Irda not keen to allow insurers to invest in IDRs

The Insurance Regulatory and Development Authority (Irda) is not in favour of changing the norms that bar insurance firms from investing in Indian Depository Receipts (IDRs), according to a senior official.

IDRs are depository receipts denominated in rupees issued by the depository. Shares underlying the IDRs are deposited with the custodian, who holds the shares on behalf of the depository.

At present, Standard Chartered Bank is the only foreign entity to list its depository receipts on India bourses. The UK-based bank has been in discussions with the regulators for allowing long-term players like insurance companies to participate in IDRs, Neeraj Swaroop, its chief executive officer for India and South Asia, had said in an interview with a business newspaper this month.

“Regulators haven’t been able to clarify if insurance companies can invest in IDRs because the underlying is a foreign share. We are working with both the Securities and Exchange Board of India (Sebi) and Irda. We have been in discussion since the issuance happened. Insurance companies, when allowed to participate, will bring in liquidity for the instrument. We are hopeful that the issue will be clarified,” Swaroop had said in the interview.

“It is unlikely that we will allow insurance firms to participate in IDRs,” the senior Irda official said earlier, on condition of anonymity.

In June 2009, Irda had said in a circular that investment in an IDR by any insurer would amount to an indirect investment made outside the country and would not be in compliance with section 27C of Insurance Act, 1938 (prohibition for investment of funds outside India) that restricts the investment of policyholders’ funds directly or indirectly outside the country. In view of the extant statutory restrictions on overseas investments, it would not be in order for insurers to invest in IDRs, the insurance regulator had said at that time.

Capital markets regulator Sebi’s decision of not allowing conversion of frequently-traded IDRs into underlying shares even after one year of the issuance last month has miffed several foreign institutional investors (FIIs). Since June 3, when Sebi circular came, Standard Chartered IDRs have lost nearly 19 per cent. They closed at Rs 93.10 on Monday, down 1.48 per cent, or Rs 1.40, on the Bombay Stock Exchange. Combined daily average volume for Standard Chartered IDRs in this month has come down 83 per cent to 6,81,988 compared with 39,97,287 in June, according to BS Research Bureau.