Moneycontrol
Get App
you are here: HomeNewsEconomyPolicy
Last Updated : Mar 11, 2020 03:33 PM IST | Source: Moneycontrol.com

Cabinet may set FY22 as deadline for merger of PSU general insurers; listing likely by April 2022

The proposal involves merger of National Insurance, Oriental Insurance and United India Insurance. Once they are merged, the entity will be listed on the stock exchanges.


The Union Cabinet is likely to set a FY22 deadline for the merger of state-owned insurance companies. Although the announcement was made in February 2018, it is yet to be completed due to operational reasons.

Sources told Moneycontrol that the Cabinet is finalising the proposal and will meet the insurers for a final nod by May 2020.

The proposal involves merger of National Insurance, Oriental Insurance and United India Insurance. Once they are merged, the entity will be listed on the bourses.

Close

"The idea is to have a deadline given so that there is clarity on how long it will take. Now that the merger of the state-owned banks has been finalised, the Cabinet should consider us next. But listing may only happen by the last quarter of FY22," said an official.

A Rs 6,950 crore recapitalisation offered by the finance ministry will help these insurers to spruce up their solvency or minimum capital. This is the first requirement before a merger is initiated.

On March 5, the Cabinet approved the consolidation of 10 public sector banks into four entities. Finance minister Nirmala Sitharaman said that the merger process is on course and the respective bank boards are actively working on this process.

The PSU general insurers' merger has been a pet project of the BJP government. It was announced by former Finance Minister Arun Jaitley in his February 2018 Budget speech. The idea was that the merged entity would subsequently be listed on the stock exchanges.

The idea to merge the three insurers was to create a stronger and larger insurance company that was sustainable in the long run. The other two state-owned entities, New India Assurance and General Insurance Corporation of India, are listed on the exchanges.

EY was appointed as the consultant for the process in December 2018. The initial estimates suggest this will be the largest non-life insurance company in India valued at about Rs 1.5 lakh crore.

On one hand, while there has been a delay in the merger process, there are also human resource concerns. The insurers’ unions have also expressed concerns about the merger of the entities, saying this would lead to retrenchment of staff at the mid and junior levels.

However, the immediate concern was the falling solvency levels of the insurers. As per regulatory norms, each insurer is required to maintain minimum solvency of 150 percent. This roughly means that the capital or assets should be 1.5 times the liability.

At the end of Q2FY20, United India solvency stood at 105 percent, Oriental Insurance's solvency stood at 156 percent as of Q1Fy20. Among these, National Insurance solvency dropped from 104 percent at the end of FY19 to 95 percent as of Q1FY20.

To deal with this, finance minister Sitharaman announced a Rs 6,950 crore recapitalisation for these three insurers.

The budget documents showed that the provision was for the higher requirement for maintaining the requisite minimum solvency ratio by each of the three public sector general insurance companies.

Moneycontrol Ready Reckoner
Now that payment deadlines have been relaxed due to COVID-19, the Moneycontrol Ready Reckoner will help keep your date with insurance premiums, tax-saving investments and EMIs, among others.
Get best insights into Options Trading. Join the webinar by Mr. Vishal B Malkan on May 28 only on Moneycontrol. Register Now!

First Published on Mar 11, 2020 03:32 pm
Sections
Follow us on