Money & Banking

Cabinet clears ₹12,450-cr recap of three PSU insurers

Our Bureau New Delhi | Updated on July 08, 2020 Published on July 08, 2020

I&B Minister Prakash Javadekar   -  -

Earlier plan to merge these firms has been dropped

The Union Cabinet on Wednesday approved capital infusion of ₹12,450 crore in three ailing state-owned general insurers — Oriental Insurance Company Ltd (OICL), National Insurance Company Limited (NICL) and United India Insurance Company Limited (UIICL) — to bolster their precariously low solvency ratios.

According to an official release, in the wake of the pandemic and critical financial position, the Centre has decided to drop its earlier plan to merge these three general insurers. Instead, it will now focus on their solvency and profitable growth, post capital infusion, it said.

“This ₹12,450 crore is a programme of recapitalisation of these three insurance companies so that they become more stable,” said Prakash Javadekar, Union Information and Broadcasting Minister after the Cabinet meeting.

The government had planned to merge these three general insurers and then list them on the bourses. In January, the boards of these companies had approved the merger. EY, which was appointed to prepare the roadmap for the merger, had recommended the merger process to be completed by December 2020 or within 18 months starting July.

The ₹12,450-crore infusion would come as a major relief for these financially stressed companies and would include the ₹2,500 crore that was infused in February. This ₹2,500 crore was provided through the first batch of supplementary demand for grants for 2019-20.

NICL capital hike

While ₹3,475 crore will be released immediately, the balance ₹6,475 crore will be infused later in one or more tranches. The Cabinet also approved to increase the authorised share capital of NICL to ₹7,500 crore and that of UICL and OICL to ₹5,000 crore each.

In Budget 2018-19, former Finance Minister late Arun Jaitley had announced that the three companies would be merged into a single insurance entity.

In the last few years, the government had been very liberal when it came to recapitalisation of public sector banks (infused ₹3.5-lakh crore in PSBs), but conservative when it came to providing capital support to general insurers. This approach seems to have changed with the Government now willing to infuse large doses of capital to help the ailing general insurers tide over their current difficult financial situation, aggravated by the lockdown.

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Published on July 08, 2020
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