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'Banks to lend credibility to pension operations'

Freny Patel

The Insurance Regulatory and Development Authority (IRDA) has identified the 'reformed' pension operations in India for participation by banks. IRDA chief N Rangachary advocated banks' participation even in the face of a major bank scam that has dramatically rocked the system. Rangachary in an exclusive tete-a-tete said, "Banks could lend some credibility to the pension system. The faith the customers put in banks whose credibility is assured, will add to the credibility of the operations." This is in addition to the "good reach", in terms of networking and branches, banks have established across the country, he added. The IRDA chief was in the city on Friday to meet top bankers, and heads of mutual funds and insurance companies. Excerpts from the interview:

With the participation of banks and mutual funds in pension operations, will IRDA also be regulating them?

If the banks are participating as pension operators and fund managers, they will be regulated by the IRDA. We do not intend to have too many regulators. The question is whether they will be willing to stand two regulators. We will then discuss the issue with the Securities and Exchange Board of India and the Reserve Bank of India.

Will India do away with a tariff regime?

Movement towards a de-tariff insurance structure needs to be gradual, taken slowly from product to product. Else it will give rise to instability. In a competitive market, if tariffs are reduced, the question is whether the players can survive. Even today, there is an underwriting loss. New companies do not even have investments and, hence, have no alternate source to sustain themselves. They can either go out of business or else put up with the rates. In a market that has recently opened up, tariffs can help companies reach some stability and ensure some responsibility on the part of the insurance companies to the customer.

In view of the overseas scenario in the insurance industry in terms of bankruptcy cases, do you feel that the IRDA regulations are strong enough to withstand such deficiencies?

In the end, human ingenuity could find loopholes in regulations. The standing committee has given us the facility to amend the regulations. Outside India, companies have failed in two aspects. Their investments may not necessarily be in proper areas, for example, in real estate where investments have turned sour. Secondly, most life insurance companies have issued guaranteed returns policies where the actual yield may not be as high as promised. These reasons affect the solvency of a company.

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