IRDAI Chairman Subhash Chandra Khuntia had clarified that insurers have to make adequate provisions for IL&FS-related exposures. He added that the exposure cannot be written off
The insurance regulator has sought details of the total exposure of individual insurance companies to Infrastructure Leasing & Financial Services (IL&FS) and its group entities. Insurers will have to provide exposures to both debt and equity instruments in the debt-ridden entity.
Sources told Moneycontrol that once these details are submitted, Insurance Regulatory and Development Authority of India (IRDAI) will seek details on how insurers plan to provide for their exposures.
Insurance is a long-term instrument and defaults in any instrument can affect returns paid to policyholders.
"The regulator wants details on the amount of exposure with IL&FS and if there have been defaults in payments, how have insurers accounted for it in their books," said a senior insurance official.
Addressing an event in Mumbai last week, IRDAI Chairman Subhash Chandra Khuntia had clarified that insurers have to make adequate provisions for IL&FS-related exposures. He added that the exposure cannot be written off.
Most insurers predominantly have exposure to the debt instruments of IL&FS group. Life Insurance Corporation of India holds 25.34 percent stake in IL&FS and is the largest shareholder.
On October 1 last year, the National Company Law Tribunal (NCLT) had approved takeover of IL&FS board by government nominees, saying mismanagement at the crisis-ridden financier makes it a fit case for superseding the board under Article 241 of the Companies Act. A new board led by veteran banker Uday Kotak has taken charge of the company.
The first signs of trouble in the IL&FS group emerged in June last year when it defaulted on inter-corporate deposits and commercial papers (borrowings) worth about Rs 450 crore. Over the next three months, rating agencies also downgraded its long-term ratings.Among group companies, its financial services arm -- IL&FS Financial Services -- had also defaulted on interest payment on commercial papers four times in September 2018. After that, several group entities have seen a ratings downgrade and missed a series of debt payments. IL&FS has a cumulative debt of Rs 91,000 crore.