The Comptroller and Auditor General of India (CAG) has charged National Insurance Company (NIC) with overstating its net profit by Rs 165.23 crore.
NIC recorded a net profit of Rs 125.49 crore for the year ended March 31, 1996.
NIC reduced its outstanding claims provision by Rs 100.35 crore after verification of accounts by its divisional offices.
This, CAG has pointed out, was done without the unanimous acceptance of divisional auditors. The management has, however, argued that the divisional auditor differed with the companys estimation of liability in only one case and this involved a sum of Rs 2.70 crore only.
CAG has further pointed out that a test check of some outstanding claims provisions has revealed inadequate provisions and unjustified reductions amounting to Rs 12.31 crore.
The NIC management feels that the total provisioning for gross direct outstanding claim amounting to Rs 1,158.89 crore made in the accounts for the year is adequate to take care of the liabilities of the company.
Commenting further on the accounts, CAG has said that since NICs investment activities are similar to those of other financial institutions, the valuation of investments should have been done as per the guidelines and prudential norms issued by the Reserve Bank.
CAG has noted that if the norms had been applied, the profit for the year would have been less by Rs 49.90 crore.
The NIC management has contested this observation of CAG by saying that RBI guidelines are not directly applicable to the insurance industry which is regulated under provisions of the Insurance Act, 1938.
Of National Insurance Companys total investments of Rs 1,049.94 crore, shares and debentures of companies account for Rs 692.75 crore while investments in government securities account for 356.83 crore.
As per practice, the investments are accounted for at cost. The overall depreciation, if any, in the aggregate cost value of total investments due to a fall in the market value is provided separately in the investment reserve.
