Disgraced Satyam chief B Ramalinga Raju could be ruing his fate after the Supreme Court on Tuesday cancelled his bail but the apex court’s directive has brought a smile on the face of the state prison chief. The state prisons department is toying with the idea of using Raju’s expertise in handling operations at the country’s first prison BPO unit, which is all set to start operations on Nov 1.

Though on a trial basis for now, prison officials hope that the BPO project would benefit IT from IT czar Raju’s experience, in making such projects a profitable venture. Well, this is assuming that his health permits him to stay behind bars and not in a hospital.

“We will use his ideas to improve the existing infrastructure and also seek his opinion on how best to utilize manpower available at our unit,” said C N Gopinatha Reddy, director-general of prisons. This would also keep Raju occupied, he added. As of now, the BPO unit has its hands full with projects and looks good to work on a few big assignments after the inauguration. Having bagged the census data compilation project and the manual digitization work, talks are on with a few big names in the banking sector to get work for jailbirds manning the BPO.

Department officials said getting associated with projects in the banking sector would involve BPO workers verifying scanned cheques and related documents. The prison department is in talks with some banking firms in Canada to grab its first international project. The BPO workers for this project will be required to examine scanned documents in various categories. Needless to say, these documents would be of a non-confidential nature, so that there’s no scope of tampering by BPO workers, who are all convicted prison inmates. “It will all be done under the supervision of our people, the idea being to make the entire process foolproof,” said Reddy.

With talks having been finalized between Tata Consultancy Services (TCS) and Radiant Technologies (the IT firm setting up the investing money to set up the BPO), to provide the hardware support for the prison BPO, the authorities are now eyeing a formal inauguration of this unit. The guest list for the inauguration, slotted sometime in November, would include Union home minister P C Chidamabaram, among others. Raju, who masterminded one of the world’s biggest corporate scams, could well turn into the prison’s best “inhouse” expert to study financial documents.

The involvement of as many as 30 judges in the multi-crore provident fund scam has shaken the confidence of people in the judiciary, attorney general G E Vahanvati told the Supreme Court on Thursday while arguing for CBI’s application seeking transfer of the trial from Ghaziabad to Delhi.

“If there is a case in last two or three years which has shaken the confidence of people in judiciary, it is this case,” the AG told SC and said since six accused district judges, including three who later become judges of the Allahabad High Court, and witness judges officiated at some point of time in Ghaziabad, it needed to be shifted to Delhi to make proceedings free from any doubt. “In this case, justice should not only be done but seem to be done,” he pleaded before a Bench.

A panel formed by the insurance council will probably recommend that domestic healthcare systems such as ayurveda , unani and siddha should be treated on par with allopathy when it comes to medical insurance, said a person familiar with the committee’s thinking.

“The department of Ayush has approached the General Insurance Council for looking at the possibility of accepting claims under the non-allopathic means of treatment,” said a person familiar with the development at the Council. “They made a presentation to council members, who in turn, have formed a three-member committee to look into the matter.”

The committee comprises chief executive officers from Star Health, Max Bupa and Apollo, the person said. It would examine the merits and demerits of the proposal and recommend processes to implement if it is convinced that these types of medicines should also be covered under health insurance. The Insurance Regulatory & Development Authority will take a call on the issue.

A large section of India’s more than a hundred crore population takes alternative means of treatment which is recognised by the government, but not so far by the insurance industry. Insurers where most of them are in a joint venture with a global company, say there is not an established way to verify these claims and no data to rely on.

“Under allopathic means of treatment, there are scientific studies and we know how long a treatment will take, how much will it cost,’’ said TA Ramalingam, head of underwriting, Bajaj Allianz General Life Insurance.

“But under the alternative means like homeopathy, we do not have enough data to cover them. For example, curing an ailment under homeopathy may take years, we would not have a structured way of looking at data. But under allopathic means of treatment, it’s more immediate, and hence, easily manageable.”

There is no registration for practitioners of alternate means of treatment either. There is no one body that recognises the institutes/hospitals that treat patients.

But the health and family welfare ministry is pushing hard for it as it is affordable and the majority of the population makes use of the domestic expertise in these areas. Allopathic medicines are expensive even for those who are in urban centres.

The Department of Indian Systems of Medicine and Homeopathy was created in March 1995 and re-named as Department of Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy, or Ayush, in November 2003 to develop education & research in those fields.

The government today clarified the policy concerning the transfer of used capital goods into special economic zones (SEZ) from outside of the enclaves, stating that a company can shift the equipment to set up units into the SEZs. However, the value of such second-hand goods should not exceed (20 per cent) to avail of the tax benefits.

This comes after a spate of incidents happened concerning some of the large-scale information technology (IT) companies such as Wipro, Mphasis and Geometric. In some of these cases, the development commissioner (DC), in charge of the SEZs, permitted the transfer of the goods from the STPI (Software Technology Parks of India) unit to SEZ and issued a letter of approval, which was later cancelled.

“There are no provisions in the SEZ Act/Rules preventing such a transfer of goods. The only deterrent for transfer of such goods is not getting the exemption under the Income Tax Act when the value of the used goods exceed 20 per cent of the total capital goods installed by the unit in a year,” the department of commerce said in a notification today.

According to tax consultants and experts, the clarification would provide a much-needed relief to SEZ developers, as well as the units located in them. “Due to lack of clarity in the policy, a lot of IT companies were facing problems in shifting their units from STPIs to SEZs. The law was interpreted differently by the companies and the DCs concerned. With this clarity, hopefully, the DCs would now be able to issue the approval letters without any problem,” said Kalpesh Maroo, partner, BMR Advisors.

The ministry of commerce and industry had issued such a clarification pertaining to this particular law earlier. It had said prior approval of the DC of that zone would be required before such a transfer takes place.

“The government had earlier said 80 per cent of the equipment should be new and the new unit (SEZ) should not be formed by reconstruction or splitting of the existing undertaking (STPI). This was done to encourage investment. This provision is old and already exists in law in some form or the other and will have no impact on the IT companies. It has now only been made explicitly clear,” said Anil Chanana, chief financial officer, HCL Technologies. In the backdrop of a global economic downturn, several IT companies had been pushing for relaxation in the laws pertaining to procurement of used capital goods from domestic tariff area (DTA) to SEZ units in order to ease the cost burden. “The Department of Commerce has only clarified on the way this directive is to be implemented as there were interpretation issues. In case of large projects, special equipment needs to be moved from the STPIs to SEZs and this operational issue has been now clarified,” said Nasscom President Som Mittal.

After cashing out of the recent stock market rally, investors aren’t ploughing their money into just initial public offerings (IPOs), bonds or real estate. The feel-good factor has prompted many of them to splurge on luxury cars, exclusive holidays and designer brands.

Sample this: luxury car manufacturers BMW, Mercedes and Audi have seen a significant increase in sales in the second quarter, according to Society of Indian Automobile Manufacturers data. BMW doubled sales to 1,701 cars in the previous quarter, while Mercedes and Audi reported 70 and 60 per cent sales increases, respectively.

“The stock market is a major enabler for pushing sales,” said Debashish Mitra, head of sales & marketing at Mercedes-Benz in India. The company recently introduced the R Class, priced at Rs 60 lakh, thanks to upbeat buyer sentiment.

“Luxury products are driven by a penchant for exciting products. Companies need products that meet buyers’ fancy when they have funds. Else, they will reinvest the funds,” Mitra explained.

One of the country’s top travel operators said the industry had witnessed better growth in luxury travel than group travel in the last quarter. “Group travel bookings grew a mere 7 per cent, whereas luxury travel bookings posted 12 per cent growth,” said an official with the tour operator. A luxury package to Europe costs a minimum of Rs 12 lakh a person, six times the price of a group tour.

Genesis Luxury, a high-end retailer that markets brands such as Satya Paul, Canali and Jimmy Choo, has also seen around 40 per cent growth in the past quarter, according to Managing Director Sanjay Kapoor.

Rajesh Chakrabarti, assistant professor of finance at Indian School of Business, explained: “After such profit bookings, investors tend to use the money for consumption. In volatile or uncertain market conditions, many investors even give consumption priority, as the value of money can erode on correction.”

That’s precisely why Delhi-based lawyer Anirudh Bobde swapped his Octavia car for an Audi, using the windfall from selling shares as down payment. “I could have done an all-cash deal at an over Rs 2-lakh discount. However, I need the money to change the interiors of the house and a family visit to the US. The vacation has been pending for the past two years,” said Bobde.

Mumbai based small investor Srinivas Deo redeemed his mutual funds to foreclose his housing loan. “I am planning to buy a bigger second house in the same locality (Thane). It will be a safe investment, as real estate prices in Mumbai rarely go down,” said Deo.

These are just two among many, who sold their equity investments when the Sensex breached the 20,000-level last month. In equity mutual funds alone, investors redeemed Rs 7,011 crore in September. Since the beginning of the financial year, individuals have sold over Rs 25,000 crore worth of shares and mutual funds, according to data from Association of Mutual Funds of India and stock exchanges.

These investors are now looking to build hard assets. “Investors who cashed out in the current rally are looking to invest a portion of their funds in asset classes such as real estate and gold, for the potential upside,” said Amitava Neogi, executive director at Morgan Stanley Private Wealth Management.

When markets neared the all-time high, several investors exited, reversing the losses incurred during the correction of 2008. “Many of these investors are looking at safe and conservative investments,” said Mohit Batra, group CEO at Alchemy Capital Management.

Response to the Rs 1,000-crore State Bank of India (SBI) bond issue bears out Batra’s views. On the very first day, investors were ready to pour in Rs 17,000 crore.

This was a second feat for SBI. “When equity investors cashed out last month, we saw inflows of Rs 6,000 crore in a single product – the 555-day term deposit – in about a month,” said a senior SBI representative. He also admitted that the 7.50 per cent offered on the deposit was attractive enough to warrant such attention.

Puneet Matta, head of wealth management at Credit Suisse, felt wealthy investors have been holding on to cash to invest in public offerings of government companies Coal India, IOC and ONGC.

Retail investors were in a frenzy to subscribe to the Coal India IPO this month. The company collected over Rs 27,500 crore from individuals, if you consider everyone applied at the lower price band. At the upper end, the company collected almost Rs 30,000 crore.

However, funds may not return to the secondary market anytime soon. “Unless there is a clear upside trend on the stock market, investors will stay away,” said Chakrabarti.

Inflation is in the double-digit territory and bank FDs are, at best, fetching merely 7-8 percent interest per annum. So, the real return from bank deposits is negative, which has led to lot of people making a beeline for company FDs that offer a slightly higher return than bank FDs. Company FDs have seen a renewed interest and higher flows from investors in the past one month.

The Sensex has moved from 8000 to 19000, unexpected windfall for many investors, making them a bit nervous about the future course of the market in the process. This has prompted some investors to book profits and invest the money in safe and simple products like company FDs.

The problem with company FDs is the presence of dubious players who enter the market time and again. There are companies, mostly on the verge of shutting down, that enter the market with the promise of extremely higher returns. Just because some companies offer better interest than banks, you shouldn’t rush to invest your entire corpus in company FDs.

Investors should not put all money in a single company. It makes sense to diversify by spreading deposit across a number of companies and industries to reduce risk.

High inflation is eating into the real rate of return from FDs, forcing many investors to opt for company deposits. Typically, an AA-rated company offers around 2 percent higher interest than a bank FD. Always opt for an AA or AAA-rated company, as companies rated below could be risky.

The Indian budgetary system has become more transparent over the years, with the government providing significant information on the Budget, a survey has said.

According to the Open Budget Survey 2010, released by the International Budget Partnership, India’s open budget index (OBI) score improved from 53 in 2006 to 67 in 2010. The survey is released every two years and India’s OBI score in 2008 was 60.

“Several relatively low-income countries such as India, Sri Lanka and Ukraine provided significant information,” it said.

The survey showed South Africa, with an OBI score of 92, provided the most information on its Budget, followed by New Zealand (90), the UK and France (87 each), Norway and Sweden (83 each) and the US (82).

Apart from India, Chile, Brazil, South Korea, Slovenia, Germany, Sri Lanka, Peru, Poland, Spain, Czech Republic, Ukraine and Colombia provided significant Budget information, with their OBI scores ranging 61-72.

In a fresh blow to microfinance institutions, banks are refusing to lend them even a sanctioned line of credit, following recent controversies over opaque corporate governance and  interest rates.

The ensuing liquidity crisis has prompted many MFIs to seek a moratorium on loan repayment to banks. MFIs raise 75-80 per cent of their funds via bank borrowings, 15 per cent from equity and another 10 per cent from other sources like cash securities.

Interest rates charged by MFIs vary between 18 per cent and 32 per cent, bankers said.

Asit Pal, executive director at Corporation Bank, confirmed: “We are not sanctioning fresh loans to MFIs, and the line of credit is also on hold.”

Another senior executive from a south India-based private bank said: “We also find that MFIs are resorting to an ‘ever-greening’ strategy, which means extending loans to defaulters to repay existing loans. We have kept disbursements in abeyance until further clarity from the regulator emerges.”

Some MFIs played down the impact. While admitting that banks have stopped giving them loans, they expect normalcy to return soon.

“No new loans have been sanctioned in the last couple of weeks. Banks had expressed anxiety over lending to MFIs and this led to many discussions. But after the finance ministry and Andhra Pradesh High Court intervened, things are returning to normal,” said Vijay Mahajan, chairman of Bangalore-based MFI Basix.

P N Vasudevan, managing director at Equitus, said, “Since no bank has told us that they are not going to lend, we assume they will continue to.”

Bankers said they were awaiting clarity from the report of the Y H Malegam committee, which was appointed by Reserve Bank of India last week to study the sector and suggest ways to make interest rates charged by MFIs reasonable.

At least three MFIs, including Share, one of the largest in the country, are planning to pitch for a moratorium on repayment for three months.

“Banks are shying away from giving loans, and we are asking for a three months’ moratorium for repayment of instalments through (microfinance industry body) MFIN,” said Udaia Kumar, chairman & managing director of Share.

MFIN, or Microfinance Institutions Network, will discuss the moratorium at a meeting soon and take up the matter with a newly-revived forum of MFI lenders, led by Small Industries Development Bank of India, which in turn is expected to take up the matter with the Indian Banks’ Association, said a source close to the development.

“Other bigger MFIs have no option but to seek a moratorium as their cash flows are weakening,” said a source involved at the field level study for MFIs.

R Ramachandran, chairman & managing director at Andhra Bank, said his bank “has a limited exposure to the MFI sector.

“MFIs are shifting from a monthly to a weekly repayment model, which might require some rebalancing. So far, we have not received any request for a moratorium, but if we get one, we will evaluate the proposal.”

An MFIN spokesperson refused to comment on the issue. “I would not comment on the matter now, as the situation is very fluid,” said Alok Prasad, chief executive officer of MFIN.

After the Andhra Pradesh High Court allowed MFIs to resume operations yesterday, weekly collections fell to as low as 10-20 per cent in a few pockets in the state.

“All roads are blocked for MFIs, and they have no option but to comply with the norms. People have started refusing to make repayments.

“The entire system is set to collapse and the liquidity conditions of MFIs are so bad that if they don’t get the moratorium, some will not be able to even pay salaries,” said Narendra Prasad, an analyst working with MFIs in Andhra Pradesh.

Overall, MFIs could collect as much as 50 per cent of dues. This is a stark contrast to the roughly 99 per cent recovery in general in the sector, according to MFIs.

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The Supreme Court on Tuesday cancelled the bails granted to Satyam Computer Services founder B Ramalinga Raju, his brother B Rama Raju and four others by Andhra Pradesh High Court in the Rs 14,000-crore (Rs 140-billion) accounting fraud.

Hearing the Central Bureau of Investigation plea, a Supreme Court bench comprising Justices Dalveer Bhandari and Deepak Verma on Tuesday cancelled the bails and asked all six persons to surrender by November 8.

Observing that the case involved the biggest scam in the history of India, which had affected large number of shareholders, banks and financial institutions, the bench said that the high court order of grating bail cannot be sustained.

The SC also directed the special court in Hyderabad, which is conducting the trial in the Satyam case, to conclude its proceedings by July 2011.

Earlier this month, the bench had issued a notice to Raju, directing him to file his reply on CBI’s plea.

In its petition for cancellation of the bail granted to Raju by the Andhra Pradesh High Court, CBI had said that Satyam’s founder and former chief ‘misused’ the bail by meeting one of the witnesses in the case and tried to ‘influence’ him.

CBI had filed the chargsheet running into over 10,000 pages, naming more than 250 witnesses.

Such a huge volume was criticised by the court in the last hearing on October 19.

Besides the two Raju brothers, the high court had granted bail to the four employees of the IT firm, namely Srinivas, Ramakrishna, Venkatapathi and Srisailam.

CBI had approached the apex court on September 13 and said that Raju might influence the witnesses majority of whom were his former employees.

The high court on August 18 allowed Raju’s bail on the ground that all other accused in the case, including his brother Rama Raju, former Satyam CFO V Srinivas and three other former IT company employees G Ramakrishna, Venkatapathi Raju and Srisailam were granted bail by it.

The apex court observed that the trial was pending in a special court and detailed reasons for granting bail have not been given by the high court.

“Normally, the apex court does not interfere in such cases where bail has been granted by the high court, but the facts of the case indicate demand that we should interfere,” the bench said.

Raju, who was arrested on January 9 last year in connection with the biggest ever corporate fraud in Indian history, and is currently undergoing treatment for liver infection in the state-run Nizam Institute of Medical Sciences, was ordered by the court to appear before the trial court after being discharged.

A special court has been created by the Andhra Pradesh government for the trial in November 2009 and a judge has been appointed in February 25 this year.

The government said on Tuesday it is not mulling a regulator for microfinance institutions, but wanted them to evolve a code for themselves, even as these lenders draw criticism over their exorbitant interest rates and coercive recovery methods.

At Economic Editors’ Conference in New Delhi, Finance Minister Pranab Mukherjee said he has suggested to the Andhra Pradesh government to address some stringent provisions of its recently promulgated ordinance to rein in MFIs.

“I am not currently thinking of appointing any regulator right now. . . As we expect there should be a code evolved by the institutions themselves where rate of interest are not abnormally high and there should not be a coercive mechanism to recover the money,” Mukherjee said.

There have been speculations that Nabard could be appointed as regulator for MFIs, as they do not come under separate regulation as of now.

Industry chamber Assocham has asked the government to set up an effective regulating body and put a cap on the interest rates charged by MFIs.

“The confidence of the people in microfinance model of development has shaken by the practices of unscrupulous microfinance institutions functioning in the rural areas of the country,” Assocham said.

Andhra Pradesh government recently promulgated an ordinance to check MFIs, after a number of suicides were reported in the state, allegedly due to strong-arm tactics of MFIs for recovery of loans.

The ordinance makes it mandatory for all MFIs in Andhra Pradesh to register with the district Registering Authority, the project director of District Rural Development Agency for rural areas and PD of MEMPA for urban areas.

Now, MFIs will have to specify the area and system of their operations, the rate of interest and recovery mechanism while registering with the Registering Authority.

The registering authority may at any time either suo moto or upon receipt of complaints by self-help groups or the general public can cancel the registration of the MFI after assigning sufficient reasons.

The finance minister said, “In respect of the ordinance which the Andhra Pradesh government has issued. . . I had a talk with chief minister over phone and suggested certain corrections in the ordinance. . .to see that the harsh provisions are taken care of.”

He said MFIs should ensure that the borrower is in a position to pay back the money and as such lending should be mainly directed towards the productive borrowing not so much towards consumption.

The RBI has also constituted a sub-committee to look into the functioning of MFIs.

Microfinance institutions (MFI) today got some support from Finance Minister Pranab Mukherjee.

The finance minister ruled out any immediate move to regulate these entities and also disclosed that he had suggested to the Andhra Pradesh government that some of the harsher provisions of the Ordinance promulgated by the state be amended.

Mukherjee said he had discussed the Ordinance with the Andhra Pradesh chief minister and also conveyed that certain harsh provisions in the legislation were amended. The finance ministry is of the opinion that the Ordinance requires MFIs to seek the state government’s permission for various things which are not feasible. Even in case of registration, some relaxation has been suggested.

The finance minister told the Economic Editors’ Conference that the government did not want to immediately step in to regulate MFIs and instead wanted these entities to evolve a code of conduct on interest rates and recovery norms.

“We expect that a code of conduct is evolved through which the rate of interest (charged by MFIs) is not abnormally high and there is no use of coercive mechanism to recover (dues from borrowers),” he said in response to a question.

Mukherjee also said that for improving the repayment capacity, the government wanted MFIs to lend mainly for productive purposes and not for meeting consumption needs of the borrowers.

In recent weeks, governance issues at MFIs have come to the fore and there is debate over the interest rate charged by them. The Andhra Pradesh government has also promulgated an Ordinance that requires these lenders, who cater to the needs of the under-banked or unbanked population, to register with designated agencies. Besides, MFIs have to specify the area and system of their operations, the rate of interest and recovery mechanism while registering.

The Centre has been working on a Bill to regulate the MFI business for the last three-four years.

Apart from the action initiated by the Andhra Pradesh government, the Reserve Bank of India (RBI) has also set up a panel to look into various issues related to MFIs. Mukherjee said RBI and the National Bank for Agriculture and Rural Development were working with MFIs to evolve a code of conduct.

With RBI setting up the committee, the government is likely to wait till the recommendations are received. In addition, it wants to wait and watch how MFIs move on self-regulation.

In response to the developments in the Microfinance institutions (MFI) sector in Andhra Pradesh, microfinance institutions (MFIs) possessing an equity base of over Rs. 500 crore are now being cautious. Following the suicides among rural borrowers who allegedly did not have the ability to repay, the State Government issued an ordinance to verify the functioning of MFIs and the continuing legal battle on the ordinance.

After the success of SKS Microfinance that had adopted the IPO route to raise $350 million in July, MFIs such as Spandana Spoorthy and Share Microfinance, both based in Andhra Pradesh, are looking forward to tap the capital market.

Industry leaders feel that this is logical and makes sense only under prevailing circumstances although the MFIs are reluctant to admit that they are cautious in their approach. “Certainly this is not the best time (for MFIs) to look for capital, especially using the IPO route,” admits Vijay Mahajan, President of Micro Finance Institutions Network (MFIN), a MFIs apex body.

The Rs. 30,000-crore loan portfolio of MFIs in the country is dominated by about 10 major MFIs.

The government on Monday fixed Coal India’s (CIL’s) initial public offer (IPO) price at Rs 245 per share, the upper end of the range.

The government will fetch Rs 15,100 crore by selling 631.6 million shares, or 10 per cent stake, at Rs 245 per share. It will offer retail investors a discount of five per cent.

“The issue price has been fixed at Rs 245 per share. The government will raise over Rs 15,000 crore,” Coal Minister Sriprakash Jaiswal said after a meeting of the empowered group of ministers (EGoM), headed by Finance Minister Pranab Mukherjee. “It was a grand success,” Jaiswal added.

Besides Jaiswal and Mukherjee, Home Minister P Chidambaram and Planning Commission Deputy Chairman Montek Sigh Ahluwalia were also present at the EGoM.

The company is expected to list on stock exchanges on November 4, a day before Diwali. CIL’s IPO, which closed on October 21, was subscribed 15.17 times, and mopped up Rs 2.35 lakh crore.

Market men said the stock would open at a fairly good premium. “CIL deserves to trade at a premium to global coal peers, given much lower volatility in earnings and a large headroom to raise prices in a supply-deficit environment,” brokerage house CLSA said.

CIL is one of the largest companies in the world, based on coal reserves of 64,786 million tonnes in April. “Going by the significant asset size, the quality and the life of the reserves and the dominance in domestic market, we believe CIL has very good prospects in the long term,” Elara Securities analyst Ravindra Deshpande said.

Analysts said the huge response to the issue would boost the government’s disinvestment plans and speed up the upcoming stake-sale projects.

The trial in the multi-crore Satyam Computer fraud case will begin from November 2, nearly 22 months after its founder B Ramalinga Raju admitted in January last year to fudging the company’s accounts to the tune of Rs 7,200 crore.

Subsequent findings by the CBI revealed that the total size of the accounting scam was about Rs 14,000 crore.

The XXI Additional Chief Metropolitan Magistrate BVLN Chakravarti, after dismissing the petitions of the accused seeking discharge from the case, personally inquired if the accused committed the crime.

When all the accused including Raju pleaded ‘not guilty’, the magistrate set November 2, as the date for trial.

The court also directed CBI to furnish details of only key witnesses for the purpose of examination.

The Supreme Court had recently pulled up the investigating agency, which challenged the Andhra Pradesh High Court order granting bail to Raju, for naming more than 250 witnesses in the case.

Raju and nine other accused were charged under various sections of the Indian Penal Code including 120 (B) (criminal conspiracy), 409 (breach of trust), 420 (cheating) and 468 and 471 (forgery).

Raju, in a letter sent to Stock exchanges on January 7 last year, had resigned from the company after confessing to country’s biggest financial fraud.

He and his brother Rama Raju were arrested on January 9, 2009. Later the case was handed over to CBI.

The Insurance Regulatory and Development Authority (Irda) is not in favour of allowing initial public offers (IPOs) by life insurers who have been in business for less than 10 years, a condition holding up the IPO guidelines for the sector.

The companies who have been operational for less than 10 years, but want to come out with IPOs, have been lobbying hard against this rider, but have not succeeded in their efforts so far. Industry sources said that this is among the key issues delaying the IPO guidelines.

“Insurers can come out with IPO only after completion of 10 years of operations,” a senior official with Irda said.

As per the Insurance Act, promoters having a 26 per cent stake can offload equity after 10 years of operation.

However, the legislation empowers the government to reduce the mandatory waiting period before tapping the capital market.

Many companies want the norm to be relaxed so that this capital intensive sector can tap primary market to meet fund requirements. However, their plans have been on hold in absence of the IPO guidelines for life insurers.

Several private sector insurers, including Reliance Life and HDFC Standard Life, have already shown interest in tapping the capital market to augment their resource base.

Though HDFC Standard Life has completed 10 years of operations, Reliance Life does not meet these criteria.

Recently, Irda Chairman J Hari Narayan said that guidelines for life insurance companies to tap the capital market for funds were awaiting Sebi nod and would be out soon.

“IPO guidelines for insurance companies will be out soon. It has been approved by the Joint Committee of Sebi and has to be approved by the Sebi (board),” Hari Narayan had said.

Last month, the regulator had said that the proposed IPO guidelines for non-life insurance firms were also in the process of finalisation.

The guideline for IPO of life insurance companies are said to have been approved by SCADA, a body constituted by Sebi, and is awaiting final nod from the market regulator.

Currently, most of the 22 private life insurers and 17 non-life players have foreign partners. The Insurance Act caps foreign direct investment at 26 per cent.

According to sources, another reason behind the delay in the IPO norms is profit track record of insurance companies.

The present IPO guidelines of Sebi require a three years track record of profit for a company to float a public issue.

However, most of the insurance companies are yet to reach the break-even point and thus are not eligible for coming out with an IPO under the present norms.

Ruling out any change in investment policies, the Employee Provident Fund Organisation (EPFO) has said it will continue to focus on investment in high-quality debt paper and keep away from equities.

There is debate whether EPFO should invest in equity for higher returns or not. However, it will not take the risk of doing so, according to Samirendra Chatterjee, Central Provident Fund (CPF) Commissioner.

He was addressing a seminar for bankers and fund managers of mutual funds on Retirement Funds’ organised by A K Capital Services.

It will continue to go for state development loans (state government bonds), bonds of triple-A rated companies, as well as PSUs.

Chatterjee said a new set of fund managers would be appointed very soon for the EPFO portfolio.

On the higher pay out of 9.5 per cent for 2010-11, Chatterjee said the finance ministry is yet to approve it. It should come any moment. However, the higher rate can’t be maintained for the next year, he added.

“We found a surplus of around Rs 1,700 crore when we analysed the accounts on accrual-based system. For the first time, EPFO have calculated the interest payable to the depositors on accrual basis to analyse the details of Rs 14,696 crore lying in the interest account,” he said.

There are over 3,000 recognised provident fund trusts, which manage a huge corpus of about Rs 2,00,000 crore. These trusts, which are set up by companies to manage the PF of their employees, have to pay a rate of return that is not less than the rate paid by EPFO.

“None of the recognised provident fund has approached us so far with a complaint that they cannot manage 9.5 per cent rate of return for this financial year,” Chatterjee said.

In the face of alleged violations in sale of universal life policies, insurers would stop selling these products from Saturday till November 4 in accordance with a stiff direction by regulator IRDA.

ULPs are basically hybrid products, having the flexibility of unit-linked products and traditional plans.

“The authority has received several complaints on the sale practices of the insurers regarding universal life products.

After examining the complaints the Authority is satisfied that the ULPs need a better regulatory framework for protecting policyholders’ interest.

“To ensure that the policyholders do not lock themselves in current ULPs, it is hereby ordered that the insurers shall not sell any ULPs from the close of business on October 22, 2010,” IRDA said in a circular to all life insurance companies on Thursday.

The Insurance Regulatory Development Authority said the guidelines for variable insurance products would govern the ULPs and said that it would come up with a final guideline on the same on or before November 4.

At present, four companies Max New York Life, Aviva Life, Bharti Axa Life and Reliance Life offer these plans.

The insurance industry reaction was mixed on the said suspension, with some saying that the overnight ban would affect business, while others saying it would bring in clarity.

“The norm should be different for different companies. It should have been a direction for companies which have violated norms. Putting a ban overnight would disrupt the business functioning,” Max New York Life MD and CEO Rajesh Sud said.

For protecting policyholders’ interest, IRDA also came up with guidelines for ULPs and sought life insurers’ views on the same till October 31.

“ULPs are still in evolving stage in India. So far there has been no guideline governing the ULPs.

“The IRDA move would bring in clarity in the structure of ULPs,” Bharti AXA Life VP Product & Pricing Rajeev Kumar said.

As per the draft guideline, IRDA has proposed a minimum life cover of Rs 50,000 or 10 times the annual premium for a customer below 45 years of age.

For customers above 45 years, a minimum cover seven times the annual premium has been proposed.

According to IRDA, the minimum policy term for such products should be five years and the lock-in period of three years.

These products are to be linked to the savings bank account of a customer, IRDA said. The draft guideline says that a variable insurance policy would lapse if the customer does not pay premium for 12 months from the due date.

In a move expected to benefit a large chunk of the 2,700-odd exempted trusts, the Employees’ Provident Fund Organisation (EPFO) will soon free these trusts to utilise and tap their Provident Fund Trust reserves to meet the statutory payout rate, according to Central Provident Fund Commissioner (CPFO) Samirendra Chatterjee.

The decision is significant since many exempted funds were running a deficit after EPFO increased the PF rate to 9.5% this year from 8.5% in the previous year. Since the funds could not use their reserves to meet any shortfall, they had a tough time meeting the deficit.

The EPFO managed to fund the additional 1% interest cost after it changed its accounting policy from cash based to accrual based, which resulted in a surplus of around over Rs. 1,731 crore.

In May this year, EPFO had issued an internal circular addressed to all Regional Provident Fund Commissioners (RPFCs), with one of the conditions being, that in the event of any loss to the trust as a result of defalcation, wrong investment decision or any deficiency in the interest rate compared to statutory rate, the employer shall be liable to make good the loss or interest.

The circular added, “You are, therefore , directed to ensure that wherever losses to the trust have been reported, the same is made good by the employer or establishment and is not adjusted against previous years’ surplus or reserves of the trust.” The new circular will delete the line, “or any deficiency in the interest rate compared to statutory rate” in paragraph 7. Mr Chatterjee was speaking at a seminar on the challenges facing retirement funds, organised by AK Capital. Speaking to ET on the sidelines of the seminar, he said exempted funds will be free to utilise and dip into their PF Trust reserves to meet the statutory payout rate.

“The formal notification in this regard would be posted on the EPF website soon,” he said. Accumulated reserves and surplus formed from excess income over expenditure can be utilised to meet the shortfall to declare higher rate of interest, or to match the rate of interest as may be declared by EPFO, in any case. These trusts are required to either match or better the interest rates declared by CBT, EPF and have to follow the investment pattern notified by the Ministry of Labour.

He said a decision has been taken that PF money will not be invested in equities. When asked about next year’s rate of return for EPFO subscribers, he replied, “The 9.5% return is not sustainable. Next year’s rate of return will be decided later and it is difficult to comment on this right now.”

He added that accountholders would get the benefit of improved rate of return on deposits from the next fiscal from the income on frozen inoperative accounts.

The issue price of Coal India Ltd’s (CIL) initial share sale will be decided tomorrow by an Empowered Group of Ministers, paving the way for public trading of the company on the stock exchanges on November 4.

“The meeting of the Empowered Group of Ministers has been postponed to tomorrow because of the preoccupation of Finance Minister Pranab Mukherjee, who came back from South Korea today after attending a G-20 meeting,” a government official said.

Mukherjee heads the EGoM, which also comprises Coal Minister Sriprakash Jaiswal and Home Minister Pranab Mukherjee, among others.

The four-day initial public offer of CIL, which closed on October 21, made history by getting oversubscribed 15.17 times and generating bids worth Rs 2,35,290 crore. It is expected to fetch the government over Rs 15,000 crore, the largest sum ever garnered in India through a share sale.

The IPO, which had a price band of Rs 225-245 per share, generated total demand for over 960.36 crore shares, though only 63.16 crore equities were on offer.

The government has sold 10 per cent of its stake in the world’s largest coal producer through the public offer. Prior to the IPO, CIL was a fully government-owned entity.

CIL is the largest coal producer in the world, with 64 billion tonnes of reserves as of April, 2010.

Analysts said the huge response to the CIL issue will boost the government’s disinvestment plans and help speed up stake sale projects in the coming days.

The blockbuster share sale of the PSU is likely to be followed by similar public offers from Power Grid, Hindustan Copper, Manganese Ore India Ltd and SAIL, among a few others, this financial year.

Till the CIL share sale, Anil Ambani Group Company Reliance Power’s IPO in January, 2008, which raked in Rs 11,700 crore, was considered the country’s most successful public issue.

Terming equity investments “unsafe”, the Employees Provident Fund Organisation (EPFO) has asked for a government guarantee if the retirement fund manager is mandated to comply with the Finance Ministry demand for investing up to 15 per cent of its funds in stocks.

“Our Board of Trustees felt investments in the capital market are unsafe and do not serve well for someone like us who want very stable returns,” Central Provident Fund Commissioner Samirendra Chatterjee told reporters on the sidelines of a function organised by AK Capital Services here.

“If they want us to invest, please give us a guarantee for the same, we will invest,” he added.

Citing revised regulations, the Ministry of Finance has been asserting that it has the right to prescribe investment patterns for retirement funds and has been repeatedly asking for up to 15 per cent of the EPFO corpus to be invested in equities.

However, Chatterjee said the EPFO goes by the rules drafted in 2003 and not the revised ones made in 2008.

The funds under management by the EPFO swelled by Rs 25,000 crore in the first half of the current fiscal to Rs 3,25,000 crore, he said.

The EPFO and company-run PF trusts are currently allowed to invest only in secure investments like bonds and government securities that give a stable return.

“I work for the common man… A fall in stocks is not infrequent and how can I explain to a person that his investment corpus has fallen? Such things work well for mutual funds that run on net asset values, not for us,” Chatterjee said.

On the zero interest to inoperative accounts policy to be implemented from May, 2011, he said the trust expects withdrawals of up to Rs 10,000 crore by “savvy” investors that have locked in huge chunks for guaranteed, tax-free returns.

“We have Rs 15,000 crore in inoperative accounts and I expect withdrawals of up to Rs 10,000 crore by savvy investors. Some of these accounts have contributions up to Rs 25 lakh,” the commissioner added.

According to a new policy that will come into effect from May, 2011, accounts that are inoperative for more than three years will not earn any interest.

The initial public offer by Coal India has generated a total demand for shares worth Rs 2,34,716 crore (Rs 2.34 trillion), the most in the history of India’s primary market.

State-run Coal India has surpassed the record of Reliance Power IPO that had attracted bids valued over Rs 2.05 trillion.

R-Power, in January 2008, had beaten the record of Mundra Port and SEZ’s IPO that hit the market in 2007 and had received bids worth about Rs 2,00,000 crore (Rs 2 trillion), a 115 times over-subscription.

The IPO of state-run Power Grid Corporation too generated demand worth about the same level (nearly Rs 2 trillion).

Interestingly, Coal India has also surpassed the record of Anil Ambani Group’s R-Power’ Rs 11,700 crore (Rs 117 billion) IPO to become India’s largest public issue so far.

The government is looking at garnering up to Rs 15,400 crore (Rs 154 billion) by disinvesting 10 per cent stake in the world’s largest coal producer. “Every record is meant to be broken by someone. CIL issue is a blockbuster,” said V Jaya Sankar Executive Director and Head of Equity Capital Markets Kotak Investment Banking — one of the book running lead managers to the issue.

Other merchant banks to the issue are Citigroup Global Markets India, Deutsche Equities India, DSP Merrill Lynch, Enam Securities and Morgan Stanley India. Adfactors PR is the communication manager to the mega issue.

As per the latest data (till 5:00 pm) available with the National Stock Exchange, CIL offer got bids over 958 crore (9.58 billion) shares, as against 63.1 crore (631 million) equities on offer.

At the upper end of the IPO price band, this demand is valued worth Rs 2,34,716.37 crore. From FII segment only, CIL issue has attracted bids worth a whopping Rs 1.20 lakh crore, more than the record Rs 1.08 lakh crore (about $24 billion) they have invested in the Indian stocks so far this year.

Although about 90 per cent of the funds are estimated to flow back after the IPO is over, the inflows have been impacting forex as well as the stock markets.

Planning Commission Deputy Chairman Montek Singh Ahluwalia, however, today exuded confidence that there will be “no pressure on liquidity due to this mega IPO”.

Bidding for the mega IPO closed on Wednesday for qualified institutional buyers, which includes the foreign institutional investors, mutual funds and insurance firms. And for the portion reserved for them, the issue was oversubscribed a staggering 24.70 times.

The IPO, priced in a band of Rs 225-245 per share, closes today for retail and non-institutional buyers. Overall, the issue has been oversubscribed 15.17 times (till 5:00 pm) as per the data available with the NSE.

The Insurance Regulatory and Development Authority (Irda) has suspended sale of universal life policies, which were being promoted as an alternative to unit-linked insurance plans, from October 23.

Sales have been suspended until the final guidelines for ULPs are issued. Irda said it had received several complaints on the sale practices of the insurers regarding ULP. “After examining the complaints, the authority is satisfied that the universal life products need a better regulatory framework for protecting policyholders’ interests,” Irda said.

In a draft issued late evening, the regulator defined the Variable Insurance Product, widely known as universal life policies, as life insurance products that provide death and maturity benefits equivalent to the balance in the savings account.

Under this policy, the regulator has proposed to cap the expenses at 25 per cent in the first year and at 5 per cent from second year onwards. Insurance company sources said the commission to agents may also be capped below 5 per cent.

Moreover, single-premium products under ULPs will not be allowed.

Like unit-linked insurance plans, the minimum policy term will be five years, with a minimum life cover of 10 times for those below 45 years of age. Above 45, the life cover will be seven times. The lock-in under the draft is kept at three years. Also, insurers will not be allowed to collect top-up premium or offer riders with ULPs.

Insurance companies like Reliance Life and Max New York Life have launched these products as a combination of Ulips and traditional plans. Now, they have to follow the investment norms of traditional policies. Under this product, however, the policyholder will have the flexibility to change the policy term as well as the minimum sum assured.

Insurers will have to show the premium separately as risk premium, expense, commission and savings components.

Also, the draft has proposed that the policyholder will have 12 months to revive the policy from the date of first unpaid premium, while the life cover will cease.

Similarly, the benefit paid on death and maturity will be comparable to Ulips. The balance in the savings account will be paid at the time of maturity. On death, the sum assured chosen by the policyholder, along with the balance in the savings account will be paid.

Irda Chairman J Hari Narayan had said ULPs were the next focus area for the regulator as they wanted only fair products to be sold. Last week, insurance companies expressed their concern over capping of charges in ULPs, as agents did not push products with lower fees.

The Unique Identification Authority of India (UIDAI) has shortlisted nine information technology service companies for the managed services provider (MSP) contract. The contract is estimated to be worth around Rs 2,000 crore.

Tata Consultancy Services, IBM, Wipro, HCL Technologies, Mahindra Satyam and Tech Mahindra are some of these. These companies will first give their proposals for implementing and managing the central information data repository of UIDAI. The bidding process will start soon thereafter.

The selection of the services provider will be crucial, as the firm will be responsible for the roll out of the 600-million Aadhaar numbers by 2014. More, the MSP vendor will have to provide a system and be involved in the de-duplication process. That means every time someone sends a biometric print, the systems need to match these and get back to the person in real time.

The government had kept a steep eligibility criterion for interested parties, which were required to have revenues of over Rs 6,000 crore annually and net worth of Rs 4,000 crore. It had to change this as many of the Indian vendors protested.

This is the fourth IT contract from UIDAI. The first was for a consulting partner for UIDAI, of the size of Rs 7.05 crore; it was bagged by consultancy firm Ernst & Young. It was followed by the Rs 19-crore contract for application development services, bagged by Bangalore-based Mindtree. A consortium led by Mahindra Satyam, and including Morpho, Accenture and L1 Identity Solutions, bagged the contract to implement the core biometric identification system for the Aadhaar programme.

Satyam founder B Ramalinga Raju on Wednesday said he never admitted to fraudulently appropriating money from the IT company.

Defending bail granted to him in the Supreme Court, Raju, interestingly, thanked the government for its efforts of putting the scam-hit firm back on the track.

During the proceedings, Raju’s counsel former attorney general and senior advocate Ashok V Desai submitted that the confessional statement of January 7, 2009, of inflating the account books of Satyam Computers (now Mahindra Satyam) has no linkage with siphoning off money.

“There is no admission of any siphoning off money, there is no admission of any guilt, but only of inflating the charts and accounts of the company,” he submitted.

Opposing the plea of investigative agency CBI to cancel the bail granted to Raju, Desai contended that any court would take three to five years to complete the trial considering the large volumes and over 450 witness produced by the agency. Till such a long time Raju cannot be put behind the bars, he added.

“Still we are at stage of pre-charging. Only chargesheet has been filed and charges are not even framed. Even after one year and nine months, nothing has started and he has already spent more than 19 months in prison,” said Desai.

He further said, “Trial would take if not five years than three years, with so many documents and evidences. I do not know why in such condition CBI wants to send him again back to him in jail … CBI’s contention of tampering evidences by him after getting bail does sound well”.

Commending the government’s role in reviving the company, he said, “Thanks to the reconstructive approach of the government including Ministry of Finance, Ministry of Corporate and CLB, several eminent people were put on company’s board. Company survived thanks to the whole approach.”

Country’s largest insurer, Life Insurance Corporation (LIC), today said it has crossed the Rs 1,000 crore-mark from its two new unit-linked plans, which were launched after the latest guidelines of the sectoral regulator IRDA took effect last month.

“Life Insurance Corporation of India has crossed the Rs 1,000 crore mark under the new ULIP plans, Pension Plus and Endowment Plus. The total premium income under these two plans as at October 18, 2010 was an awesome Rs 1,282 crore approximately,” LIC said in a statement.

The new plans were introduced last month. Pension Plus was launched on September 2 and about Rs 150 crore of premiums have been collected under it from more than 30,000 policies.

Endowment Plus plan was launched on September 20 and it was LIC’s 16th linked product. Over Rs 1,000 crore has been garnered from Endowment Plus alone from over 2 lakh policies, in merely 29 days.

As per new guidelines, effective September 1, Insurance Regulatory and Development Authority (IRDA), the commission paid to distributors and expenses charged by insurers will no longer be front-loaded. Instead, they will be distributed over the lock-in period of the schemes, which has been raised to five years from three years earlier.

Currently, ULIP products account for over 50 per cent of the total premium collected by the life insurance companies.

Life insurers saw premium from sales of new policies decline by half during September 2010 against the previous month. The first premium income (FPI) figures for September assume significance as it was from this month that new guidelines for unit-linked products – the main source premium income for all life insurers – became effective.

Data compiled by the regulator shows that first year premium for life insurers in September 2010 fell to Rs. 9,613 crore against. 18,500 crore in August - a 49% dip. For Life Insurance Corporation of India (LIC), the decline was around 55% during the same period at Rs. 6,606 crore during September 2010. The private life insurers — 22 of them, however, saw a relatively smaller dip at 22%.

The new guidelines, which prescribed lower charges for early withdrawals and higher life insurance cover, have forced many insurers to lower commissions. Also, the increase in protection meant that life companies could not position Ulips as an alternative to mutual funds.

The new guidelines forced insurers to withdraw at least 208 unit-linked policies in August. Given the stringent guidelines, companies were able to launch about 42 new Ulips to replace ones that were withdrawn.

“A decline in the number of policies, reduction in commission structure as well as stringent norms for agents have had its effect on sale of unit-linked policies. This is reflected in the number of first premium income of almost all major companies, which has declined,” said Rahul Agarwal of Optima Broking.

Additionally, brokers and insurers feel the market will witness a rationalisation in terms of the number of Ulips and every insurer’s practice of launching a host of policies will be replaced with 3-5 Ulips per company. Some feel the current situation is creating a dearth of investment options for investors as far as Ulips are concerned.

As many as 19 insurers, out of the 23, witnessed a decline in first premium income during September 2010 against the previous month. The largest decline, in percentage terms, was registered by Aegon Religare (77%), Bharti Axa Life (70%), Sahara Life (68%), Aviva (63%), LIC (55%), MetLife (50%), Birla Sunlife (43%), and Canara HSBC OBC Life (42%).

Interestingly, the first premium income for the sector was around 20% higher for September 2010 against the previous corresponding period. Nevertheless, about 12 out of 23 companies registered a decline in first premium income during this period against September 2009. LIC registered a 32% rise in first premium income while private insurers managed a marginal growth during this period.

Larger dip in premium income during September 2010 against the previous fiscal was witnessed by 12 companies , including Sahara Life (63%), Aviva (40), Bharti Axa Life (39%), Birla Sunlife (39%) and MetLife (39%), among others.

Prime Minister’s economic advisory panel has said that diesel prices should be freed from government control ‘as early as possible’; a suggestion if accepted will lead to a price hike of Rs 2.87 per litre.

“I think the sooner it (deregulation of diesel prices) is done the better. . . I think it should be done as early as possible,” Prime Minister’s Economic Advisory Council chairman C Rangarajan said.

The government on June 25 deregulated petrol price and said the same for diesel will be done soon.

But with inflation rate continuing to remain at unmanageable levels, the government put-off the decision as any further hike in diesel price would lead to cascading effect.

At present, the retail price of diesel is Rs 2.87 a litre short of cost of production.

Oil Secretary S Sundareshan earlier this week stated that ‘there is no thinking at this juncture’ to deregulate diesel prices as ‘it will be unfair’ to increase rates when inflation is already high.

Finance Secretary Ashok Chawla had also said that it will not be a wise or prudent thing to deregulate price of diesel at a time when inflation is running so high.

Wholesale price inflation rose to 8.62 per cent in September from 8.51 per cent in the previous month.

Rangarajan said it would be appropriate to deregulate diesel prices when inflation reaches 7 per cent from 8.62 per cent, adding that inflation is likely to reach 6.5 per cent by December.

The government, on June 25, had decontrolled petrol price and had said that diesel would move in free price regime shortly.

At that time, an ad-hoc Rs 2 a litre increase in diesel price was brought into effect. Since June 25 decision, petrol prices have been raised twice, once in September and second time during the last week to reflect the rising trend in international crude oil prices.

The government is set to beat its target of Rs 40,000 crore from divesting stake in public sector companies. The first half of the financial year saw the government raise a little over Rs 2,000 crore from stake sales in Sutluj Jal Vidyut Nigam and Engineers India Ltd. But it will raise nearly Rs 22,000 crore in the current quarter, with the Coal India initial public offering alone mopping up Rs 15,000 crore.

The January-March quarter is expected to generate another Rs 35,000 crore, with the issues of Steel Authority of India, Indian Oil Corporation and Oil & Natural Gas Corporation scheduled. These could enrich the exchequer by a total of around Rs 59,000 crore this financial year. 

While refusing to be drawn into speculation on the total mop up, Disinvestment Secretary Sumit Bose told reporters today that the government would like to meet its Rs 40,000-crore target.

On the kind of response that might be expected from the upcoming issues, he said the market had enough appetite and that the government planned to spread out the public issues. He did not think bunching big issues in the fourth quarter of the fiscal would create any problems.

Bose said after Coal India, the next public issue would be that of Power Grid Corporation of India, followed by Manganese Ore India and Shipping Corporation. Hindustan Copper would follow. “By December, we plan to come out with four issues,” he said.

While the government raised a little over Rs 25,000 in 2009-10, it mopped up only around Rs 4,260 crore in the first three quarters of 2009-10 through the public issues of National Hydel Power Corporation and Oil India.

The follow-on offers of Indian Oil, ONGC and SAIL are scheduled for the fourth quarter of the current financial year. The issues are expected to bring in around Rs 20,000 crore, Rs 15,000 crore and Rs 18,000 crore, respectively.

Of this, the government will get around Rs 35,000 crore. Indian Oil has floated requests for proposal for the appointment of merchant bankers. The government is also considering a stake sale in Rashtriya Ispat and MMTC. But these stake sales will only take place next year.

The insurance regulator is being doubly wary of innovation in life insurance and is now clearing products at two additional levels. Unlike in the past, when it was largely the actuarial department which looked at new products, Irda is running products through its life insurance and investment department as well.

The caution appears to stem from the fact that on more than one occasion, the regulator has discovered that an approved product is not suitable to the general public. In the past, Irda had banned capital gain products – schemes that allotted notional units to a policyholder’s account. The notional units, which were payable only on maturity, masked high front-end charges and left, short-changed those policyholders who exit their investments early.

But the flip side of such due diligence is that life insurance companies are finding that it takes much longer to get a product to market. “Going by Irda’s own directive, a life company should be free to start selling a new plan 30 days after it has been filed with the regulator and if there are no objections from the regulator,” said the CEO of a life company.

The decision by the regulator to intensely scrutinise life insurance products has led some insurers to question the need for stringent regulations, given that only products that pass muster with Irda are allowed to be sold. Officials at life insurance companies partly blame the lack of products for the slowdown in sales in September. Although new business figures are yet to be made public, most CEOs are expecting a 20-25 % drop in September sales.

But sources close to Irda say one of the reasons for the perception of delay could be because until September, the regulator had worked overtime to clear new products. Since nearly all the Ulips were non-compliant with Irda’s new Ulip regulations, all companies had lodged new products to replace their existing portfolio that became non-complaint after September 2010. “To clear the backlog, Irda had drawn resources from other departments and clearance of non-life products had almost slowed down,” said the source. Now there is also some more focus on non-life.

Did you know you can’t buy insurance for just anyone… or a cover for an asset owned by someone? For example, an individual’s application to insure his cousin’s life was rejected. Insurance companies cited “lack of insurable interest” as a reason for rejecting the application. Insurable interest is one of the key principles of insurance.

A person has an insurable interest in something when loss or damage to it will cause that person to suffer a financial loss or some other kind of losses.

For example, if the car you own meets with an accident, you have to incur costs to repair the car before you can ply it again or you have to sell it in scrap and be content with getting too small a sum in return to replace your car. Here, you suffer a financial loss and, hence, have a strong reason to insure your car. If the accident happens with a car not owned by you, you do not suffer any financial loss. You do not have a reason to insure such a car. If a ‘reason’ exists, you are said to have an insurable interest in the subject of insurance.

As a rule of thumb, for property insurance, the insurable interest must exist both at the time of purchase of insurance and at the time of occurrence of loss. For life insurance, the insurable interest must exist at the time of purchasing life insurance.
An individual is said to have an insurable interest in his own life and that of his spouse. The concept of insurable interest ensures that none gambles on someone else’s life or property. It also prevents the moral hazard of an individual buying insurance of a subject and then ‘arranging’ for the occurrence of insured event.

Insurable interest not only bans many ‘speculative’ transactions but also makes some insurance transactions possible.