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The Insurance Regulatory and Development Authority (Irda) has allowed insurance companies to invest in new instruments issued by domestic banks. This includes debt capital instruments, redeemable non-cumulative preference shares and redeemable cumulative preference shares under Tier-II capital.
Experts said this would help banks augment additional capital, even though private insurers do not have a very large investment capacity like state-owned Life Insurance Corporation of India (LIC). "Though this option has been opened up for all insurers, we would primarily see LIC investing in these issues since it has large investable funds at its disposal," said an investment official with a private life insurance firm.
Irda had earlier allowed insurers to invest in perpetual debt instruments of banks’ Tier-I capital and debt capital instruments of upper Tier-II capital. "With the migration of banks to Basel-III capital adequacy norms, there is a substantial need for raising additional capital by banks. Globally, banks have started augmenting capital by issuance of Common Equity Tier-I (CET-I), Additional Tier-I(AT-I) and Tie- II (T-II) instruments," Irda noted.
The regulator has said the debt instrument issued by banks shall be rated not less than ‘AA’ by an independent, reputed and recognised rating agency, registered under market regulator Sebi. Further, if the instruments are downgraded below AA, such investments shall be re-classified as ‘Other Investments’.
Experts said this would help banks augment additional capital, even though private insurers do not have a very large investment capacity like state-owned Life Insurance Corporation of India (LIC). "Though this option has been opened up for all insurers, we would primarily see LIC investing in these issues since it has large investable funds at its disposal," said an investment official with a private life insurance firm.
Irda had earlier allowed insurers to invest in perpetual debt instruments of banks’ Tier-I capital and debt capital instruments of upper Tier-II capital. "With the migration of banks to Basel-III capital adequacy norms, there is a substantial need for raising additional capital by banks. Globally, banks have started augmenting capital by issuance of Common Equity Tier-I (CET-I), Additional Tier-I(AT-I) and Tie- II (T-II) instruments," Irda noted.
The regulator has said the debt instrument issued by banks shall be rated not less than ‘AA’ by an independent, reputed and recognised rating agency, registered under market regulator Sebi. Further, if the instruments are downgraded below AA, such investments shall be re-classified as ‘Other Investments’.
