Move to help infrastructure companies access funds during credit crunch.
The Insurance Regulatory & Development Authority (Irda) is likely to raise the exposure limits of life insurers to infrastructure sector to up to 20 per cent from 15 per cent now.
Sources close to the development said that Irda would come up with fresh regulations over the next few days. These regulations are aimed at helping insurance firms choose lesser number of companies to invest the funds allocated for the infrastructure sector.
All life insurance companies will benefit majorly. Also, the infrastructure companies can expect an increase in the share of funds from the insurance companies as it has been lending heavily for construction of roads and power plants.
The Life Insurance Corporation (LIC) of India, the country’s largest insurer, has extended term loans and project finance to infrastructure companies, especially power generation firms, worth Rs 1,342 crore between April and November this year.
At present, life insurance companies have to invest at least 50 per cent of the investible corpus in government securities, while up to 15 per cent can be invested in infrastructure projects and companies. In addition, up to 35 per cent can be invested in equities, state government papers and other money market instruments.
The government has been pushing financial sector regulators, particularly the Reserve Bank of India (RBI), to ease lending norms for infrastructure companies. The Finance Ministry wants the RBI to change group exposure norms so that banks can earmark more resources for the infrastructure sector.
In addition, the entry of pension funds from April 2009 is expected to result in further fund flow to the infrastructure sector, which needs long-term capital.
According to the Planning Commission, an investment of $500 billion is required in the infrastructure sector between April 2007 and March 2012, the tenure of the Eleventh Five Year Plan. But the financial turmoil has taken a heavy toll on infrastructure companies, which were looking to raise funds overseas to finance projects in the country.
“Infrastructure companies need long-term financing and it provides us with an opportunity to invest for the long term,” said an SBI Life executive.
Life insurance companies look for investments in long-term papers and projects since they deal with policyholders’ money that can be locked for a period of 20-25 years.
