IRDA BARS INSURANCE COMPANIES FROM INVESTING IN IDRS

Says Buying IDRs Amounts To Indirect Investment In Foreign Companies

Insurance regulator Irda has prohibited Indian insurers from investing in Indian Depository Receipts (IDRs), saying the insurance law does not allow investment of policyholders’ funds directly or indirectly outside the country.

In an IDR issue, foreign firms are allowed to mobilise funds from Indian markets by offering their equity shares in the form of rupee denominated receipts. They are listed on the Indian stock exchanges and are freely transferable. These receipts are issued to investors in India against underlying equity shares of the issuing company based out of India.

An investment in an IDR by insurance firms would amount to indirect investment made outside the country. This will not be in compliance with the existing provisions of the insurance legislation that debars insurers from investing policy holders’ funds overseas, said Irda in a communication to chief executive officers (CEOs) of insurance firms. “In view of the extant statutory restrictions on overseas investments, it would not be in order for insurers to invest in IDRs,” Irda said.

Section 27C of the Insurance Act bars investment of insurance funds outside India.

Insurers said the Irda move would not affect them much, but stock analysts said the decision would diminish the attractiveness of the IDR market. Reliance Life Insurance Director Malay Ghosh said, “As we have many other avenues of investment , it won’t impact much.”

However, SMC Capitals equity head Jagannadham Thunuguntla said the ability to raise IDRs will be reduced to certain extent and might affect their issue size.

Courtesy:- ET dt:- 02-07-09