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Insurers asked to make provisions for IL&FS, Reliance Capital defaults

Last month, the Reserve Bank of India had asked banks to disclose their exposure to IL&FS and its group entities as the NCLAT verdict was pending

twitter-logo PTI        Last Updated: May 3, 2019  | 21:37 IST
Insurers asked to make provisions for IL&FS, Reliance Capital defaults

Like banks, insurance companies will also have to make full provisions for their defaulting exposure to cash-strapped IL&FS group and the two Reliance Capital arms which were downgraded recently, the insurance regulator Irdai said Friday.

The regulator said the insurers with exposure to Anil Ambani-run Reliance Capital's subsidiaries--Reliance Home Finance and Reliance Commercial Finance--will have to make provisions for debt of these companies which were downgraded by Care Ratings last month.

Thursday, the National Company Law Appellate Tribunal (NCLAT) had allowed banks to declare their defaulting accounts of IL&FS (Infrastructure Leasing & Financial Services) and its group companies as NPAs.

It can be noted that last month, the Reserve Bank had asked banks to disclose their exposure to IL&FS and its group entities as the NCLAT verdict was pending.

ALSO READ:Govt may ban Deloitte over allegations of fraud in IL&FS audit

"Yes, insurance companies will have to make full provisions for the defaulting accounts of IL&FS," Irdai chairman SC Khuntia told reporters on the sidelines of an event meet organised by the industry lobby Ficci.

Some insurers have already made adequate provisions for all non-standard accounts of IL&FS, he added.

Khuntia flagged concerns on corporate governance at insurance companies and asked them to look into such issues to ensure fairness and transparency.

"I have asked insurers to be careful about related party transactions. It has to be at arm's length," he said.

"We have seen what kind of turmoil has happened in the NBFC sector but I am confident that insurance industry will not have that kind of a problem. In fact, insurers are meant to provide stability in times of economic turmoil," he added.

ALSO READ:IL&FS case: NCLT issues contempt notices to Ramesh Bawa, Axis Bank, StanC CEOs

On the downgrade of Reliance Home Finance and Reliance Commercial Finance by Care Ratings last month, Khuntia said "those insurers with exposure to debt instruments of these companies will have to make provisions.

"Earlier IL&FS was downgraded and now two more companies have been downgraded. Insurers with exposure to the debt instrument of these two firms will have to give a similar treatment as they treat their IL&FS accounts," he said.

Care downgraded long term debt program of Reliance Home Finance from BBB+ to D and that Reliance Commercial Finance to C from BBB+.

Khuntia also asked insurers to focus more on growth and not on market share. "If your growth is high then you don't have to bother about market share. All of us should put our heads together so that the market grows."

ALSO READ:How Anil Ambani will weather another debt crisis; will brother Mukesh help again?

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