May merge some PSU general insurers, New India Assurance - govt source
Informist, Wednesday, Sep 25, 2024
--Govt source:May merge some PSU general insurers, New India Assurance
--Fin min source: Govt mulling PSU general insurers' merger roadmap
--Fin min source: Final call on PSU general insurers' merger by Mar
By Priyasmita Dutta and Sagar Sen
NEW DELHI – With the likelihood of listing of the three non-life insurance companies anytime soon looking rather bleak, the government may look at merging one or more of them into The New India Assurance Co Ltd, a senior finance ministry official told Informist.
"There are discussions between the financial services department and the disinvestment department on the possible roadmap for the PSU general insurance companies. Though the government was keen to privatise one of them, it was not possible as their financial performance was never up to the mark, and it would have impacted the valuations," the source said. The government will likely take a final call by the end of the current financial year, the official added.
The 2018-19 (Apr-Mar) Union Budget had proposed the merger of the three unlisted public sector general insurance companies and subsequently listing the merged entity. Of the four PSU general insurers, The New India Assurance Co is listed, while the remaining three--National Insurance Co Ltd, United India Insurance Co Ltd, and Oriental Insurance Co Ltd--are not.
Later, in the 2021-22 Union Budget, the Indian government had said it would privatise one general insurance company during the year. However, there has been no progress on the proposal so far.
Over the last few years, the government has been considering a number of options for the future of PSU general insurance companies. These include mergers, listing on the exchanges, and strategic disinvestment. According to the aforementioned official, the successful merger of several public sector banks in the last five years has made a merger the likelier route.
NEED FOR SUPPORT
The three unlisted insurers require financial backing considering they are haemorrhaging cash. For the first quarter of 2024-25, both National Insurance and United India Insurance reported losses of 2.93 bln rupees and 5.56 bln rupees, respectively. Meanwhile, Oriental Insurance posted a net profit of 918 mln rupees. Worryingly, the losses are seemingly on the rise, with National Insurance having reported a net loss of 1.87 bln rupees for 2023-24 and United India Insurance a loss of 8.04 bln rupees. Oriental Insurance was in the black in 2023-24, but only just, having reported a net profit of 186 mln rupees.
As such, a merger with The New India Assurance is a tempting prospect, with the company's net profit in Apr-Jun at 2.17 bln rupees and 11.29 bln rupees in 2023-24.
To support the three unlisted insurance companies, the government had infused 50 bln rupees in them in 2022. The 2024-25 Budget made no mention of a fund infusion this year, although the government official admitted that the need for providing capital to them remains.
Merging one or more of the three unlisted general insurers with The New India Assurance will also bring down the cost of operations for the new entity and help in better underwriting. "Once they are merged, there can be branch rationalisation, voluntary retirement for staff, and the company can look at cutting overhead costs. There is a lot of undercutting among these insurers right now which is not fiscally prudent and reflects in their financial results," the source said.
A merger is also made likelier given the lack of investor appetite after the pandemic. This has held back the disinvestment department, with the Centre repeatedly missing its annual targets, so much so that it decided against giving a disinvestment target in the 2024-25 Budget. End
