Indian Regulator Allows Insurance Securities Lending

The Insurance Regulatory and Development Authority (IRDA) will allow insurers to lend up to 10% of equity in any equity holding of a specific entity held.

The IRDA circular, which comes as a response to draft guidelines published last year, stated that the lending must be under the securities lending and borrowing (SLB) scheme, and that the purpose of the rule change was to help insurers generate extra yield on their portfolios.

The Economic Times estimates that an extra Rs 50,000 crores, or $8.4 billion, worth of securities will now be available to short sellers. The rule change could potentially increase securities lending and borrowing turnover, which has been lukewarm so far.

Securities loaned under the SLB will be treated as if the insurer owns all the securities and benefits acquired thereof; the lending fee will be accounted for on an accrual basis; and lending securities must first be approved by an investment committee that ascertains it is in the interest of policyholders. According to the circular, the insurer also has to adhere to SEBI and stock exchange limits on client level and participation level limits.