In a bid to direct long term savings in infrastructure sector, Insurance Regulatory Development Authority (IRDA) amended investment regulations recently.

As per amendments, life insurance companies are mandated to invest at least 25% of their assets in central Government securities. Furthermore, minimum exposure to securities issued by central Government, state Governments and other approved securities is prescribed to be 50% when clubbed together. The amendments to regulation now require insurance companies to invest at least 15% of their assets in housing and infrastructure by way of subscription or purchase bonds, debentures or asset back securities. The credit rating of instrument issued by housing finance companies shall not be less than "AA".

For pension funds, annuity and group business portfolios of insurance companies, amendments in investment regulations now bind insurers to hold not less than 40% of their assets in Government securities and exposure to approved instruments shall not exceed 60%.

It is noteworthy that the reworked norms now require insurers, at all the times, to stay invested as per the mandate.

In our view, the amendments in investment regulation aim to address the difficulties faced by housing and insurance companies in securing long term funding. As noted by planning commission investment in infrastructure has not been keeping pace with the growth in Asset under Management (AUM) of insurance companies. This is construed as loss of opportunity to tap long term funding. We believe that, in absence of a dedicated channel, housing and infrastructure companies depend on banks for raising financial resources. This doesn’t only put strain on balance sheets of banks (as banks often face asset liability mismatch) but also makes it difficult even for infrastructure companies to borrow owing to stringent lending policies.

Development of infrastructure is critical for overall growth of Indian economy. Infrastructure requires raising huge capital. Thriving insurance sector is a dependable source of channelising long term savings into housing and infrastructure. We are of the view that these initiatives taken by IRDA are in sync with recommendations of planning commission which pondered on the issue of funding constraints faced by housing and infrastructure companies.

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