Insurance Regulatory and Development Authority (IRDA) prohibits insurance cos. from investing in IDRs

Insurance regulator, Insurance Regulatory and Development Authority (IRDA) today prohibited insurance companies from investing in Indian depository receipts (IDRs), the instruments through which foreign companies raise funds from the Indian equity market.

Insurers said the IRDA move would not affect them much, but stock analysts said the decision would diminish the attractiveness of the IDR market.

“On examination of the features of IDR, it is observed that an investment in an IDR by any insurer would amount to an indirect investment made outside the country and would not be in compliance with section 27 C of Insurance Act“, said IRDA. Section 27 C of the Act bars investment of insurance funds outside India.

“In view of the extant statutory restrictions on overseas investments, it would not be in order for insurers to invest in Indian depository receipts“, IRDA added.
Through IDR, foreign companies mobilize funds from the Indian markets by offering their equity shares, in the form of rupee denominated depository receipts.

IDRs are listed and traded on the Indian stock exchanges. These receipts are issued to the investors in India, against the underlying equity shares of the foreign issuing company.

“As we have many other avenues of investment, it won`t impact much“, said Malay Ghosh, director, Reliance Life Insurance.

However, SMC Capitals equity head Jagannadham Thunuguntla said the ability to raise IDRs will be reduced to certain extent and might affect their issue size.