The buyback route will allow the government, which has not been able to reach anywhere near the disinvestment target of Rs40,000 crore in 2011-12, to raise funds by selling its stake in the PSU to the same undertaking
New Delhi: Hard pressed for funds, the government today approved the proposal for expediting disinvestment through the buyback route under which blue-chip state-owned companies will buy its own stake, reports PTI.
The decision to allow public sector undertakings (PSUs) to buyback shares was taken by the Cabinet headed by prime minister Manmohan Singh, sources said.
The proposal will allow the government, which has not been able to reach anywhere near the disinvestment target of Rs40,000 crore in 2011-12, to raise funds by selling its stake in the PSU to the same undertaking.
The government till date it has been able to raise only Rs1,145 crore from Power Finance Corporation (PFC). Its sale of stake in ONGC through the auction route may fetch another Rs12,000-Rs13,000 crore.
Market regulator Securities and Exchange Board of India (SEBI) had earlier relaxed norms for buyback of shares and dilution of equity by companies.
The new norms would help the companies to complete the process of selling shares within days against the normal process which can take months.
Besides reducing the timeline for completion of buyback of shares by companies to 34-44 days, SEBI had also introduced a new mechanism called Institutional Placement Programme (IPP) that would allow promoters to sell up to 10% of their capital through an auction.
When asked about the decision, finance minister Pranab Mukherjee said, “I can’t say anything about the Cabinet decision which has been taken. There is due procedure and it will be announced in due course.”
In order to fast track the disinvestment programme, the Department of Disinvestment (DoD) had already sought opinion of the ministries concerned for buyback of shares and has prepared a list of cash-rich PSUs.
Several ministries like oil, power, steel, coal and mines, however, are believed to have opposed the proposal saying it could impact the expansion plans of the PSUs.
Funds raised through the buyback of shares would to some extent help the government in bridging the fiscal deficit which during the first 10 months has exceeded the annual target.
According to Govinda Rao, a member of the Prime Minister’s Economic Advisory Council (PMEAC), the fiscal deficit could exceed the budget target of 4.6% of the gross domestic product (GDP) by one percentage point.
Since the beginning of the disinvestment programme, the government has divested stake in PSUs either through initial public offers (IPOs) or follow-on public offers (FPOs).
Dr Damien Marmion, the chief executive officer of Max Bupa Health Insurance, says that Jan-Feb-Mar is great for business due to tax savings angle. He is positive on IRDA draft guidelines on bancassurance
ML: How is business in this quarter? The DTC (Direct Tax Code) may reduce the tax-savings incentive which currently allows deduction up to Rs15,000 and additional Rs15,000 for buying mediclaim for parents (Rs20,000 for senior citizens).
DM: We have seen good increase in business in January and February. We certainly hope these deductions continue to help in health insurance penetration.
ML: IRDA’s (Insurance Regulatory and Development Authority) draft guidelines on bancassurance will help standalone insurers like you.
DM: The draft guidelines are certainly positive for us. Banks in India are trusted by customers and have wide infrastructure. We have limited infrastructure and hence tying with banks will help us. It is currently difficult to tie as banks prefer general insurance companies which have a range of products like health, motor, home, etc. The draft guidelines will help standalone insurers like us as the bank can tie up with one general and one standalone insurer.
ML: Is it difficult to negotiate with hospitals on procedure rates?
DM: Hospitals do have lot of expenses and manpower turnover. Qualified nurses end up going abroad. There is huge cost for infrastructure. Many hospitals get good business from uninsured people who pay them cash. If they get 90% cash, it is difficult to dictate terms for procedure rates until our business with the hospital grows. We offer cashless at 1,100 hospitals and want to grow to 1,400 hospitals this year. Half of these hospitals have been quality inspected by us. We have cashless in 50 Mumbai hospitals, including the high-end ones.
ML: How is the response to your health movement—‘Health Promise’ (www.yourhealthfirst.in)? Are you able to convert it to business opportunity?
DM: The response has been good with over 1 lakh visitors. They could get health-related feedback and ask queries. It has helped with leads to garner business.
ML: How is your group business and claims experience?
DM: Our focus is on retail business. Group is less than 30% of our business, which has more claims than retail as expected.
ML: IRDA has a long delay for product clearance, especially for health products. How long did it take for your new product (high deductible top-up) to get approval?
DM: It took us four months for approval. It depends on the kind of filing. We give detailed information at the time of filing so that there are minimum queries. IRDA has the responsibility of customer protection and growth of the industry. They have to balance these tasks.
ML: What are different modes of selling?
DM: Young customers prefer online or phone sales; utilisation of digital and mobile medium is our priority. The customers who do offline transactions work with corporate team for high transaction sales. We also have 8,000 agents in 227 towns. We are selective about the agents we choose and give training for 23 days. We have sold policies to customers in 400 towns. We do not want to grow aggressively in the number of branches; which is currently 11 in number.
ML: What is the response to health insurance portability?
DM: We have over 3,000 applications for those porting to Max Bupa and about 100-150 applications for going out. As such we don’t have restriction on entry age, which helps for those wanting to come to Max Bupa.
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