According to sources, while the DFS has recommended the capital infusion, this needs to be approved by Union Finance Minister Nirmala Sitharaman.
The DFS is also holding performance review meetings with insurance companies
this week, said sources.
A senior official of another firm said if the firms didn’t get the funds, the merger was unlikely to be a useful exercise.
“The board approval is an indication that the government is serious about the merger. There are expectations that the government might infuse the funds before the merger,” the official said.
If the government announces the fund infusion in the Budget, due to be presented in days, the exercise can still happen in FY20. The government would include the amount in the Revised Estimates and release the funds.
In the February 2018 Budget, the government had announced a plan to merge the three firms. Subsequently, it planned to list the merged entity on the stock exchanges.
However, there has been little progress on the merger since.
The financial condition of the three companies has, meanwhile, deteriorated and warrants capitalisation, if the merged entity is to be listed.
National Insurance’s solvency ratio, a key measure of financial strength, stood at 1.04 at the end of FY19, against the regulatory requirement of 1.5, according to the data. It was 1.05 for United India in the second quarter (Q2) of FY20. The company posted pre-tad loss of Rs 1,091 crore in Q2FY20, according to the data from the General Insurance Council.
Oriental Insurance’s solvency ratio was 1.56 in Q1FY20. The company had posted net loss before tax of Rs 330 crore in Q2FY20. The three insurers, under the aegis of GIPSA (General Insurance Public Sector Association), earlier appointed consultant EY to draw a blueprint for the merger plan.
After looking at all equations, including merging them with New India Assurance, EY suggested amalgamation of the three firms as the most viable option. EY had also recommended the merger process to be complete by December 2020, or within 18 months starting July.