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Bangalore , Sept. 17

THE Supreme Court (SC) judgment on Tuesday on the divestment of Government equity in the oil PSUS is likely to impact the proposed equity dilution of the four private sector general insurance companies in the country.

The SC, in its observations, had sought a reference to Parliament on the issue of divestment of BPCL and HPCL.

Similarly, the four general insurance companies were also created by statute - General Insurance Business (nationalisation) Act of 1972 - which had nationalised the entire insurance business in the country.

Accordingly, any dilution of stake in United India Insurance Company Ltd, New India Assurance Company Ltd, National Insurance Company Ltd and Oriental Insurance Company Ltd would have to be cleared by Parliament sanction, sources said.

The Government has been weighing the possibilities of diluting its stake in the four companies. It had assumed stake in these companies from General Insurance Corporation of India (GIC) in June this year.

This was because under current guidelines of the Insurance Regulatory and Development Authority (IRDA), reinsurers are not expected to hold stake in the primary general insurance companies in the country.

As a preliminary step for dilution in the equity, the four companies are expected to kick off their second round of the voluntary retirement schemes.

One round has already been completed for development officers. The second round, likely to include officers and subordinate staff, is expected to begin before the end of this year since it has already been approved by the Government.

The financial implication of the scheme is estimated to be in the region of about Rs 1,000 crore.

Besides, the sources said, since last year, all the four companies have been asked to make large provisions on unexpired liabilities and work out the profits only after netting such provisions.

These moves are intended to clean up the balance sheets so that the pricing at the time of dilution would also be attractive.

Among the options being considered is permitting cross-holding of equity by public sector banks in the insurance companies to ensure that their public sector character remains.

Such an equity structure would also give the Government sufficient flexibility to control the sector, the sources added.

But even to make these changes, the statutes would have to be amended.

Consequently, any equity dilution either through divestment or through fresh issues is expected to be pushed into the next fiscal, the sources added.

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