Insurers may be allowed to invest in VC funds

Irda move likely to give big push to infrastructure.

Insurance companies will soon be allowed to invest up to 5 per cent of their total investible corpus in venture capital funds investing in infrastructure projects. The total assets under management with life insurance companies aggregates to Rs 6,99,375 crore.

The move is an attempt to direct flow of long-term savings for infrastructure development.

The Insurance Regulatory and Development Authority of India (Irda) will finalise the proposed changes in the investment regulations for insurance companies when its board meets on March 25.

The other changes in investment norms include enlarging of the approved investments category to include mortgage-backed securities and initial public offers (IPOs) graded at a minimum of 4 on a scale of 5 by rating agencies. Currently, mortgage-backed securities are considered other than approved investments.

"We will be submitting the proposal to the Irda board after its approval, the changes would be notified in the Gazzette latest by the end of this month," said a senior Irda official.

The proposed changes will provide greater investible instruments and flexibilty for insurers. The new norms will also provide more leeway for investments in term deposits and certificates of deposit (CDs) issued by banks.

Currently, insurers can invest up to 10 per cent of their funds in a particular sector. This means for the banking sector, insurers can invest up to 10 per cent in bonds and equity shares issued by banks and within the overall ceiling, up to 2 per cent in fixed deposits and CDs. The new norms would treat fixed deposits and CDs as a separate category and grouped under the money market instruments category. This would enhance the investment flow from the insurance sector into the banking sector.

However, insurers will have to wait for 6 to 8 months for investing in equity derivatives. "RBI has to come out with regulations for banks to invest in equity derivatives after which the same can happen for insurance sector," said an official of Irda.

Irda had constituted a working group in July 2006 to examine the existing investment regulations and to review comprehensively the current statutory prescriptions and pattern of investments for insurance companies. The working group had submitted its recommendations last year.