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Modi 2.0 may announce Rs 4,000 cr infusion into PSU insurance companies in Budget

The infusion is expected to improve the financial health of the companies and prepare them for the proposed merger, sources said
New Delhi: In the first full budget that will be presented by the Narendra Modi regime on July 5, the government is likely to announce capital infusion of Rs 4,000 crore in three public sector general insurance companies to shore up their capital. The infusion is expected to improve the financial health of the companies and prepare them for the proposed merger, sources said. Sources said that the Department of Financial Services will seek capital of Rs 4,000 crore in the Budget for fund infusion in three insurance companies — National Insurance Company, Oriental Insurance Company and United India Insurance Company. The amount that will go to each insurance company will depend on the capital that the Budget provides, they added.

The backdrop

The news comes as many general insurance companies struggle to remain profitable. State-run companies have been under pressure because of rising underwriting losses as opposed to higher claims. Two of the three public sector enterprises chosen for the merger are struggling to maintain the solvency ratio. As against the insurance regulator Insurance Regulatory and Development Authority's (IRDA) solvency ratio norm of 1.5, National Insurance has an insolvency ratio of 1.5, while United India's level is comparatively lower at 1.21. The government had first spelled out its plan to merge National Insurance Company, Oriental Insurance Company and United India Insurance Company when it presented Budget 2018-19.