24 august 2001

non-life premia to go up
new delhithe provisions of the proposed insurance (amendment) bill, currently open in parliament, seeks to push up non-life premiums by as much as 12.5 per cent.
senior insurance officials say that formerly in a regulated insurance market, no room was left for intermediaries. however, at present with brokers getting a foothold in the indian insurance framework, public sector general insurers will have to add on the additional cost of selling through an intermediary to the premiums and unless they do so, they will not be in a position to attain profits and survive in the
competitive market.
moreover, almost all these psu insurers are in red as a result of underwriting losses. with fire premia down by 30 per cent and ending of cross subsidisation, the companies have no option but to pass the buck on to the consumers.

rbi clears way for 3-tier corporate debt revamp plan
mumbaithe reserve bank of india (rbi) has set the stage for the creating a three-tier corporate debt restructuring system (cdr) in the country, which will apply to all multiple banking accounts, syndicates, and consortium accounts with outstanding exposure of rs 20 crore and above with the banks and financial
institutions (fis).
the cdr system will comprise of the following: standing forum, empowered group and cdr cell. one of the salient features is that reference to cdr system could be triggered by: (a) any or more of the secured creditor who have minimum 20 per cent share in either working capital or term-finance, or (b) by the
concerned corporate, if supported by a bank or fi having stake as in (a).
the objective of the cdr framework is to ensure timely and transparent mechanism for restructuring corporate debts of viable entities facing problems, outside the purview of board for industrial and financial restructuring, debt recovery tribunals, and other legal proceedings.

21 august 2001

rbi to come out risk-based supervision system
mumbai--the reserve bank of india (rbi) plans to come out with a bank-specific risk-based supervision (rbs) system from the last quarter of the financial year 2002-2003.

banks with a better compliance record and a good risk management system will be entitled to an incentive package, which means lesser supervisory intervention.

those banks which fail to show improvement in response to the monitorable action plan (map) will be subjected to a disincentive package.

this will include frequent supervisory examination and higher supervisory intervention including directions, sanctions and penalties.

the risk profile of each bank will determine the supervisory programme consisting of off-site surveillance, on-site inspections, structured meetings with banks, commissioned external audits, specific supervisory directions with close monitoring through map.

key individuals at each bank will be accountable for each of the action points. if actions and timetable set out in the map are not met, rbi will consider issuing further directions to the defaulting banks and even impose sanctions and penalties.

the rbs process essentially involves continuous monitoring and evaluation of the risk profiles of the supervised institutions in relation to their business strategy and exposures.

as part of the supervision process, the rbi has called for the risk profiling of banks via camels (capital, asset quality, management, earnings, liquidity and systems) rating with trends; narrative description of key risk features captured under each camels component; summary of key business risks including volatility of trends in key business risk factors; map and bank's progress to date; strength, weaknesses, opportunities, threats (swot) analysis and sensitivity analysis.

the supervision cycle will vary in accordance with the risk profile of each bank, the principle being the higher the risk the shorter will be the cycle.

the supervision cycle will remain at 12 months in the short-term and will be extended beyond 12 months for low risk banks at a suitable stage.

the inspections under the new approach would be largely systems based rather than laying emphasis on underlying transactions and asset valuations.

all this was done following recommendations of pricewaterhouse- coopers (pwc), a management consultancy firm.

insurance companies cut returns
mumbai--insurance companies have started dropping the returns their policies offer policyholders, in keeping with the general drop in interest rates.
soon after the life insurance corporation of india (lic) reduced the assured rate of return on its single premium product bima nivesh, icici prudential life insurance company has applied to the insurance regulatory and development authority (irda) to bring down the promised return on the icici pru single premium bond by around 50 points to 100 basis points.

the private insurance player is now offering 9.39 per cent on this bond.

a couple of other new players are expected to follow the trend over the next few weeks. since icici prudential launched its products six months back, the yield on 10-year government paper has fallen by 130 basis points.

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