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Business News/ Insurance / 5,000 cr for 2 PSU insurers’ listing, and a privatization
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₹5,000 cr for 2 PSU insurers’ listing, and a privatization

The recapitalization of public sector general insurers was proposed in the budget, say officials

Officials said the recapitalization of the insurers was proposed in the budget, and an amount of ₹5,000 crore would be released over the next 10 days. mintPremium
Officials said the recapitalization of the insurers was proposed in the budget, and an amount of 5,000 crore would be released over the next 10 days. mint

NEW DELHI:The government may infuse 5,000 crore into three loss-making state-owned general insurers this month to help them meet regulatory requirements for listing on the exchanges, according to two government officials aware of the plans.

At least one of the companies may be privatized.

They said the recapitalization of public sector general insurers was proposed in the budget, and an amount of 5,000 crore would be released over the next 10 days.

The three companies -- National Insurance Co. Ltd, Oriental Insurance Co. Ltd and United India Insurance Co. Ltd -- together need the money to strengthen operations, improve their solvency ratios and become profitable. The government had provided 12,450 crore to these three insurers in FY21.

“No capital provisions have been provided for insurers in budget 2022-23. So this money infusion would test their ability to strengthen operations. Also, after this, work on privatizing one of the public sector insurers could be started soon," said one of the officials cited above.

Questions mailed to a spokesperson for the finance ministry and secretary; department of financial services (DFS) on remained unanswered at press time. DFS in the finance ministry is the administrative body in charge of public sector insurers.

The official said the government may consider the stock exchange listing of National Insurance and Oriental Insurance after the capital infusion, while United India Insurance may be a candidate for privatization.

Mint reported on 5 January that the government may privatize one of India’s four state-owned general insurers in the first half of FY23 because of high investor interest, ahead of the planned divestment of public sector banks.

Privatization of insurance companies is easier to process as the General Insurance Business Nationalisation Act was amended by Parliament last year to enable the transfer of ownership of companies and privatization. The amendment allows the government to dilute its stake in a general insurance company to below 51%.

Finance minister Nirmala Sitharaman in her Budget 2021 speech, had announced strategic divestment in two public sector companies and financial institutions, including two PSU banks and one insurance company. But the process is yet to move ahead. In the case of banks, an amendment to the Banking Regulation Act is yet to be introduced in Parliament. This amendment is required for the government to dilute its stake and change management in public sector banks.

While United India Insurance is not in the best of its financial health, reporting a loss of 1,485 crore in 2019-20, it is still considered the best candidate for privatization as it would provide immense value to the acquirer, with its nationwide presence and strong market share in various general insurance categories. Moreover, not being listed will make the transaction process easier.

The Centre was earlier working on a proposal to merge public sector insurers. The plan was to merge National Insurance Company, United India Insurance Company and Oriental India Insurance into a single insurance entity and subsequently list it on the exchanges.

However, in mid-2020, the government infused 12,450 crore in the three entities with the aim to turn them profitable -- but they continued to make losses.

India’s general insurance market comprises 27 companies, including four major PSU entities, 23 private players and six stand-alone health insurers.

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ABOUT THE AUTHOR
Subhash Narayan
Subhash is the infrastructure editor at Mint and tracks the momentous developments taking place in the space that is fast changing the Indian landscape. He feels that reporting has been a passion that provides the necessary adrenaline rush and keeps you going.
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Published: 16 Mar 2022, 01:54 AM IST
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