The Hindu : IRDA to consult SEBI before allowing derivatives

Online edition of India's National Newspaper
Tuesday, Jan 07, 2003

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IRDA to consult SEBI before allowing derivatives

NEW DELHI JAN. 6. The Insurance Regulatory and Development Authority is consulting the market watchdog Securities and Exchange Board of India before allowing insurers to invest in derivative products while planning to introduce a system of risk-based capital assessment by 2004.

The IRDA Chairman, N. Rangachary, had a brief discussion with SECI chief, G. N. Bajpai, on derivatives here last week.

The IRDA intends to examine the SEBI report suggesting reduction in the minimum investment limit in derivatives such as futures and options to Rs. 1 lakh from the present Rs. 2 lakhs for enabling non-institutional investors to hedge risks.

"We will go through the SEBI report on derivatives and then take a decision on allowing insurance companies to invest in derivatives,'' Mr. Rangachary told PTI here.

The IRDA is apprehensive of allowing derivatives as another investment avenue for cash-rich insurers mainly on account of the interest rate risks prevailing in the last few years.

Interest rates fell across the board including that for small savings, the Reserve Bank of India's benchmark Bank Rate and government papers.

At present, only banks are allowed to take cover under two products — interest rate swaps and forward rate contracts.

The RBI is thinking of introduction of other derivatives such as Separate Trading in Interest and Principal of Securities (STRIPS) to enable banks to bridge asset liability mismatches.

Insurers, who also wanted to hedge the risks on interest rate, had approached the IRDA for allowing derivatives as one of the avenues of investment. — PTI

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