have to make an independent assessment whether it is the right place to invest. Taking a cue from the impressive valuation that the listed insurance companies are getting on the bourses, the Irdai chairman said, “We would like more insurance companies to list themselves on the bourses”.

“Earlier we had come out with a draft that all firms that have completed 10 years should list but they are finding difficulty in getting listed because some have still not crossed the critical size enough after 10 years, We are not forcing them but nudging them, so, that if they list, they would get good benefit,” the Irdai chairman said.