The Insurance Laws Amendment Bill is expected to be one of the first pieces of legislation to be taken up for discussion in Parliament when the Fifteenth Lok Sabha session is convened.
The Bill was placed in the Rajya Sabha last July. The Bill, that proposes amendments to the Insurance Act of 1938, General Insurance Business Nationalisation Act (GIBNA), Life Insurance Corporation and the Insurance Regulatory and Development Authority, was likely to be passed at the earliest.
The Bill provides for raising the foreign investment ceiling in the domestic insurance sector to 49 per cent from the current level of 26 per cent. But sources said the key elements of interest in the Bill were proposals that allowed for dilution of government holding in the public sector insurance companies on the lines of the public sector banks.
In some of the banks, the Government holding was already down to the threshold of 51 per cent. The Amendment Bill provides for inserting a new clause into the GIBNA, whereby public sector insurers would be allowed to raise capital directly from the financial markets, either by way of equity, subordinated bonds or through hybrid instruments.
The sources said that the Union Ministry of Finance was prepared for a possible divestment in one of the four non- life insurance companies, before the end of this calendar year itself. Valuations have already been submitted to the Government by the consultants, the sources added.
Solvency I regime
However, none of the PSU insurers was short of capital. PSU insurers for the last financial year are reported to have solvency ratios in excess of two times. This was against the 1.5 times prescribed by the insurance regulator. (Solvency margin is the excess of capital and value of assets over their respective liabilities.) This ratio was despite the current regime of valuing assets at book value.
The sources said that a migration to the Solvency I regime would result in marking the assets to the market. This shift, the sources said, would result in unlocking further capital for the PSU insurers. The four PSU insurers are currently capitalised at close to Rs 15,000 crore.
The key driver to accelerating the passage of the Bill was the mounting need to find new funding methods for resources for a fiscal stimulus package. The need arises from the slowdown in revenue receipts and mounting borrowings. Consequently, the sources said, the need was to find resources that were likely to cause the least damage to the fiscal deficit, estimated for the current fiscal in the Interim Budget at 6.6 per cent.
The sources said that the dilution of stake either through the IPO route or in favour of the public sector banks cross-holding mechanism was one route for raising resources.