Cabinet approves capital infusion of Rs 12,450 crore in 3 state-run insurance companies&
New Delhi: The Union Cabinet on Wednesday approved capital infusion of Rs 12,450 crore for three public sector general insurance companies namely Oriental Insurance Company Ltd, National Insurance Company Ltd & United India Insurance Company Ltd (including Rs 25,00 crore infused in FY 2019-20). Union Minister Prakash Javdekar announced the Cabinet decision in a press conference after the meeting.
Out of the total infusion, Rs3,475 crore will be released immediately; while the balance Rs 6475 crore will be infused later. Cabinet also approved an increase in the authorised share capital of NICL to Rs 7,500 crore and that of UIICL and OlCL to Rs 5,000 crore respectively to give effect to the capital infusion. The government is reportedly also planning a merger and listing of these companies. However, the process of merger has been ceased so far in view of the current scenario and instead, the focus shall be on their profitable growth.
The capital infusion of Rs 3,475 Crore will be allocated to three PSGICs viz. OlCL, NICL and UIICL as the first tranche in the current financial year and the balance amount will be released in one or more tranches. To give effect to the infusion, the authorised capital of NICLwill be increased to Rs 7,500 Crore and that of UIICL and OlCL to Rs 5,000 Crore respectively.
The capital infusion is expected to enable the three PSGICs 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. In the current financial year, the immediate financial implication would be Rs 3,475 crore as a result of capital infusion in three PSGICs namely OlCL, NICL and UIICL as the first tranche which will be followed by Rs 6,475 Crore.
It is worth mentioning that in the financial year 2019, three state-run insurance companies dragged down the non-life industry into a Rs 44 crore loss. Insurance companies National Oriental Insurance and United India together reported losses of Rs 4,200 crore which was more than the collective profits of the remaining 23 companies. The PSU insurers’ performance in fiscal 2019 was in sharp contrast to their FY18 financials.
Including the listed New India Assurance, the four PSU insurers together reported a combined net profit of Rs 2,543 crore in FY19. However, taken with the private industry’s profits of Rs 3,922 crore, this translated into a Rs 6,341-crore profit for the industry in that year. Despite New India turning a Rs 645 crore profit, the four PSU insurers in FY19 together reported a loss of Rs 3,628 crore.
