The position of bonds and/or debentures held by insurance firms in the now-defunct HDFC under the “housing and infrastructure” category has been clarified by the Insurance Regulatory and Development Authority of India (Irdai).
When the merger of HDFC and HDFC Bank was announced on April 4, 2022, it was stated that these instruments held by insurers would continue to be regarded as investments in the same category until they reached 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.
With around Rs 64,000 crore each in FY22 and FY23, HDFC held the title of biggest issuer in the bond market prior to the merger. 10% of the total cash obtained via electronic bidding platforms (EBP) came from this sum.
Further Exemption
For individual segregated funds at the specified fund identification number (SFIN) level regarding shares of HDFC Bank (after the merger), Irdai has given an exception to insurers from adhering to the single investee equity exposure requirements as per Irdai rules until June 30, 2024. Only the holdings of the various insurers as of June 30, 2023, are covered by this exemption. However, the exemption will be proportionally scaled down for any shares sold after that date.
The circular further said that the exemption would only apply to the respective insurers’ holdings as of June 30, 2023, and that it would be reduced to the extent that shares were sold after that.
Insurers have questioned Irdai’s categorization of their investments in HDFC bonds under the “housing and infrastructure sector” prior to HDFC Bank’s merger with its parent business.
Additionally, with regard to investments in HDFC Bank’s equity shares (post-merger), they have asked for an exemption from the single investee equity exposure restrictions that apply to segregated funds of unit-linked insurance plans (Ulips).
The largest mortgage lender in the nation, HDFC Bank, merged with its parent firm, Housing Development Finance Corporation, on July 1, 2023. Following shareholder and regulatory clearances, the merger took place.
Bondholders voiced worries about their HDFC holdings after the merger, worried that the bonds would be classified as “banking bonds,” which might cause problems since insurers already own existing holdings that are beyond the permitted limits for such bonds.
Irdai’s Investment Regulations of 2016 have recently been updated, and as a result, insurers will now have a 30% exposure limit on their investment assets for financial and insurance activities, which includes investments in housing financing companies (HFCs) and infrastructure financing companies (IFCs).
