Insurance regulator has advised insurers against loading up on the bonds of HDFC Group companies, saying details on permitted exposure thresholds must await the effective amalgamation date for what’s billed as the country’s biggest merger, reported The Economic Times.
Mortgage lender Housing Development Finance Corp (HDFC) in April proposed the merger with HDFC Bank. Following the announcement, insurers wrote to their regulator on the permitted exposure limits in the individual entities.
“Irdai shall be issuing necessary instructions on applicability of exposure norms only after the announcement of the effective date of the merger,” Irdai said in its note to the insurers.
Some investors were seen buying bonds of the HDFC Group, anticipating regulatory clearance that could open up additional limits on the holdings in individual companies. The regulator appears to have advised insurers against such a practice.
“Investment committees of insurance companies are hereby advised to take note of the above (the reference to the effective merger date) and take further exposure to the above entities considering the proposed amalgamation without pre-empting any regulatory relaxations for complying with extant regulations applicable to exposure norms,” Irdai said in the note bearing the subject line “Merger of HDFC Ltd and HDFC Bank Ltd – Reg. ”
A life insurer can invest in HDFC Ltd bonds under the combined category of “housing and infrastructure” that mandates an upper investment threshold of 15% of the assets under management. General insurers have additional headroom.
However, HDFC Bank falls under a different category. An insurance company has a cap of 30% when it comes to investing in the banking and financial services sector. Irdai recently increased the investment limit for insurance investment in the financial sector to 30% from 25%.
Some insurers have reportedly been buying bonds of HDFC Ltd on the assumption that the exposure to the mortgage lender may be counted under the higher sectoral limits applicable to BFSI after the home financier is merged with the bank.
Insurance companies with a larger share of HDFC Ltd bonds earlier held internal meetings for a possible realignment of portfolios.
The largest mortgage lender has sold bonds worth ₹1,74,356 crore, with the bank raising ₹37,452 crore.