Life insurance cos await Irda nod on infra bonds

Aug 28 2014, 01:48 IST
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SummaryBonds issued by public sector entities like PFC & REC are given infra status by Irda as the proceeds are primarily used to finance the infrastructure sector

Life insurance companies are awaiting a nod from Insurance Regulatory Development Authority (Irda) to invest in infrastructure bonds issued by banks. Currently, infrastructure bonds have not been given ‘infra’ status by Irda.

Aneesh Srivastava, chief investment officer at IDBI Fortis Life Insurance, said there has been an ongoing dialogue between the government and the insurance regulator and bank infra-

structure bonds will be given infrastructure status soon.

Kunal Shah, fund manager for debt instruments at Kotak Life Insurance, said the insurance companies have to invest 15% of their non-unit linked bonds with bonds which have been given infrastructure status. “If the bank infrastructure bonds are given that status, it will provide a captive market for insurance companies,” Shah added. Kotak Life Insurance has not invested in any infrastructure bonds issued by banks.

Sanjay Kumar, head of investments at PNB Met Life Insurance, said once the infra status is granted by the regulator, the bonds will become more attractive and allow insurance companies to diversify their portfolio. “We have not invested in infra bonds, but we are evaluating them,” he added.

Bonds issued by public sector entities such as Power Finance Corporation (PFC), Rural Electrification Corporation (REC) are given infra status by Irda as the proceeds are for primarily financing the infrastructure sector. Recently, Irda also issued a circular which said onshore rupee-denominated bonds by Asian Development Bank and International Finance Corporation can be considered infrastructure bonds.

RBI on July 15 had issued guidelines for the issuances of long-term bonds (with a minimum maturity of seven years) for financing infra projects and for affordable housing by scheduled commercial banks. Generally, life insurance companies invest in longer tenure bonds which are over seven years.

India's largest private sector bank has already hit the bond market twice with its issue of infrastructure bonds. Earlier this week, ICICI Bank issued 10-year bonds worth Rs 2,000 crore on a private placement basis with a coupon rating of 9.25% and in July the bank issued seven year bonds with a base size of Rs 500 crore with a green shoe option of Rs 500 crore with a coupon rate of 9.75%. Kotak mahindra Bank too, raised Rs 300 crore through infra bonds and was rated AAA by Crisil.

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