IL&FS crisis: IRDAI may meet insurers next week to ascertain exposure

Insurance companies will also have to make a detailed disclosure on their equity holdings in IL&FS and its group companies by October 30

Published: Oct 3, 2018
Image: Shutterstock

M Saraswathy

Moneycontrol News

Insurance regulator IRDAI will likely meet insurers next week to ascertain the extent of their exposure to IL&FS and its group companies, sources told Moneycontrol.

Insurers will also need to provide details of their equity holdings in Infrastructure Leasing and Financial Services (IL&FS) group companies and by October 30, the sources said.

At next week's meeting, the regulator will likely seek details of the tenure of IL&FS paper that insurers hold, and of any missed interest payments by the IL&FS group.

While Life Insurance Corporation of India (LIC) has the maximum exposure (both debt and equity) to the group, a few other insurers had subscribed to some of IL&FS long-term papers too.

As far as instruments held by insurers are concerned, IL&FS has not defaulted on any obligations so far. However, there is a risk of the group being unable to pay insurers interest for at least the next three months.

Insurance companies are also required to disclose the details of any IL&FS shares they may have pledged and of those under lock-in period. The details of IL&FS' foreign shareholders and their equity holding pattern also has to be disclosed to IRDAI.

IRDAI Chairman Subhash Khuntia had earlier said that insurers should be aware of the risks associated in investing in low-rated debt instruments, considering the funds invested come from policyholders' accounts.

Khuntia had also said that when an investment gets downgraded, an insurer should retrieve the maximum possible amount and invest it elsewhere.

Debt crisis at IL&FS group

The first signs of trouble in the IL&FS group emerged in June when it defaulted on inter-corporate deposits and commercial papers (borrowings) worth around Rs 450 crore. Over the next 2-3 months, at least two rating agencies downgraded the company's long-term credit rating.

IL&FS, which has missed more than five debt payments since August and has been downgraded by three rating agencies as a result, has filed an application with the National Company Law Tribunal (NCLT).

The company has sought some 'accommodations' from NCLT for itself and 40 of its group companies under the Companies Act. Among its group companies, IL&FS Financial Services defaulted on seven of its debt obligations in September, according to a statement to the exchanges.

In all, IL&FS group owes over Rs 91,000 crore.

Takeover of the board

The NCLT approved the takeover of IL&FS' board by government nominees on October 1, saying mismanagement at the crisis-ridden financier makes it a fit case for supersession of the board under Article 241 of the Companies Act.

A new six-member board led by veteran banker Uday Kotak will take charge of the company. The other members are former SEBI chief GN Vajpai, ICICI Bank Chairman GC Chaturvedi, Tech Mahindra's Vineet Nayyar, and former bureaucrats Malini Shankar and Nand Kishore.

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