The government said today that the issue between the regulators will be resolved soon
The government today said it is confident of resolving the row between insurance regulator Insurance Regulatory Development Authority (IRDA) and market regulator Securities and Exchange Board of India (SEBI) over who should administer Unit-linked Insurance Plans (ULIPs).
"We will resolve this issue soon," finance minister Pranab Mukherjee said at the launch of the Insurance Institute of India in Mumbai today. The six-storeyed building is equipped with modern amenities and hostel facilities for residential programmes. The entity will be an educational service provider for all insurers in the country.
The spat between SEBI and IRDA broke out in early April when the capital market regulator banned 14 life insurance companies from issuing ULIPs, which invest heavily in stocks and bonds. A day after, IRDA asked life insurers to ignore the order.
As the impasse continued, the finance ministry directed the regulators to jointly seek a legally-binding order from an appropriate court over jurisdiction of ULIPs.
The standoff between the regulators became a subject of ridicule by Deepak Parekh, a key adviser to the government, who said that the row had made India a "laughing stock."
He had also hit out at the government for allowing the capital markets and insurance regulators to go to the courts, saying a rethink on their fight over jurisdiction on ULIPs would lead to a solution.
SEBI and IRDA are yet to see eye-to-eye on regulating ULIPs.
The market watchdog has filed a petition in the Supreme Court for transferring various petitions against ULIPs. The issue of jurisdiction is obliquely referred to in these petitions.
"I understand that IRDA has taken some very positive steps in respect of regulations of ULIPs which are in the interest of both the insurance industry as also the policyholders," Mr Mukherjee said.
Some of these measures like cap on charges, extending the minimum term of the policy to 5 years, bringing the concept of compulsory annuitisation in pension policies and the proposal of fixing the maximum limits of surrender charges have brought in the much-needed reforms in ULIP products, he said.
"I am sure that the insurance industry and IRDA would continue to bring in these reforms so that the interest of all the stakeholders is secured," he said.
In order to put more money in the hands of investors, IRDA recently said that insurers cannot charge fee on surrender of a unit-linked insurance policy after five years.
Insurance companies used to charge a nominal fee to customers to withdraw their unit-linked policies even after expiry of lock-in period. However, policies withdrawn during the lock-in compulsorily attract a high surrender charge.
Putting stress on spreading awareness about insurance, Mr Mukherjee said that one of the important challenges is to generate the required level of awareness about the benefits of insurance to people-particularly those living in semi-urban and rural areas.
"It should be our endeavour to take all necessary steps to ensure the reach of insurance to (the) masses," he said.
"I also take this opportunity to commend the role of the intermediaries specially the agents in the insurance industry who have contributed in ensuring that the insurance products reach every nook and corner of the country. With a force of around 30 lakh agents, it is a matter of pride that (the) insurance industry is perhaps the only financial services arm that reaches out to almost all the villages in this country. This is also borne out by the fact that 25% of the life policies i.e., approximately 1.5 crore policies every year are sold in the rural areas," Mr Mukherjee said.
When Moneylife asked IRDA chairman, J Hari Narayan if the ULIP issue would be resolved out of court, he said, "The finance minister has said that the matter will be resolved."
The market ended lower, taking cues from European markets. The Sensex settled at 16,617, down 163 points (1%) while the Nifty ended at 4,987, down 47 points (1%). The indices were range-bound in the positive zone in the morning session.
However, a sell-off was triggered in the afternoon session after the European benchmarks pared their gains, dragging the domestic indices into the red.
Asian markets ended higher. Key benchmark indices in China, South Korea, Singapore, Japan, Indonesia and Hong Kong were up 0.09% to 0.83%. Taiwan's and Singapore's main indices fell 0.08% and 0.19%, respectively.
US stocks were down on Monday (7th June), taking the S&P 500 to its lowest close in seven months. The Dow was down 115 points (1.1%) to 9,816. The S&P 500 was down 14 points (1.3%) to 1,050. The Nasdaq tumbled 45.2 points (2%) to 2,174.
The Bank of Japan has kept interest rates near zero and had outlined last month a new loan programme aimed at encouraging commercial banks to lend more to industries with growth potential.
Japanese bank lending marked its biggest annual fall in nearly five years in May, as companies were reluctant to increase capital spending. Bank lending fell 2% in May from a year earlier, dropping for the sixth straight month and marking the biggest annual decline since July 2005.
Back home, the government on Monday evening deferred the hike in fuel prices. The fuel subsidy is seen at $697 million this year, below last year's $3.4 billion.
The Reserve Bank of India (RBI) said that inflation is likely to ease with the monsoon; however, the central bank will tighten the monetary policy in its quarterly review next month. It has played down any concern regarding food prices.
Foreign institutional investors were net sellers, offloading stocks worth Rs242 crore. Domestic intuitional investors bought stocks worth Rs41 crore.
The monsoon has advanced to some parts of the central Arabian Sea, most parts of coastal Karnataka and some parts of south interior Karnataka. It is expected to advance further in the next couple of days.
The board of KIC Metaliks (up 1.7%) has accorded an approval for pursuing power and mining businesses and enhancing the borrowing limits of the company from Rs200 crore to Rs500 crore.
Alstom and Schneider Electric today proceeded with the closing of the transaction with Areva for the acquisition of Areva T&D (up 1.5%), its transmission and distribution business, after obtaining the approvals of the French authorities. A consortium agreement was signed by the two partners in November 2009 for the purpose of this joint acquisition. The price paid for Areva T&D's shares amounted to €2.29 billion.
Neha International (up 4%) has acquired 10,000 acres of land in Ethiopia through its wholly-owned subsidiary. This is part of its diversification into agriculture. The company expects to cultivate this land in the current kharif season.
Kyushu Railway Company (JR Kyushu), a major railroad company in Japan and Patni Computer Systems (down 1.6%) have signed a joint venture pact between JR Kyushu System Solutions Inc, the IT systems arm of the Japanese company.
The new company christened JR Kyushu Patni Systems Inc, is aimed at providing high quality and cost effective IT and product engineering services to the Japanese enterprise market.
The Pawar family holds significant stake in Four Seasons Wines, a subsidiary of Vijay Mallya's United Spirits
Sharad Pawar, Union agriculture minister, leader of the Nationalist Congress Party (NCP) and former chief of the Board of Control for Cricket in India (BCCI) is neck-deep in controversy over the Indian Premier League (IPL).
According to media reports, Mr Pawar and his family hold more than 51,000 shares or about 0.05% stake in United Spirits, the wine and liquor unit of Vijay Mallya's UB group. The Pawar family owns Lap Finance and Consultancy Pvt Ltd, which in turn had stake in grape grower and winemaker Baramati Grape Industries Ltd. Just before the start of auction for the IPL teams, Baramati Grape Industries was merged into United Spirits in a ratio of 31:20. This means shareholders of Baramati Grape got 31 shares of United Spirits for every 20 shares they owned in Baramati Grapes.
Under normal circumstances, shareholders of the larger company which will remain active after the merger, get a better share-swap ratio-and shareholders of the smaller company get lesser shares post the merger. For example, in the Bank of Rajasthan (BoR) and ICICI Bank merger deal, ICICI Bank offered 25 shares for every 118 shares of BoR.
However, in the Baramati-United Spirits merger deal, shareholders of Baramati Grape got a better share-swap deal. Later in September 2007, Mr Mallya was able to win an IPL franchisee, Royal Challengers Bangalore. Another co-incidence is that Royal Challengers Sports Pvt Ltd (RCSPL), the company which owns the IPL Bangalore team, just happens to be a subsidiary of United Spirits, in which the Pawar family holds shares worth around Rs6 crore.
Earlier, in June 2006, UB Group, which is a spirit maker, entered winemaking and bought over French winery Bouvet-Ladubay. The relations between Mr Pawar and the Mallya family go back a long way. Baramati Agro Industries, which was facing rough weather with its Bosca and Cinzana wines, had received advice from Vitthal Mallya, father of the UB Group chairman. The Mallya senior suggested to Mr Pawar to switch to growing Bangalore purple (a variety of grapes used as raw material for brandy and medicines) from table grapes.
Mr Pawar always had an inclination towards winemaking as evident from the Baramati Grape Industries deal with an Italian winemaker that resulted in the production of Bosca and Cinzana wines. Mr Pawar's love for wines and Vijay Mallya's business acumen as a spirit-maker came handy when the two decided to join hands to produce quality wines from Baramati.
The UB Group, in 2007, formed a 51:49 joint venture-Four Seasons Wines Ltd-with famers from Baramati led by the Pawar family. Under the agreement, the UB Group agreed to buy all the grapes produced by these farmers at a fixed price besides buying about 300 acres of land within that area.
In an interview, published at the Indian Wine Academy's site (http://www.indianwineacademy.com/) in August 2007, Abhay Kewadkar, chief winemaker and business head for wines at UB Group had said: "We are not concerned with who they bring in for the equity part, though our understanding is that many small growers will be the shareholders. The nine-member Board has five from our side-Mr Vijay Mallya, Mr Vijay Rekhi, Mr Sami Lalla, Murli-the CFO and me. Pratap Pawar, Ranjit Pawar (nephew of agriculture minister Sharad Pawar and son of the elder brother Appa Saheb, the man behind Baramati Grape), Sadanand Sule (who is the US educated son-in-law of Sharad Pawar) will be included in the Board from our partners' side."
Another media report clearly shows the Pawar family and a few farmers as partners in Four Seasons.
However, when contacted now, Mr Kewadkar said, "Some local farmers may hold shares in Four Seasons." He said that since he was in a meeting, he could not provide more details on the same.
United Spirits operates through two wine subsidiaries, United Vintners and Four Seasons Wines. United Vintners deals in imported wines, while Four Seasons produces Indian wines. United Spirits also directly owns Royal Challengers Sports and indirectly owns the Bangalore IPL team. Is there any direct connection between Royal Challengers Sports and its other sister concerns Four Seasons Wines and United Vintners? Well, we don't know as yet.