Insurance Regulatory and Development Authority of India (IRDAI) plans to include fixed deposits (FD) and bonds issued by housing finance companies and non-banking finance companies (NBFC) in the overall cap of 25% for Banking, Financial Services and Insurance (BFSI) sector.
As per the plan, insurance companies will be allowed to invest up to a quarter of the total investible amount in BFSI sector. This will mean that insurers will have to restrict their investment in the sector or either look at rearranging their exposure to BFSI sector.
The entire Life insurance industry manages assets worth Rs 23 lakh crore. Of this, LIC alone manages Rs 18.5 lakh crore. LIC, which has been a major buyer of stocks and bonds of state run banks, may face a big hit, given that already it owns huge chunks of shares. It owns 25% share in Corporation Bank, 11.82% in State Bank of India BSE 0.07 %, an undisclosed amount of bonds and several deposits in many banks.
On this new investment cap for insurers in BFSI, Mr. AK Sridhar who is the Chief Investment officer at India first Life insurance said, “If banking does well, all insurance funds will be underperforming. Banking index in Nifty has 29% weightage. It will further worsen the situation.”
This new cap on investments could be a big cause of concern to Insurers especially LIC, whose majority of investments are lying in the BFSI sector.
