New India chief suspended over credit cover for Paramount Air

Written by Sitanshu Swain | Mumbai | Updated: Aug 17 2011, 09:22am hrs
M Ramadoss, chairman of the country's largest general insurance company New India Assurance, was suspended on Monday, following a CBI investigation into his role in providing credit insurance for Chennai-based Paramount Airways. The Paramount deal was struck when Ramadoss was chairman-cum-managing director of Oriental Insurance Company, another public sector general insurer.

Ramadoss is the second chief of a state-owned insurer to face action this year. On May 3, TS Vijayan, chairman of Life Insurance Corporation of India, the country's largest life insurer was demoted to managing director, following allegations about LICs investments in the last few years. On July 28, the CBI registered a case against Vijayan.

The government order said: Ramadoss is put under suspension with immediate effect pending investigation of CBI and G Srinivasan, CMD of United India will be holding the concurrent charge of NIA from Tuesday.' For NIA, this is additional trouble as the government is examining its books after it posted a loss of R421 crore for 2010-11, the first loss in its 92-year corporate history.

The Delhi-based Oriental Insurance had provided cover to bank guarantees worth Rs 600 crore issued by a clutch of banks led by State Bank of India to the now-defunct Paramount. Other banks in the consortium were Bank of India, Indian Bank, Andhra Bank and IDBI Bank. In credit insurance, an insurer provides cover to the credit exposure of banks when they provide bank guarantees.

After the airline went belly up, these banks lodged claims with Oriental, trying to recover money paid to oil companies on behalf of Paramount. CBI took over the case when several controversial decisions surrounding the deal surfaced.

For instance, it was alleged that the deal didn't get the usual reinsurance cover as the state-owned GIC refused to provide one saying Paramount was unviable. Disturbed by the development, Insurance Regulatory & Development Authority (IRDA) banned the sale of credit insurance by general insurers, except for state-owned Export Credit Guarantee Corporation.

Ramadoss headed Oriental for more than four years till December 2009 and was shifted as the CMD of Mumbai-based NIA in January, 2010. Like Vijayan, he too has almost two years of service left.

Ramadoss was away in Hyderabad on Tuesday to meet Irda officials and couldn't be contacted for his comments.

In 2010, CBI had raided the official and personal residences of Ramadoss in Mumbai and Chennai respectively and had interrogated Ramadoss extensively. CBI people had come to my office and had questioned me at my office in NIA, Ramadoss had earlier told FE.