Insurance funds should invest in low-rated instruments: SBI chairman

To make the debt capital market more vibrant, the long-term liabilities with insurance and pension sector need to be channeled effectively by allowing them to invest in low-rated instruments rather than just AAA and AA papers, said State Bank of India (SBI) Chairman Dinesh Kumar Khara.
 

Speaking at the CII Partnership Summit, Khara said, as of now such funds are only into AAA and AA papers. “But I think these funds can be made available to low grade papers also. This is perhaps the needs of the hour if we want to create infrastructure, we have to ensure this money has to flow into infrastructure, which we have seen happen across the globe,” he said.
 

Insurers generally invest in government securities and high-rated investment papers. The insurance regulator does not allow investment in below A-rated instruments. The top private insurers have more than 90 per cent of their debt investment in government securities and AAA-rated securities. However, there is growing clamour to allow insurance companies to invest in below AA papers.
 

“The kind of requirement that the economy has in terms of infrastructure investments, we have to open up capital markets and encourage more foreign participation. We have started some kind of foreign participation in the current year,” Khara further said.

Commenting on the need for a development finance institution (DFI), Khara said even if a DFI comes in, the source of funds will have to be more international than what it used to be earlier, when they got money from the government.
 

“All this while, the domestic market and household savings were the major source of savings of the economy. That kind of savings may not be enough for the growth trajectory we have chalked out for ourselves,” he added.
 

Experts also suggested that a regulatory body can be created that will have members from the  Sebi, RBI, Irdai, and PFRDA, and any large regulatory body concerned with investments. And, authority should be given to this body to take decisions regarding innovation in capital markets.