Investments by the Life Insurance Corporation of India in the ailing Infrastructure Leasing and Financial Services are unlikely to breach regulatory norms even as the insurance regulator has advised it to remain cautious.
Sources said that since IL&FS is an unlisted company, LIC need not seek approval from the Insurance Regulator and Development Authority of India (IRDAI) to increase its investments.
“It can invest in IL&FS freely, unlike in listed companies where LIC is mandated to not go beyond 15 per cent and requires permission,” said a senior government official.
However, such investments in unlisted companies are not considered a part of the “approved investments” by IRDAI and will not be counted as part of the insurer’s solvency margin. “The insurance regulator’s norms are the same as those of the Reserve Bank of India and in case of a sudden downgrade, the insurer cannot sell of its investments but will have to write them off as in the NPA classification,” said the official.
But officials maintained that a sudden downgrade of a company’s rating should not be a cause for immediate concern. “The ratings of any company – listed or unlisted can get downgraded due to a variety of factors,” said the official but added that this has to be a balanced decision as the onus of ensuring the safety of policyholders’ money lies with the insurer.
The board of IL&FS, which includes State Bank of India and Central Bank of India as well as Orix Corporation and Housing Development Finance Corporation, among others will meet on Saturday to discuss a plan to solve the immediate capital needs of the company.