The insurance regulator has allowed insurance companies to invest in bonds issued by foreign arms of ONGC and Coal India for acquiring energy assets abroad—a move that will significantly increase funds available for state energy firms, and at more attractive rates. Insurance companies have been seeking such investment avenues as they are required to invest 15% of their funds in the infrastructure sector. But this was not allowed as the Insurance Act forbids investments outside the country.
However, investments by companies such as ONGC Videsh Ltd (OVL), the overseas arm of the state-run explorer, are not seen as violations of the act as they are listed in India and returns on their investments are brought back to the country, Insurance Regulatory and Development Apart from opening up attractive investment option for insurers, the move would help OVL, which is leading the government's efforts to acquire overseas oil and gas assets to boost the country's energy security . India's largest insurance firm, Life Insurance Corporation of India (LIC) alone invests about .Rs200,000 crore across various asset classes every year.
"Participation of insurance companies will increase investors' participation impacting its price (interest rates) in our favour," OVL managing director RS Butola said. OVL had raised .Rs1,000 crore through a bond issue last year. The existing norms allow insurance companies to invest 50% in government-approved securities, 15% in infrastructure and the remaining 35% in equity and other instruments. Insurance companies can only invest in AAA or AA creditrated debt paper. Insurance firms have welcomed the move and said that liberalisation of norms in these sectors will also help in creation of a long term debt market.
Insurers have been seeking such investment avenues as they are required to invest 15% of their funds in the infrastructure sector. But this was not allowed as the Insurance Act forbids investments outside the country.