IRDAI allows foreigners to invest in the Insurance Company’s preferential shares and subordinated debt

Tags: Economy/Finance

The insurance sector regulator Insurance Regulatory and Development Authority of India (IRDAI) has allowed foreign investors to invest in preference shares and subordinated debt issued by Indian insurance companies.

The regulator has also now allowed the subordinated debt issued by the Indian insurance companies to be listed in Indian stock exchanges. They cannot be listed in a foreign stock exchange.

The maturity period of the subordinated debt shall not be less than 10 years if it is issued by life insurance companies, general insurance companies or reinsurance insurance companies.

For health Insurance companies the maturity period should not be less than seven years.

What is Subordinated Debt?

Subordinated debt is an unsecured loan or bond that ranks below other loans or securities, also called as senior securities with respect to claims on assets or earnings. Subordinated debts are also called junior securities. 

It means that if the borrower defaults on its borrowing then all the assets of the borrower which have been kept as security will be sold. The money which is earned by selling the assets will be first paid to the senior bond holders and only then the subordinated bondholders will be paid.

What is a Preference Share?

Shares are of mainly two types. Equity shares or common shares and preference shares. Unlike the equity shareholders the preference shareholders do not have the right to vote.  However in case of payment of dividend then the preference shareholders are paid first then the equity shareholders are paid.

Dividend is the part of profit which a company distributes amongst its shareholders.

The foreign Investment limit in the Insurance sector is 74%.

Chairman of IRDAI: Debashish Panda

Headquarters of IRDAI: Hyderabad