The Insurance Regulatory and Development Authority of India (Irdai) has issued a clarification on the status of bonds and/or debentures owned by insurance companies in the now-defunct HDFC under the ‘housing and infrastructure’ category.
It said these instruments owned by insurers as on April 4, 2022, when the merger of HDFC with HDFC Bank was announced, will continue to be considered as investments in the same category till their maturity.
“It is hereby clarified that the bonds and/or debentures held by the insurers in HDFC on the date of announcement of the merger i.e., April 4, 2022, under the category ‘Housing and Infrastructure’ shall be treated as investments in the said category till the maturity of the respective bonds of HDFC,” Irdai said in a circular.
Prior to the merger, HDFC held the position of the largest issuer in the bond market, raising approximately Rs 64,000 crore each in FY22 and FY23. This amount accounted for 10 per cent of the total funds raised through electronic bidding platforms (EBP).
Irdai has granted an exemption to insurers from adhering to the single investee equity exposure norms, as per Irdai regulations, for individual segregated funds at the specified fund identification number (SFIN) level concerning shares of HDFC Bank (after the merger) until June 30, 2024. This exemption applies only to the holdings of the respective insurers as of June 30, 2023. However, any shares sold after that date will result in a proportional scaling down of the exemption.
“The said exemption shall only be with respect to holdings of the respective insurers as on June 30, 2023, and the same shall be scaled down to the extent of sale of shares thereafter,” the circular added.
Prior to HDFC Bank’s merger with its parent company, insurers had sought clarification from Irdai regarding the classification of their investments in HDFC bonds under the ‘housing and infrastructure sector’.
Additionally, they had requested an exemption from the single investee equity exposure limits applicable to segregated funds of unit-linked insurance plans (Ulips) concerning investments in HDFC Bank’s equity shares (post-merger).
On July 1, 2023, HDFC Bank completed its merger with its parent company, Housing Development Finance Corporation, the country’s biggest mortgage lender. The merger happened following shareholder and regulatory approvals.
Following the merger, bondholders expressed concerns about their holdings in HDFC, fearing that the bonds might be categorised as ‘banking bonds’, and this could potentially lead to issues since insurers already hold existing holdings within the prescribed limits for such bonds.
According to the recent revisions made to Irdai’s Investment Regulations of 2016, insurers will now have a 30 per cent exposure limit of their investment assets for financial and insurance activities, which will include investments in housing financing companies (HFCs) and infrastructure financing companies (IFCs).