Irda sets stiff norms for ICICI Bank's risk firm

In crisis, Indian promoter told to provide financial support.

The Insurance Regulatory and Development Authority (Irda) has set stiff conditions while clearing ICICI Bank's proposal to set up a holding company for its insurance and mutual fund businesses.

The insurance regulator has asked the country's second largest bank and its proposed holding company, ICICI Financial Services, to enter into tri-partite agreements with ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company.

The tripartite agreements require the bank to state that it would continue to be deemed to be the Indian promoter of the two insurance companies for "all purposes" and to give an undertaking that "irrespective of any other regulatory situations", in case of the proposed holding company being unable to meet the funding requirements of the insurance firms, the bank would "step in" to provide financial support to them, according to finance ministry sources.

The Irda has also stipulated that commitments to be given by ICICI Bank should be passed as resolutions by the board of all the companies signing the agreements.

ICICI Bank plans to transfer its 74 per cent stakes each in the insurance companies and 51 per cent in ICICI Prudential Asset Management to ICICI Financial Services, after it gets the Reserve Bank of India's (RBI) approval.

The bank has also obtained the Foreign Investment Promotion Board's (FIPB) approval for selling 24 per cent stake in the proposed holding firm to foreign investors, subject to the Reserve Bank of India (RBI) agreeing to the holding company structure.

Asked about the Irda's stipulation that the bank sign tri-partite agreements, the bank's spokesperson, in an emailed response, said "the company (holding firm ICICI Financial Services) has not been formed as yet. Hence, there is no question of any tripartite agreement at this juncture.''

The other conditions put by Irda are that the two insurance companies will continue to use the ICICI Bank brand and that the ICICI Bank will continue to provide all technical support to the insurance ventures as agreed to at the time of grant of R3 (initial) approval by the insurance regulator.

Despite the new proposed structure, the Irda continues to regard ICICI Bank as the Indian promoter and expects that ICICI Bank Ltd will continue to discharge all its present responsibilities towards the insurance company after the holding firm is formed.

Finance ministry officials, in one of their notes on the ICICI Bank case, have stated that "it is clear that the IRDA continues to regard the Indian promoter as ICICI Bank However, it is for consideration that the final view in this regard, especially in so far as conformity to the Banking Regulation Act is concerned, should rest with the Ministry of Finance/Reserve Bank of India and not with Irda."