New Delhi:
In a major decision,the union cabinet,chaired by the Prime Minister Narendra Modi,on Wednesday,has decided to shelve the two-year old merger plans among the three public sector general insurers- Oriental Insurance Company(OIC),United India Insurance(UII) and National Insurance Company(NIC)- and approved a fresh capital infusion of Rs 10,000 crore for the financially ailing companies,
“The process of merger,which has been hanging fire for the last two years,has been ceased so far in view of the current scenario and instead,the focus shall be on their profitable growth,'' said a note by the ministry of finance(MoF)..
The Cabinet also approved increase in authorised share capital of NIC to Rs.7,500 crore and that of UIIC and OlC to Rs 5,000 crore respectively to give effect to the capital infusion.
Immediately after the cabinet meet, on Wednesday, KS Dhatwalla, director general,Press Information Bureau,tweeted that cabinet has approved capital infusion of Rs12,450 crore for three PSU general insurers that includes Rs 2,500 crore already infused in these three companies in 2019-20, he tweeted.
Later,giving some details at a press meet,Information and Broadcasting Minister Prakash Javadekar said out of Rs 12,500 crore,Rs.3,475 crore will be released immediately;while the balance Rs,6475 crore will be infused later.
The capital infusion of Rs.3,475 crore will be allocated to three PSU general insurers as the first tranche in the current financial year and the. balance amount will be released in one or more tranches, said the MoF note..
The capital infusion will enable the three PSU general insurers to improve their financial and solvency position, meet the insurance needs of the economy, absorb changes and enhance the capacity to raise resources and improved risk management.The way forward for these companies will be to ensure optimum utilisation of the capital being provided and the Government has issued guidelines in the form of Key Performance Indicator (KPIs) aimed at bringing business efficiency and profitable growth, said the MoF note.
Analysts point out that the capital infusion will should happen fast to strenghthen the weak financials of these three companies which don't have the even the basic required solvency ratios of 150 per cent to do day-to-day business
“These companies are practically surviving on special supports provided by the GIC Re and regulatory forbearance allowed by the regulator IRDA and focussing on crop business where you don't need normal solvency ratio.''
In financial year 2018-19, the then finance minister Arun Jaitley had proposed a merger of the three public-sector general insurance companies and list the merged entity on domestic bourses.
After appointing Ernst & Young (E&Y) as a consultant to prepare the merger plans,In January of this calender year, the boards of three general insurers had approved the merger plans .
The Centre had already infused ₹2,500 crore into the three state-owned insurance companies via supplementary demands for grant earlier this year out of which National Insurance Company had receivd Rs 2400 crore and UII and OIC had got Rs 50 crore each.
But what really made the government to rethink on the two-year old merger plans of the three ailing PSU general insurer?
And if it was not sure of completing the merger plans why did it ask the board of all these companies to pass a resolution on merger in Januray 2020.
It was largely expected that finance minister Nirmala Sitharaman would announce the final merger while presenting 2020-21 Budget on Feb 1 and companies would have taken one more year which is by Apr1 2021, these companies would have got one balancesheet.
Did Swadeshi Jagran Manch letter to PM change the Government's mind
Just a day before the Budget-2020-21 to be presented in the Lok Sabha by Sithraman,Swadeshi Jagran Manch (SJM), an RSS(Rashtriya Swayamsewak Sangh)affiliate, had written to the Prime Minister Narendra Modi,seeking the review of the government’s decision to merge the public sector general insurance companies as it would do anything good to the sector and economy.
Among other issues, SJM in its letter, signed by Ashwani Mahajan is the National Co-Convener of Swadeshi Jagaran Manch, to PM has argued that the merger of public sector insurance companies was likely to endanger growth of insurance sector in the country in general and would hamper the successful implementation of socially important flagship insurance schemes like like Pradhan Mantri Fasal Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Aarogya Yojana,
Although these schemes were supposed to be implemented by both private and public sector insurance companies, unfortunately in reality these schemes are left majorly to be implemented by the Public Sector Insurance Companies (PSGICs) only as they are no money spinners for the private sector.
It is estimated that Pradhan Mantri Suraksha BimaYojana which is a Personal Accident Policy for unorganised worker, 90 per cent of the business is done by PSGICs at a loss ratio of 221 per cent whereas PSUs are mandated to offer these policies and private players are choosing not to service this huge loss making scheme, said SJM.
In case of Pradhan Mantri Fasal BimaYojana, more than 50 per cent of the drought prone area is being serviced by four PSGICs making combined losses worth 115 per centwhereas private players are servicing the better parts of country which have much lesser risk of loss at a loss ratio of less than 60% (which clearly means that hapless farmers are left in the lurch by these private players to keep their profits high).
Government sponsored health schemes (primarily RSBY/Ayushman Bharat) are being serviced generally by PSGICs at losses of more than 110% while private players are servicing these schemes selectively at losses of less than 90 per cent.
“If these public sector enterprises start turning away from socially desired insurance, similar to private sector companies, what will happen to the flagship insurance schemes started by government under your leadership and the public outcry resulting thereof?,’’ questioned SJM.
The total losses of Public Sector General Insurance Companies due to their obligation and presence in far flung areas for servicing this portfolio have resulted in huge losses.
“And then if the consultants give presentations in official circles claiming that public sector insurance companies are inefficient, as indicated by their losses, we at Swadeshi Jagaran Manch wish to challenge their claims about the same. We fear that conflict of interest of these consulting companies is also the reason for concealing the facts about PSUs and their losses, which are primarily because of servicing the social sector insurance schemes’’ observed SJM.
.