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Life insurers may get to invest in infra bonds
June, 21st 2010

Life insurers may be allowed to invest in long-term infrastructure bonds proposed by the India Infrastructure Finance Co for refinancing greenfield infrastructure projects. Insurance Regulatory & Development Authority (IRDA) has decided to allow insurers to invest in India Infrastructure Debt Fund bonds as and when they become available.

We found the Deepak Parekh Committee recommendations favourable for insurers and have forwarded our views to the government. The Deepak Parekh committee has recommended that insurance companies can invest in the proposed India Infrastructure Debt Fund, said R K Nair, Irda member (finance and investment). He was speaking to reporters on the sidelines of an insurance summit organised by Indian Chamber of Commerce in Kolkata on Friday.

Long-term financial instruments will help life insurance companies develop their annuity business. Insurers have so far remained away from investing in greenfield infrastructure projects.

These were considered risky. However, insurance being a long term business, insurers have been looking for long term investment avenues, but there are none available other than 10-year government securities.

Insurers are also not too comfortable with investing directly in greenfield infrastructure projects since these have a high rate of failure.

Hence, a mechanism that could take away the risk of failure, could be very helpful for insurers and also cater to their long-term investment requirements. As of now, debt financing for infrastructure projects has been largely confined to commercial banks who are increasingly finding it difficult to provide long-term debt due to their asset-liability mismatch.

The Planning Commission had decided to set up a committee to look into the viability and modalities of creating India Infrastructure Debt Fund under the chairmanship of Deepak Parekh.

This committee has recommended setting up an India Infrastructure Debt Fund with a corpus of Rs 50,000 crore by the year end through issuance of negotiable bonds to various investors including insurers and pension funds, multi-lateral funding institutions, as well as NBFCs.

The committee said Rs 20,000 crore could come from domestic insurance and pension funds, while foreign insurance and pension funds may provide another Rs 10,000 crore. Rest would come from other sectors.

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