Following the recapitalisation of public sector banks (PSBs), now public sector insurance companies -- National Insurance, Oriental Insurance and United India Insurance -- are going to be infused with funds worth Rs 12,000 crore to boost their capital base and meet regulatory norms, sources said.
The Budget had provisioned Rs 70,000 crore for PSB recapitalisation and last week a Rs 55,250-crore infusion was announced in several PSBs for regulatory and growth requirements.
The nodal Department of Financial Services has approved the Rs 12,000 crore capital infusion plan in the three state-run general insurance companies as their financial conditions are very weak.
Last year's Budget announced plans to merge these three insurance companies, and thereafter list the combined entity.
The process of merger could not be completed due to various reasons, including the companies' poor financial health. For listing, a 1.5 solvency ratio is needed which at present is not the case with two of these companies.
These two units are struggling to maintain their solvency ratio, which is a key financial metric used to measure a company's ability to meet its debt obligations.
As against the Insurance Regulatory and Development Authority's (IRDA) solvency ratio norm of 1.5, National Insurance has a solvency ratio of 1.5, while United India's level is comparatively lower at 1.21.
The consolidation in the public sector general insurance companies is part of the disinvestment strategy of the government. The Centre had appointed EY as a consultant to see through the completion of the merger process.
Sources said the government would have to infuse Rs 12,000-13,000 crore in these three companies to improve their solvency ratio and prepare them for the merger.
Sources said that these three insurance companies will be merged after the capital infusion, and post the merger, the entity will be the largest insurance company in the country.
In 2017, New India Assurance Company and General Insurance Corporation of India were listed on the bourses and the exchequer earned money from the stake sale.
The government has fixed a disinvestment target of Rs 1.05 lakh crore for the current fiscal.