The Department of Financial Services is seeking a capital infusion of INR60bn ($826m) in the three to-be-listed state-owned non-life insurers to shore up their weak solvency position.
The Department made the request for the funds in a letter to the budget division of the Finance Ministry, reported Financial Chronicle citing highly placed sources. The Department wants the INR60bn to be provided for in the Budget for the fiscal year starting 1 April 2019 (FY2020) or as a supplementary demand for grant.
“We have written to the budget division recently for capital infusion of INR2,000 crore each in the three insurance entities that are to be merged. It will de-leverage their not-so-strong balance sheets and raise risk capacities. They need strong balance sheets prior or post merger, but before listing, their books should be strong on the regulatory capital side,” said a source.
The three public sector general insurers are Oriental Insurance, National Insurance and United India Insurance. They will be merged and listed as a mega entity. The minimum required solvency ratio is 1.5. United India has a solvency margin of 1.21 while National Insurance's ratio borders on 1.5.
The merger, announced in the FY2019 Budget in February, will be possible only in FY2020 since the process has just begun and it will require rationalisation of workforce, branches, procedures and software integration, sources said.