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JUNE 17, 2007
 Cover Story
 BT Special
 Back of the Book

Rupee Rise
Though an appreciating rupee is a cause for concern for many industries, it is proving to be a boon for some, particularly those that have large foreign currency borrowings. A weaker dollar is making repayments cheaper. Also, state-run refineries and those in the aviation sector are well-positioned to benefit from the stronger rupee. The Indian currency is up 8 per cent this year and is Asia's strongest currency against the dollar in 2007.

The ECB Route
The cap on maximum external commercial borrowings (ECBs), an annual ritual for the government, is fast losing its significance. Since the bulk of the foreign borrowings is raised under the automatic route by companies, it is becoming difficult to enforce the cap. The government had raised the annual limit of ECBs last year from $18 billion (Rs 81,000 crore) to $22 billion (Rs 99,000 crore). Now, it seems that total inflows will cross the $22-billion mark.
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Business Today,  June 3, 2007

BT SPECIAL: Q&A: C.S. Rao/Chairman/IRDA
"There's Been A50% Increase
In Insurance Penetration"

Four years ago, when then Revenue Secretary C.S. Rao took over as the new Chairman of the Insurance Regulatory and Development Authority of India (IRDA), several industry watchers expected him to have a tough time matching up to his predecessor N. Rangachary's successful seven-year stint. Rao, however, not just managed a smooth transition, but was able to bring about some key reforms such as the partial deregulation of general insurance rates early this year. Rao, who is due to retire next year, spoke to BT's on several key issues that still confront the industry. Excerpts:

Earlier, insurance companies were expected to IPO before 10 years. Now, it seems they will be allowed to do so only after 10 years.

There is a 10-year cooling period and it will definitely be after 10 years, although the law does not prohibit an early IPO. But it takes 10 years for an insurance company to stabilise its operations. It's a well thought-out requirement.

Is there a case for moving from uniform solvency margin to a risk-based capital requirement?

This is a process of evolution and will involve considerable preparation by both the insurance companies and the regulatory authority.

How has insurance penetration and insurance delivery changed following opening up of the sector?

There has been a 50 per cent increase in insurance penetration in the last seven years and about a three fold increase in insurance density in the same period (from around $7 per capita to about $22 per capita). But we still have a long way to go compared to other countries.

How does IRDA view the call and put options placed in contracts between the foreign and domestic players in the absence of relaxation of the FDI cap?

It is an option to be exercised only when the relaxation happens in the FDI cap.

Are you happy with the progress in de-tariffing of the general insurance sector?

I think it has gone on smoothly. In fact, the general insurance business grew by 22 per cent in 2006-07 compared to 2005-06. This is despite de-tariffing, which tends to reduce premium collections. So, de-tariffing has been effected without affecting the viability of insurance companies.

How can liberalisation proceed in loss-making portfolios such as motor insurance?

Earlier (in a controlled tariff regime), there was a possibility of cross-subsidisation between portfolios. But now in a de-tariff scenario, companies will have to keep in mind the profitability of every portfolio and will have to adjust rates based on this criterion.

What are the challenges in popularising health insurance?

This segment is growing quite significantly at nearly 40 per cent on a year-on-year basis. This shows there is considerable demand from the public. The challenge lies in making cash-less service much more effective and more policy holder-friendly.

IRDA had moved last year to curb the rampant use of investment objectives to sell insurance policies. Are you satisfied with market response to those strictures?

We only wanted to make sure that the consumer becomes aware of the risk getting shifted to him in unit-linked policies. The risk cover now should be five times the premium along with a minimum lock-in period of three years. This will ensure that we retain the element of insurance. We are happy with the way the industry is responding.

Is there a case for relaxation in the investment criterion for insurance companies?

This is laid down in the Act itself, but there is need for change as new methods of raising resources and new financial instruments (like derivatives) have come in. So, yes, there is a case for such a relaxation.

What are the gaps that the amendments proposed in the new insurance bill will plug?

I will not call it gaps. Instead, I will say the Act requires a re-look because of the changes that have happened in the financial sector over the last 30 years. There are some redundant provisions that need to be done away with and some new clauses that need to be incorporated keeping in view the changes in the financial sector.

What is your wish list from the industry and the market for the next two years?

Responsible underwriting by general insurance companies in the present (de-tariff) scenario and development of professional agents by the life insurance industry.