Plan panel wants insurers to put in Rs 25,000 cr in infrastructure over the next 5 yrs.
The Insurance Regulatory & Development Authority (Irda) is likely to relax norms to encourage insurers to participate in infrastructure projects.
This follows a suggestion from the Planning Commission that insurance companies should put in Rs 25,000 crore in infrastructure over the next five years.
“We will amend rules depending on how fast they need this fund,” said an Irda official.
Each company, however, will be given the liberty to choose the project depending on the kind of return insurers are looking at. At present, insurance companies are mandated to invest up to 15 per cent of their investible corpus from traditional plans in infrastructure. This 15 per cent includes papers issued by power, road, port, dam, housing and construction companies or projects.
The main concern of Irda is that infrastructure investments are illiquid and involve long tenures of 10-12 years. This is because these projects have long gestation periods. The returns are also lower compared to other asset class.
“Infrastructure bonds are not very liquid. These are long gestation projects. The yields are also low,” he added.
India Infrastructure Finance Corporation Ltd held a meeting with Irda on this last fortnight.
Insurers feel that for port projects, both return and safety are a concern. The insurance regulator has mandated that 75 per cent of the infrastructure investment should be in AAA-rated bonds.
Last year, insurers collected a total premium of over Rs 2,50,000 crore, including renewal premium and premium earned by selling new policies. Since around 80 per cent of the funds collected by the 23 life insurance companies are through unit-linked insurance plans (Ulips), the amount of money flowing into the infrastructure space is low. Investment under Ulips is decided by policyholders.
According to Irda’s investment guidelines, insurance companies can invest 15 per cent in infrastructure, 50 per cent in government securities and 35 per cent in other approved securities.
Last year, the regulator allowed life insurance companies to increase their stake in infrastructure companies from 10 per cent to 20 per cent. In the listed space, insurers can hold a maximum 10 per cent in any one company.
To raise funds for infrastructure, a report prepared by Housing Development Finance Corporation (HDFC) Chairman Deepak Parekh has suggested that all pension and insurance funds invest in the infrastructure debt market.
The committee has suggested a Rs 50,000-crore infrastructure corpus, be set up as a venture capital fund (VCF), to be managed and regulated by the Securities and Exchange Board of India(Sebi). For this, Sebi will have to amend guidelines for VCFs to enable investment in the debt market. Now, only a part of a VCF is allowed to be invested in debt.
This would, however, require changes in laws by the Pension Fund Regulatory and Development Authority, the Reserve Bank of India and Irda.