Insurers can invest in NDB’s onshore rupee bonds, says IRDAI

Why in the News

The Insurance Regulatory and Development Authority of India (IRDAI) has permitted insurers to invest in Maharajah INR Bonds, the onshore rupee bonds of the New Development Bank (NDB). The approval follows a representation from the NDB seeking clearance for the bonds, under which the bank proposes to raise Rs 25,000 crore over a five year period. The move assumes significance ahead of next month’s BRICS Summit in New Delhi.

What is a Maharajah INR Bond?

1. Definition: It is an onshore rupee bond issued in the Indian market by the New Development Bank.
2. Purpose: Proceeds are intended to be raised over a five year period, totalling Rs 25,000 crore, for general corporate purposes and for financing or onward lending to sustainable development, sustainable infrastructure, and green and social projects in India.
3. Legal classification: IRDAI has clarified that the proposed onshore rupee bond issuances by the NDB fall under the definition of securities under the Securities Contracts (Regulation) Act, 1956.

What has IRDAI approved and why does it matter now?

1. The approval itself: IRDAI communicated its approval to insurers through a circular, permitting them to invest in the NDB’s Maharajah INR Bonds.
2. What triggered it: The approval follows a representation from the NDB seeking clearance for the bond programme.
3. Its timing: The approval assumes significance ahead of next month’s BRICS Summit in New Delhi, where the New Development Bank’s fundraising plans are likely to draw attention.

Under what conditions can insurers invest, and what is the intent behind the approval?

1. Widening the investment universe: IRDAI is permitting the investment to give insurers more scope for investments.
2. Regulatory treatment: The investment will be treated as part of insurers’ approved investments and remains subject to norms laid down by the Government of India and to SEBI (Securities and Exchange Board of India) approval, among other conditions.
3. Who stands behind the bonds: The New Development Bank is a multilateral development bank established by Brazil, Russia, India, China and South Africa, the BRICS grouping.

Conclusion

IRDAI’s approval is a procedural but enabling step that widens the pool of domestic capital available to the New Development Bank ahead of the BRICS Summit in New Delhi. How much of the proposed Rs 25,000 crore is actually raised will depend on the bond issuance itself and on insurer appetite once it opens.

Back2Basics: New Development Bank

1. Formation: The New Development Bank was established in 2014 under the founding agreement of the BRICS grouping and became operational the following year.
2. Headquarters: It is headquartered in Shanghai, China.
3. Mandate: It mobilises resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies.
4. Membership: It has since expanded its membership beyond its five founding countries to include other developing nations.

[2014] “India has recently signed to become founding a New Development Bank (NDB) and also the Asian Infrastructure Investment Bank (AIIB). How will the role of the two Banks be different? Discuss the significance of these two Banks for India.”