The Indian insurance scene is blossoming, and the government, through its pro-active measures, needs to make sure that it lives up to the expectations of the industrial magnates.
With the credit crisis finally inching towards its natural death, insurance as a sector is eagerly looking forward to recovering from the jolts it suffered during the credit crisis days. However, the source of recovery is liquidity and despite the fact that levels within Indian economy are improving, they haven't reached a level where they can impart the secured feeling to a particular business or individual. This is one sector that has been struggling with insufficient liquidity levels which have failed to support its comeback business plans and strategies.
On the global front, the insurance domain has taken a merciless beating at the hands of liquidity crisis. India too, has seen some downfalls in recent times, but the situation never plummeted down to a level as worse as that witnessed in England and the United States of America.
However, now when situation is returning to normalcy, it is the duty of the Indian government to provide the adequate platform to the insurance companies to strengthen their grip and regain their foothold in the economy. For this purpose, 'going public' is a healthy option. But for readers' information, any company dealing in the insurance business cannot arrange liquidity via public unless it is a ten-years or more old company.
Companies like ICICI Lombard insurance and Reliance health insurance, are struggling to find space owing to the problem mentioned above. These companies were doing excellent business before recession arrived in India. Now, the present rule-book says that promoters cannot hold more than 26 percent of the total stake in case of a company of Indian origin, and if there is a case where they (promoters) have occupied more than the prescribed limit can only trim down their stake-holding only after a period of ten years from the date of commencement of operations. Present ratio of capital addition is 74:26.
However, for once-leading players in the market such as ICICI Lombard Insurance, getting back into the top league will take a lot. But thanks to this rule, liquidity demands never gets met thus, leaving situation in more or less in the same way.
For those who are unable to understand the logic behind the repetitive requests of credit supply, here is a handy fact. In the initial years, any insurance business needs consistent infusion of liquidity to meet losses and to support its expansionary programs. But with the set ratio of 74:26 in place, entities like Reliance health insurance company and many others are facing difficulties since Indian promoters are unable to invest such huge volume of funds all over again while foreign names are eager to foray into the market with their fund pools.
Interestingly, if the foreign partnering is given an approval for the time-being, it can see the influx of huge funds by the means of FDI which again could be controlled with Public equity offer. Hence, the ten-year rule in every way should be scrapped, and it is the duty of SEBI (Securities and Exchange Board of India) and the regulatory body, IRDA (Insurance Regulatory Development Authority), to look into the matter and resolve it in an amicable way.
Thus, if the government wants players like ICICI Lombard Insurance and Reliance health insurance to bounce back and reignite the industrial scene, it certainly would have to do away with the ten-year rule.
For more to know more on Reliance General Insurance, And ICICI Insurance, visit www.paisawaisa.com/
