INDIA'S IRDA EXAMINING REMOVAL OF CAP ON INFRASTRUCTURE BONDS

India's Insurance Regulatory and Development Authority (IRDA) on Wednesday said it is examining a proposal for removing cap on investment in infrastructure bonds of highly-rated companies by insurers, a move which would up fund flow in the crucial sector.

"We are examining the proposal ... There is a request to that extent which has come. We are analysing that," IRDA Chairman J Hari Narayan told reporters on the sidelines of a CII Health Insurance Summit.

The current regulations allow insurance companies to invest only in highest rated 'AAA' or 'AA' credit-rated debt paper. Also, at least 75 per cent of investment for every fund in debt instruments in the case of life insurers.

For general insurance companies, the investment assets of general insurers should have a 'AAA' rating.

"We do not see any need for changing the current rules. which provides for 15 per cent of the investment of the controlled debt fund has to be in infrastructure," he added.

Earlier this year, the Deepak Parekh committee on infrastructure financing had advocated that insurers be allowed to invest in secured debt with a 'BBB' rating, usually considered investment grade.

Hari Narayan, however, ruled out any relaxation saying, "allowing for investment below 'AA' grade may be risky."

Besides Life Insurance Corporation of India (LIC), IDFC and IFCI, infra bonds can be issued by an NBFC that gets classified as an infrastructure finance company by banking regulator RBI.

The Centre expects USD 500 billion investment in infrastructure in the 11th Plan period ending March 2012, and has doubled the target to over USD 1 trillion for the 12th Plan.

Analysts said with the current level of infrastructure facilities, it will not be possible to sustain high economic growth rate.

"The regulator's office will not stand as a roadblock in building roads. But at the same time we cannot be digging potholes in the roads of investors money," Hari Narayan said.