The Standing Committee on Finance, which adopted its report on Insurance Laws (Amendment) Bill, 2008, on Thursday said keeping in mind the present global scenario, any hike in foreign equity would not be in the interest of Indian companies
New Delhi: After the setback on foreign direct investment (FDI) in retail, the government was in for another jolt as a Parliamentary Committee has rejected its proposal for raising the foreign investment cap in insurance sector from 26% to 49%, reports PTI.
Apart from various aspects of the insurance bill, the Standing Committee on Finance also asked the government to bring an integrated modern banking law for India, instead of bringing piecemeal amendments.
The Committee, which adopted its report on Insurance Laws (Amendment) Bill, 2008, on Thursday said keeping in mind the present global scenario, any hike in foreign equity would not be in the interest of Indian companies.
It also recalled that Parliament was assured that the present cap of 26% will not be breached in future.
The Committee also recommended that the present statement of objectives of the Bill should be redrafted as it gives a ‘misleading’ impression that the issue of foreign participation in Indian insurance companies was decided upon the recommendations of an expert committee, which is not a fact.
It also said that in health insurance business, a company with a minimum Rs100 crore capital should only be allowed to set up shop and hence the present requirement of Rs50 crore should be accordingly increased.
On the issue of foreign insurance companies planning business in special economic zones, the Committee has recommended that no unregistered foreign entity should be allowed to operate in areas governed by SEZ Act, 2005.
On the Banking Laws (Amendment) Bill, 2011, the Committee said that to encourage “corporate democracy”, voting rights in private banks respect to the proportion of holding should be increased from 10% to 26%.
The Bill proposes to remove the voting right restriction of 10% for private sector banks in the total voting rights of all the shareholders of the banking company.
In the case of private sector banks, the voting rights would be commensurate with investors’ shareholding.
The Bill seeks to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, and to make consequential amendments in certain other enactments.
According to the bill, the amendments would enhance the regulatory powers of the Reserve Bank of India and increase the access of the nationalised banks to the capital market to raise funds required for expansion of the banking business.
“The newly launched market-level risk score is designed to predict the likelihood that a customer will default in the next 12 months. So, it will help financial institutions to monitor their loan portfolios,” Equifax managing director and chief executive Samir Bhatia said
Mumbai: Equifax Credit Information Services today launched a new risk score and a series of new portfolio review products which will help lenders in credit delivery, reports PTI quoting top officials of the credit information agency.
“The newly launched market-level risk score is designed to predict the likelihood that a customer will default in the next 12 months. So, it will help financial institutions to monitor their loan portfolios,” Equifax managing director and chief executive Samir Bhatia said here.
It is designed to work with any standard product type and has been developed by gathering data from major market players.
Referring to calculation of the risk score, Mr Bhatia said its calculation is based on the parameters such as demographic attributes.
“It will help banks to take a call on consumers who are newly entering into the consumer lending market,” he added.
The credit rating agency has also introduced new portfolio review services that include credit card review, unsecured and secured instalment reviews among others.
“These new portfolio services will help banks and other financial institutions for better account management services,” he said.
The credit information agency is also providing credit history data to individual customers for a fee of Rs400 as of now.
Equifax India is a joint venture between Equifax Inc of the US and six major domestic banks—Bank of Baroda, Bank of India, Kotak Mahindra Prime, Religare Finvest, Sundaram Finance and Union Bank of India.
The credit information agency has all the major banks and NBFCs as their members and has two verticals—a consumer bureau and microfinance institutions bureau—as of now.
About opening of credit information services in other verticals, Mr Bhatia said the agency is actively looking at opening a bureau in the SME sector.
IRDA is reviewing products with low or reducing insurance as it intends to enforce a certain premium-to-sum-assured ratio. Approval of Bajaj Allianz Guaranteed Maturity plan seems to be direct breach of this stated intension
The Insurance Regulatory and Development Authority (IRDA) had stated that it was reviewing products with insignificant sum assured (SA), decreasing SA and products offering SA as specific rate of return on the premium paid. This was confirmed by IRDA chairman J Hari Narayan when Moneylife asked him at CII Insurance Summit in November 2011.
According to the Mr Hari Narayan, “The Direct Tax Code (DTC) will enforce a certain premium-to-sum-assured ratio. We want to ensure traditional insurance products comply with the new requirements.”
Bajaj Allianz Guaranteed Maturity Insurance Plan, which was launched earlier this week, seems to contradict IRDA’s stand. The SA is five times the single premium for the first policy year and for subsequent years it will reduce to 1.25 times of the single premium for age-at-entry less than 45 years and 1.10 times of the single premium for age-at-entry 45 years and above.
The policy term is 10 years. In short, the SA of five times the single premium in the first year will reduce for the remaining nine years to be only 1.10 to 1.25 times the single premium. How did IRDA approve such a low as well as decreasing SA plan? IRDA intension is only on paper and no action till now. How long does it take to review the insurance component of existing products? What are the chances that IRDA will get rid of existing toxic products with dubious insurance component?
Moneylife cover story (issue dated 1 December 2011) had highlighted toxic traditional product in existence since 2003. It is HDFC Life ‘Savings Assurance Plan’. For starters, there is no real insurance component. In case of death during the first year of policy commencement, a basic benefit of 80% of the premiums received will be paid to the nominee of the life assured. How did IRDA allow such atrocious clause?
In case death after the first year, the amount payable on death will be the ‘lesser of’ (not higher of): The sum assured plus any attaching bonuses or the total of the premiums paid plus interest at 6% annually compounded. The annual premium payable for a sum assured of Rs1 lakh is Rs12,016 for policy term of 10 years. Based on the current bonus level, the customer will earn less than 2% return on investment unless there is decent terminal bonus which is not declared at this time. This is the first product HDFC Life needs to get rid off.
IRDA had also woken up to the ill effects of highest NAV product mis-selling. They were closely looking at all the highest NAV products available in the market. “We are looking at all messages around these products—how these products are sold, what the customer understanding is of the product, etc. We feel there is mis-selling in highest NAV products,” Mr Hari Narayan had said.
Moneylife has maintained all along that ‘highest’ NAV unit-linked insurance plans (ULIPs) give suboptimal results and cause confusion for customers. The most important point to understand is that insurance companies are guaranteeing NAVs and not returns! It created confusion in the minds of customers about the kind of returns which could be expected with these products. Most of the investment would be in debt instruments and the returns no better than any other similar investment.
The progress for scrapping the highest NAV plans seem to be on the back-burner after loud protests from insurance companies, who feel that more disclosure should be the solution instead of showing the door to the plans.