IRDAI allows insurers’ holdings in erstwhile HDFC’s bonds to be classified as is till maturity

Insurance Regulatory and Development Authority of India (IRDAI) has allowed insurance companies’ bond holdings in erstwhile Housing Development Finance Corporation (HDFC) to be treated as ‘housing and infrastructure’ investments till maturity.

“It is hereby clarified that the bonds/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,” the regulator said in a circular.

Till its merger, HDFC was the largest issuer in the bond market, raising around ₹64,000 crore each in FY22 and FY23, accounting for 10 per cent of the total funds raised via EBP (electronic bidding platforms).

In FY24, the AAA-rated hosing finance major had raised about ₹46,000 crore ahead of the merger to to support the ₹6-lakh crore balance sheet being transferred to HDFC Bank.

Further exemption

Further, insurance companies have been exempted from complying with the single investee equity exposure and investment regulation norms, with respect to shares of HDFC Bank post the merger, till June 30, 2024.

“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 regulator said on Friday.

Following the merger of parent HDFC with HDFC Bank, effective July 1, insurers had sought that IRDAI allow investments in HDFC’s bonds to be continued to be classified as is.

They had also sought exemptions from single entity exposure limits prescribed for segregated funds of ULIP (unit-linked insurance plans) with respect to investments in the shares of HDFC Bank.

In April 2022, IRDAI had hiked the limit for insurers’ investment in financial and insurance companies to 30 per cent from 25 per cent earlier.

Bondholders were concerned regarding their holdings in HDFC following the merger, on expectations that the bonds would be classified as ‘banking bonds’ where insurers already have existing holdings within the prescribed limits.

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