Irda set to permit insurers to invest in corp bond repos
Repos or repurchase agreements enable bond holders to raise short-term borrowings by offering corporate paper as collateral. This would give insures an extra cushion in meeting their liquidity needs in case of sudden surrender of policies.
The sources said the Insurance Regulatory and Development Authority (Irda) would soon issue a notification in this regard. The relaxation is being done in consultation with the RBI. The Securities and Exchange Board of India (Sebi) has already allowed mutual funds to trade in this market.
Industry sources said this would be a major reform and would kickstart the moribund repo market in corporate bonds. RBI permitted repo transactions in corporate bonds in March 2010, but the market has not gathered pace, and there are a handful of trades in this segment, sources said.
In August, Irda issued a draft guideline for allowing life and non-life insurers to widen their investment horizon in the money market, including repo and reverse repo of G-secs and corporate bonds, credit default swaps (CDS) and securities lending and borrowing (SLB) schemes.
At present, Irda allows insurers to invest in government securities and AAA-rated and AA-rated corporate debt papers. At
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