MUMBAI: The Insurance Regulatory and Development Authority has taken a U-turn in its stance on single premium life policies by deciding to allow companies to sell such policies after threatening to halt them, citing high risk.
Life insurers have been lobbying that these products are not as risky as the regulator assumed them to be and made business sense since the category constituted more than 45% of the total annual premium income.
“We will not withdraw single-premium products,” said an executive at the regulator who did not want to be identified.
“There is certainly a market for single premium products. There are people who prefer investing at once which may be the bonus one gets and not bother about renewals every year.”
The regulator and the industry have been debating about the merits of single-premium policies. The regulator believes that companies expose themselves to claims when such policies don’t lead to recurrent incomes. But the industry maintains that these are not disproportionate to the overall business and there is a big market for them which is vital for the profitability of these companies.
Single-pay products are insurance policies where a policyholder needs to pay premium only once while he or she is covered for the term of the policy.
In 2011-12, the total single premium, including group and individual, dropped by over 10,000 crore, as companies started shifting their focus to regular premium products hoping for better valuations. The share of single premium in the overall income of the life insurance industry declined to 45%, or 51,625 crore, from 49% or 62,230 crore in 2010-11. Income from sale of new policies fell 9.21% to 1,14232 crore from 1,25,826 crore. Life Insurance Corporation of India has the highest share of single premium products constituting 45-50% of its new business income.
The product has caught the fancy of the industry over the past couple of years after the sale of unit-linked insurance plans plunged due to regulatory tightening.
“This is an option customers have. It is the employment market that has created this market,” said an executive at the largest insurer, LIC. The regulator also believed that it was not good for the long-term health of the industry since single premium products do not inculcate disciplined savings habit. Also, insurers are unable to maintain customer persistency, an indicator of customer satisfaction.
“Single premium products are not a loss-making proposition,” said MN Rao MD and CEO SBI Life.
“It is catering to specific segment of investors. But too heavy exposure may not be conducive for companies and may lead to lower valuation and profitability. Normally a company would have a balance between regular and single premiums, ” Rao said. But the sales of such policies may take a hit due to the proposed increase in sum assured from five times to 10 times the premium for tax deduction.
GOVERNMENT TO EASE INDIA INC’S FCCB WOES
MUMBAI: The government and Reserve Bank of Indiaare working on changing rules to give corporates more leeway in repaying foreign currency convertible bonds (FCCBs) that have turned into millstones in a dismal market. With stocks of many companies trading well below the conversion price, the authorities are revisiting the rules in an environment where more foreign capital outflow could further pull down the rupee and a spate of defaults could lead to derating of Indian companies in overseas markets. If the proposal now being considered is finally approved, Indian companies will be allowed to renegotiate the terms of repayment of these bonds, including resetting the price at which these instruments can be converted into shares at a future date, said a person with knowledge of the matter. (For details log on to : http://economictimes.indiatimes.com/markets/bonds/govt-rbi-working-on-changing-rules-to-give-india-inc-more-leeway-in-repaying-fccbs/articleshow/12956502.cms)
EPFO LAUNCHES ONLINE E-CHALLAN FACILITY FOR FILING CONTRIBUTIONS
NEW DELHI: In a move that will bring much reprieve to employers in depositing monthly Employees’ Provident Fund or EPF contributions of their workers, the government on Tuesday launched an online facility that promises to bring transparency and accessibility. “The hassles of preparing various monthly and annual paper returns and visiting the EPFO offices for submitting them will become a thing of the past,” Union minister of labour and employment Mallikarjun Kharge said while inaugurating the E-Challan and Receipt (ECR) facility. Employees will soon be able to check their accounts for update under the initiative, Kharge added. As was reported by The Indian Express earlier, employers under the ECR service would have to register their organisations online and generate challans for making monthly deposits. (For details log on to : http://www.indianexpress.com/news/epfo-launches-online-echallan-facility-for-filing-contributions/944219/)
BANKS NEED TO RAISE $20-30 BILLION IN NEXT 5 YEARS FOR BASEL LII
MUMBAI: Banks will need to raise $ 20 to 30 bn over the next five years to meet the new capital accord norm- BasellII, according to analyst reports. Macquarie Equities Research on its report on Indian banks said, “We expect a deluge of equity capital raising over the next 5 years on account of Basel III” The Basel III accord requires banks to have higher share of core capital – which is equity and reserves. It also suggest phasing our ineligible capital such has subordinate debts. RBI in draft guideline has proposed that banks would be required to have raise its tier I capital of 9.5% by 2017. According to a Prabhudas Liladhar report the tier I capital of Indian banks now stands at 6%. “Migration to Basel III guideline is likely to push up capital needs by another US$20-30 bn, as it would increase the core equity requirement from 4.5% now to 8% which would including the capital conservation buffer) by fiscal year 2017,” according to Credit Suisse report. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-need-to-raise-20-30-billion-in-next-5-years-for-basel-lii/articleshow/12951671.cms)
PUNJAB & SIND BANK CUTS LENDING RATE BY 0.25 PER CENT
NEW DELHI: State-owned Punjab & Sind Bank (PSB) today slashed lending rate by 0.25 per cent, in line with other lenders. The bank has revised its base rate by 0.25 per cent to 10.50 per cent from from 10.75 per cent per annum, PSB said in a BSE filing. Base rate is the benchmark rate below which a bank cannot lend. With the reduction in the base rate, all kinds of loans would be cheaper by at least 0.25 per cent. The new rate would be effective from May 1. Last week, PSB had trimmed fixed deposit rates across various maturities in line with the market trend. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/punjab-sind-bank-cuts-lending-rate-by-0-25-per-cent/articleshow/12952785.cms)
UNION BANK OF INDIA’S DEBABRATA SARKAR: A MAN OF MANY TALENTS WITH AN EAR TO THE GROUND
The place Jhumri Telaiya conjures up memories of request for old Hindi songs on All India Radio’s Vividh Bharati channel. But for Debabrata Sarkar, the new CMD of Union Bank of India, rather than the association of this district in Jharkhand with music aficionados, it was the training ground that honed his banking skills. Sarkar was placed at Jhumri Telaiya as a part of his mandatory rural posting when he started his career with Bank of Baroda as a scale II officer in 1982. Known as a jovial banker with a strong Bengali accent, he rose to the rank of a general manager at BoB. From there, he joined Allahabad Bank where he was promoted as executive director in December 2009, before joining Union Bank of Indiaas its chief. But unlike most bankers, Sarkar pursued other professions prior to his foray into banking. He taught commerce at BarasatCollegein Kolkata for four years. After his teaching stint, he was a practicing chartered accountant. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/union-bank-of-indias-debabrata-sarkar-a-man-of-many-talents-with-an-ear-to-the-ground/articleshow/12958388.cms)
FEE INCOME DRIVES EARNINGS AT PRIVATE BANKS
MUMBAI: At a time when dwindling demand for bank credit has capped the growth in interest income from advances, earnings from fees and commissions aided private sector lenders in improving their profitability in the fourth quarter of the last financial year. HDFC Bank, the second largest in the private sector, reported 30 per cent year-on-year growth in its net profit in the January-March quarter. The year-on-year growth in the lender’s fee income outpaced its net interest income expansion during this period. While the bank’s fee income grew 24 per cent, its net interest income was up 19 per cent. “The growth in our fee income has been fairly broad-based. The growth has come from transaction banking, cash management, trade and merchant banking operations,” said Paresh Sukthankar, executive director and chief financial officer. (For details log on to : http://www.business-standard.com/india/news/fee-income-drives-earnings-at-private-banks/473127/)
IRDA LAUNCHES INFORMATION PORTAL
HYDERABAD: The Insurance Regulatory and Development Authority has launched a Web site to educate general public and policyholders. “The Web site is an attempt to reach out to all to give certain basic generic information on the subjects so that consumers begin to think and seek answers to questions such as what they need to buy,” Mr J. Hari Narayan, Chairman, IRDA, said in a circular. The portal — www.policyholder.gov.in — is live now and feedback and suggestions on the initiative can be sent to the regulator. The creation of the Web site is part of a series of initiatives under the ‘Bima Bemisaal’ that hopes to create greater awareness about insurance. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3374886.ece)
LIC EXECUTIVE DIRECTOR JOINS IRDA AS MEMBER
HYDERABAD: Mr Sudhin Roy Chowdhury joined Insurance Regulatory and Development Authority as a whole-time Member, Life Insurance. Prior to the present assignment, Mr Chowdhury was executive director (marketing), Life Insurance Corporation of India. He joined LIC as a direct recruit officer in 1977 and had served both in Indiaand abroad in various capacities, IRDA said in a release on Tuesday. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3374885.ece)
INSURERS TO GIVE $50-M COVER FOR IRAN OIL BUY
NEW DELHI: Indian government-run insurance companies have agreed to give limited cover to local ships for carrying Iranian oil, helping the energy-hungry country import reduced volumes from sanctions-hit Tehran from July, a Shipping Corp of India director said on Tuesday. “We have in writing from General Insurance Corp that it and four other insurers will provide a cover of $50 million to Indian flag carriers per Iranian voyage,” Sunil Thapar of Shipping Corp of India, the country’s largest shipping firm with a fleet of 29 crude carriers, told Reuters. Tough new European Union sanctions aimed at stopping Iran’s oil trade also ban EU insurers and re-insurers from indemnifying ships carrying Iranian crude from July. China, another key oil client of Iran, is considering sovereign guarantees for its ships to continue importing oil. The amount of protection and indemnity (P&I) cover on offer from Indian firms is just a fraction of any liability that may arise needing third-party P&I cover, but still higher than Japan’s offer of just $8 million cover. Thapar said with the new insurance facility the Indian fleet should be able to meet demand from the oil industry. Indiahas reduced Iranian oil imports by about a quarter in 2012/13 (April-March). Iran, OPEC’s second-largest producer, exports most of its 2.2 million barrels of oil per day to top Asian buyers China, India, Japanand South Korea. (For details log on to : http://www.financialexpress.com/news/insurers-to-give-50m-cover-for-iran-oil-buy/944221/)
COMPANIES ASK GOVT TO RELAX 25% PUBLIC SHAREHOLDING DEADLINE
NEW DELHI: With the Securities and Exchange Board of India (Sebi) talking tough on enforcing the 25 per cent shareholding deadline, companies facing the heat have started turning to the finance ministry for an extension. Senior finance ministry officials confirmed the development but strongly declined the possibility of extension in the deadline at this juncture. “The decision is a carefully thought out one and it will improve participation in the market. We have told this to the companies which have approached us for relaxing the deadline,” said a senior ministry official. The companies know the government could relax the deadline. Hence, they are approaching the ministry, said another official. “The government fixed the deadline in consultation with Sebi under the Securities Contract Regulation Act (SCRA) provisions and, technically, it can relax the same,” he added. (For details log on to : http://www.business-standard.com/india/news/companies-ask-govt-to-relax-25-public-shareholding-deadline/473124/)
PEs NO LONGER BETTING ON LEGALLY DOCUMENTED PREFERRED RETURNS
MUMBAI: Private equity (PE) funds are no longer relying on legally documented ‘preferred returns’ agreed between them and the companies they invest in, as exits through public offers in stock markets or a strategic sale turn tough in a slowing economy and companies are unable to scale up to deliver returns. “You cannot hang your hat on the legal document now,” Dhanpal Jhaveri, partner and chief executive, PE Everstone Capital, which manages $1.5 billion with 110 executives, said at a conference organised by LegalEra, a legal magazine. “We do not want to bet on legal documents.” A legal document assures PEs of a guaranteed return by the company either by a public offer in the stock market, a strategic sale or sale to other PEs. But, in a falling stock market, companies unable to grow at the promised rate in a slowing economy and a mismatch in valuation are blocking exits. “A guaranteed exit is not possible now,” says Bharat Bhakhshi, partner, Jacob Balllas Capital India. “Downside protection is a continuous challenge for outside investors,” says Pranay Bhatia, associate partner at law firm Economic Laws Practice Advocates and Solicitors. (For details log on to : http://www.financialexpress.com/news/pes-no-longer-betting-on-legally-documented-preferred-returns/944234/)
UTI MF WANTS TO SACK CMO JAIDEEP BHATTACHARYA TO REVIVE DIPPING FORTUNES
NEW DELHI: The UTI Mutual Fund board, which could not select a full-time chairman and managing director in the last 15 months, is now forcing upon itself another top-level vacancy. The board, it’s learnt, has now sought the resignation of the fund’s chief marketing officer (CMO), Jaideep Bhattacharya. It feels that Bhattacharya should resign to enable the fund house revive its dipping fortunes. Chaired by independent director PR Khanna, the board discussed the matter last Thursday. But sources who have a whiff of the development feel Bhattacharya is being made a scapegoat. The assets under management (AUM) of the country’s oldest mutual fund have shrunk as much as 10% between January 2011 and March 2012 during when the combined mutual fund industry lost just 1.6% assets. UTI MF’s assets under management stood at Rs 58,922 crore as on March 31, 2012. (For details log on to : http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/uti-mf-wants-to-sack-cmo-jaideep-bhattacharya-to-revive-dipping-fortunes/articleshow/12956592.cms)
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