Irda asks LIC to be legally certain on issuing infra bonds

The Insurance Regulatory and Development Authority (Irda) has asked Life Insurance Corporation of India (LIC) if it is complaint with regulations regarding raising of funds through bonds.

A senior Irda official said the regulator had asked LIC if it was legally allowed to raise funds for non-core business. “They should be legally certain,” added the official.

However, an LIC executive said the rules permitted them to issue such bonds. “LIC is governed by the LIC Act, which has a provision allowing it to raise funds through bonds.”

LIC can raise up to Rs 5,000 crore by issuing tax-free infrastructure bonds. Earlier, it had hinted at offering a life-cover with the bond to make it lucrative for customers.

The other issue is whether insurance companies can raise funds for non-core businesses.

“Institutions like IDFC (Infrastructure Development Finance Company), which are into the lending business, are allowed to raise funds through infrastructure bonds whereas LIC is not,” the Irda official said.

The funds collected by issuing these bonds are used for long-term infrastructure projects.

Insurance companies are allowed to invest 50 per cent in government-approved securities, 15 per cent in infrastructure and the rest 35 per cent in equity and other instruments from their traditional funds.

Also, regulations mandate that insurance companies invest only in the highest-rated ‘AAA’ or ‘AA’ credit-rated debt paper. During the last financial year, LIC’s total investment in infrastructure was less than 15 per cent. It had invested Rs 100 crore in infrastructure-focused venture funds. Insurance companies can only invest in infrastructure-related venture capital funds. However, private insurance companies are not allowed to raise funds through bonds as they are regulated by the Insurance Act, which does not allow the same.

State Bank of India is also looking at raising Rs 2,000 crore though the second tranche of its infrastructure bonds. It had raised Rs 1,000 crore in the first round.