On July 8, the Indian government announced that it has halted the process of merger of three stressed public sector general insurance companies to rather focus on making them profitable.
It also announced the approval of capital infusion of Rs 12,450 crore into the three insurance companies, namely, Oriental Insurance Company, National Insurance Company and United India Insurance Company. It is to be noted that the amount which the government has declared for capital infusion, includes the Rs 2,500 crore, it already has infused in February.
The government stated, ” Given the current scenario, the process of the merger has been ceased so far and instead focus shall be on their solvency and profitable growth, after capital infusion”. The government will infuse the capital into the companies into two tranches now. Rs 3,475 crore will be released immediately while the rest Rs 6,475 crore will be released later.
The Cabinet has given the approval to raise the authorised capital of National Insurance Company to Rs 7,500 crore and that of United India Insurance to Rs 5,000 crore in order to be able to execute its capital infusion plan.
According to a Press Information Bureau release, “The capital infusion will enable the three public sector general insurers to improve their financial and solvency position, meet the insurance needs of the economy, absorb changes and enhance the capacity to raise resources and improved risk management”. One of the insurers’ executive commented, “In these times, the merger process would have been difficult.
According to experts, “The aim was to augment capital by listing the merged entity, which would have brought down government equity. In the current scenario, given that the firms are not in good shape, the government would have netted lesser than expected if it would have gone ahead with the merger”.