In an attempt to enhance the flow of insurance funds for infrastructure financing, the Insurance Regulatory & Development Authority (IRDA) has increased the exposure limit to a single infrastructure company to 20 per cent from the present ceiling of 10 per cent.
The limits would apply with immediate effect and would be combined for both debt and equity taken together, without sub-ceilings, according to a circular issued to insurers.
The 20 per cent limit can be enhanced by an additional 5 per cent with approval of the Board of Directors, the circular added. However, IRDA has introduced a caveat that such additional investments should be restricted to debt instruments.
In the case of debt, the duration of investment shall be not less than 10 years and should have a minimum rating of AA by a credit rating agency registered under SEBI. In the case of equity, dividend of not less than 4 per cent including bonus should have been declared in at least for the 5 preceding years.
Since infrastructure investment requires long-term funds of 10 to 20 years, the requirement matches with those of life insurance companies, which sell contracts with tenors ranging from 10 to 35 years. The move is expected to benefit Indian Railway Finance Corporation, National Thermal Power Corporation, NHPC, Power Finance Corporation among others.