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Central government unlikely to infuse capital in PSU general insurers in FY24

In this year budget, the government has not provided for the capital infusion where as in last year it has provided Rs 5,000 crore capital to three insurers

Central government unlikely to infuse capital in PSU general insurers in FY24

Representational image.

New Delhi: The four public sector general insurance companies are unlikely to get capital funding from the government in the current fiscal, a senior official said.

He said one of the PSU non-life insurance companies is likely to give a dividend to the government in the current fiscal and they will be able to meet their solvency margins. The government last year provided Rs 5,000 crore capital to three insurers --National Insurance Company, Oriental Insurance Company and United India Insurance Company.

The Budget 2023-24 has not provided for the capital infusion for insurance companies. "We do not think there is a need for capital infusion as of now. In fact, one of the general insurance companies may give a dividend this year," the official said.

Currently, there are four general insurance companies in India -- New India Assurance, United India Insurance, Oriental Insurance and National Insurance Company. Of this, only New India Assurance is better placed than the rest. Insurance companies are mandated by regulator IRDAI to maintain extra capital over and above the claim amounts they are likely to incur. It acts as a financial backup in extreme situations, enabling the company to settle all claims.

According to rating agency ICRA, most PSU insurers are expected to witness a high combined ratio resulting in net losses, though it will be lower compared to the last few years. The capital requirement of three PSU general insurers (excluding New India) is estimated at a sizeable Rs 17,200-17,500 crore to meet solvency of 1.50x as of March 2024, assuming 100 per cent forbearance on FVCA (fair value change account), ICRA said in a report in May.

During 2020-21, Rs 9,950 crore was infused in three public sector general insurers by the government, out of which Rs 3,605 crore was infused in United India Insurance, Rs 3,175 crore in National Insurance and Rs 3,170 crore in Oriental Insurance. With regard to a committee report on stalled real estate projects, the official said the SWAMIH fund corpus is yet to be utilised fully and banks can put in money in the stalled projects to make them viable after taking permission from the RBI.

A 14-member committee chaired by former NITI Aayog CEO Amitabh Kant, which was constituted to examine stalled real estate projects and recommend ways to complete them, submitted its report on August 21 to the government. The committee concluded that the main reason for the stress in these projects was the “lack of financial viability”, which had led to cost overruns and time delays. "We will take only those projects which could be made viable through the SWAMIH fund.

The report has two parts --developers will be given money, if there is a stalled project, through the SWAMIH fund and banks can also put in money after taking permission from RBI. Secondly, individuals whose loan is stuck and can't repay money, for them also we have made provision to classify it as standard asset," the official added. The fund corpus has not been utilised fully, he added.

As on March 17, 2023, the government has released Rs 2,646.57 crore to the SWAMIH fund, which provides funding to stressed/ stalled mid income and affordable housing projects across India, subject to certain conditions. The fund is sponsored by Ministry of Finance and is managed by SBICAP Ventures Ltd.

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