Let Life Insurers Invest In Non-aaa Rated Bonds: Indian Ministry

The Indian industry ministry is in favour of allowing life insurance companies to invest in greater quantity in non-AAA rated debt instruments, a move that will encourage flow of funds for infrastructure projects.

Insurance regulator IRDA is at present mulling options to allow sector companies to invest more in non-AAA rated securities, including A+ and A papers of corporates.

The Industry Ministry is of the view that such a move would help companies mobilise funds.

"Besides generating more returns for bond holders, it will also widen the investment horizon for insurers and make more funds available to companies that don't have the highest rating, but are credit worthy," said a discussion paper on infrastructure financing released by the industry ministry.

Life insurance companies are now allowed to invest up to 50 per cent in government securities, 15 per cent in infrastructure bonds and 35 per cent in other investment grade corporate bonds and equities.

The current regulations allow insurance companies to invest only in highest rated 'AAA' or 'AA' credit-rated debt paper. Of this, a minimum of 75 per cent of debt instruments should have 'AAA' rating.

The Industry Ministry has also proposed including government securities as part of the 'AAA' rating -- which denotes highest credit worthiness.

The country's requirement for infrastructure financing has been pegged at US$1 trillion during the 12th Plan (2012-17), up from US$500 billion estimated in the current Plan. The government expects half of this investment to come from the private sector.

The public sector has been the major source for infrastructure investments till date, with the private sector playing an increasingly important role. Around 75 per cent of the investment was contributed by the public sector during 10th five year plan, which has decreased to around 63 per cent of the total investment in 11th five year plan.