Insurers seek IRDA nod for 22 revised pension products

 

IRDA in November 2011 had asked all insurers selling pension products to disclose in the policy document maturity benefits for customers or else withdraw them from 1 January 2012. As per the guideline, policy documents must explicitly define assured benefit in case of death of the policyholder

New Delhi: Insurance companies have approached the Insurance Regulatory and Development Authority (IRDA) for review of 22 pension products fearing they may not be conforming to the regulator's guidelines pertaining to assured returns.

“Insurance companies had filed 22 revised products as on date out of which 21 products were filed only in the month of December 2011,” IRDA said.

IRDA in November 2011 had asked all insurers selling pension products to disclose in the policy document maturity benefits for customers or else withdraw them from 1 January 2012.

As per the guideline, policy documents must explicitly define assured benefit in case of death of the policyholder.

While filing the revised products, the insurers have also sought certain clarifications on the guidelines.

Clarifying the doubts in the event of the death of a policyholder, IRDA said “...during the term of the contract, the successor to the policyholder shall be entitled to receive a sum equal to the premium paid at the guaranteed rate of return”.

IRDA also said the insurer offering pension products shall guarantee either a non-zero rate of return on premiums paid or an absolute amount and it should be disclosed at the time of purchase of the policy.

There are 23 life insurance companies operating in India selling pension schemes.

 

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RBI for greater role of CAs in ensuring solvency of banks

 

RBI deputy governor KC Chakrabarty said that the review of banks by auditors transcend the ordinary to enable them to critically analyse the operations of banks they audit and recommend improvements to the internal control framework

Mumbai: Seeking to enhance role of auditors in ensuring solvency of banks, the Reserve Bank of India (RBI) wants chartered accountants to ask pointed questions concerning risk assessment and capital adequacy of lenders, reports PTI.

“Auditors will need to move beyond narrow transactions audit consideration to look at the larger picture. They will need to ask pointed and relevant questions (from banks)”, RBI deputy governor KC Chakrabarty said while addressing a conference of ICAI on banking sector audit in Chennai recently.

In view of the problems being faced by the banking sector the world over, he said, “it is important ...that the auditors ask probing questions about the adequacy of banks' provisions and capital...there remains scope for more rigorous attention to the issues of adequacy of capital and provisions by auditors”.

The annual financial inspection of banks by the RBI reveals auditing ‘gaps’ which are needed to be bridged, he said. “The auditors need to concentrate on the audit of head office of banks as against audit of branches given the emergence of core banking, centralised record keeping and even centralised risk management”.

Mr Chakrabarty said the auditors should ask questions like “Do decisions in the bank take adequate cognisance of risk considerations? Do banks adequately understand the risk reward characteristics of product/market/business they are entering into?” 

The review of banks by auditors, he said, should transcend the ordinary to enable them to critically analyse the operations of banks they audit and recommend improvements to the internal control framework.

 

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Breach of fiscal deficit target will have implications: RBI

 

RBI deputy governor HR Khan said while shrinking value of money on account of high price rise called for a tight monetary policy, there is also a need to maintain a balance between controlling inflation and boosting growth

Mumbai: The fiscal deficit target of 4.6% of the gross domestic product (GDP) in 2011-12 could be missed and this will have serious implications on inflation, reports PTI quoting the Reserve Bank of India (RBI).

“In 2011-12, developments so far indicate that the fiscal deficit target of 4.6% of GDP could be breached which will have implications for domestic inflation.

“The moderation in private demand resulting from anti-inflationary monetary policy stance of the RBI will be partly offset by the expansion in public sector demand in terms of the size of the fiscal deficit,” RBI deputy governor HR Khan said.

Speaking at the 10th National Management Seminar in Bhubaneswar recently, Mr Khan said while shrinking value of money on account of high price rise called for a tight monetary policy, there is also a need to maintain a balance between controlling inflation and boosting growth.

The government has already admitted that adhering to the 4.6% fiscal deficit target would be a challenge on account of lower than expected revenue mop-up and the global financial crisis.

“Shrinking value of money because of persistent high inflation explains the importance of anti-inflationary monetary policy,” the RBI deputy governor said.

Mr Khan said for a country like India with a large percentage of population still living below the poverty line, inflation works as a regressive tax.

“Economic welfare of the population at large could be enhanced primarily through higher growth, that too in a low and stable inflation environment. That suggests why balancing growth and inflation becomes so important to monetary policy,” he said.

Mr Khan said inflation within the threshold level would not mean erosion in purchasing power since higher growth would also raise the income levels, resulting in increased net purchasing power.

“Unless the benefits of growth get equitably distributed, this net increase in purchasing power may not happen to all.

At the aggregate level, some inflation that coexists with high growth could be welfare maximising.

“At high inflation, particularly above threshold level, growth may, however, moderate, and both high inflation and low growth could erode welfare,” he said.

According to Mr Khan, while the global commodity price index has gone up by more than 85% between February 2009 and October 2011, Indian’s Wholesale Price Index (WPI) during that period has risen by about 27.6%.

“That certainly has led to shrinking value of money. Some of the supply side pressures on the value of money however require better capacity to augment the supply situation.

“Moreover, wages in rural areas and staff remunerations in the corporate sector have grown at rates higher than the inflation experienced in the recent past. The erosion in purchasing power, therefore, is much less than what may appear only from the inflation numbers,” he said.

Mr Khan said recent evidence of growth moderation could be expected to dampen demand side pressures on inflation. He said that in the absence of major supply side risks from global commodity markets, inflation should moderate to about 7% by March 2012.

The RBI raised key policy rates 13 times between March 2010 and November 2011 to curb inflation, before putting a pause to its monetary tightening stance at the mid-quarterly policy review last month.

Inflation has been near double-digit since December 2010.

However, food inflation entered negative zone in late last month and experts say that this will help pull down headline inflation to around 7% by the financial year-end.

India Inc has blamed the high interest rates, which have led to an increase in the cost of fresh borrowings, for hindering fresh investments and leading to industrial slowdown.

Economic growth during the second quarter (July- September) of the current fiscal slipped to 6.9%, lowest in over two years. Industrial production entered negative zone and contracted by 5.1% in October.

Regarding high food prices, which prevailed for most of 2010 and 2011, Mr Khan said a number of factors were responsible for it.

This included demand-supply mismatch, increase in rural wages which led to growth in demand, increase in minimum support prices of some crops, high international prices and problems with the supply chain.

“High inflation is a risk to financial savings, since it can reduce the value of savings accumulated over the years.

Making financial instruments available in the system that could provide an effective hedge against inflation assumes importance in this context,” he said.

Mr Khan added that the RBI, in consultation with the government, is exploring the possibility of issuing inflation indexed bonds (IIBs).

 

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