General Insurance Corporation of India (GIC Re) said it has exposure totalling Rs 1,453.74 crore in IL&FS group, DHFL, Reliance Capital and Reliance Home Finance as of March 2020 and it has made provisions over and above the regulatory norms.
The company's exposure stood at Rs 788.80 crore as of March 31, 2020 by way of investments in debentures of IL&FS group, GIC Re said in its annual report for 2019-20.
GIC Re has made total 100 per cent provision on both secured and unsecured portion of these investments, it said.
Exposure in bonds of Dewan Housing Finance Ltd (DHFL) was to the tune of Rs 204.80 crore, for which the provisions are 100 per cent on both secured and unsecured portion, the state-owned firm said.
In Reliance Capital and Reliance Home Finance, GIC Re had exposure of Rs 365.26 crore and Rs 94.90 crore, respectively, by the end of March 2020.
GIC Re said it has made provisions to the tune of 15 per cent on secured portion of investments in Reliance Capital and Reliance Home Finance, while that for unsecured portion is 100 per cent in each case.
The total provisioning against the exposure in bonds of Reliance Capital stood at Rs 135.29 crore by the end of fiscal ended March 2020, while that for Reliance Home Finance was Rs 73.70 crore.
"The provisions, in the opinion of the management are considered appropriate and are higher than the provision required to be made as per prudential norms for income recognition, asset classification and provisioning issued by RBI and IRDAI applicable to insurance companies," GIC Re said in the report.
It said Reliance Capital (RCap) defaulted on interest payment due in October 2019 and became NPA with effect from Janaury 22, 2020.
The company has made a provision of Rs 135.29 crore (Rs 40.59 crore being 15 per cent on secured debentures and Rs 94.70 crore being 100 per cent on unsecured debentures of RCap) towards diminution in value of investments during the year 2019-20.
"Review of adequacy by audit revealed that the company should have created 100 per cent provision on the secured portion also in view that RCap has incurred heavy losses of Rs 5,465 crore during 2019-20 and the statutory auditors of RCap have expressed material uncertainty regarding the ability of RCap to continue as a going concern," GIC Re said.
Among others, the debenture trustee has initiated proceedings against the company before the Debt Recovery Tribunal (Mumbai) and the credit rating has been downgraded, it added.
Likewise, Reliance Home Finance defaulted on interest payment due in February this year and the investment became NPA in the books of GIC Re as on March 31, 2020.
While, the provision against investments in Reliance Home Finance (RHFL) stood at Rs 73.70 crore (Rs 3.75 crore being 15 per cent on secured debentures and Rs 69.95 crore being 100 per cent on unsecured debentures) towards diminution in the value of investments in FY20, the insurer said it should have created 100 per cent provision in this case as well.
Notably, IL&FS group and DHFL have also defaulted on their debt obligations in the recent past. While the former was to be bailed out through a government intervention, the latter has become the first financial services entity to be admitted for debt resolution under the Insolvency and Bankruptcy Code (IBC).
GIC Re posted net loss of Rs 359.09 crore in 2019-20. There was a net profit of Rs 2,224.31 crore in 2018-19.
"It was the third year in succession where the globe was faced with major natural catastrophes. This has resulted in your company showing an overall loss, the second time in its 48 years history.
"Furthermore, with the current pandemic situation which started in March and has plagued the globe in a never before manner, the economy and consequently the insurance and reinsurance sector is under stress," GIC Re Chairman and Managing Director Devesh Srivastava said in his message to shareholders.
However, company's overall investment performance during 2019-20 has been very strong with investment income having grown by 10.71 per cent to Rs 6,787 crore providing a mean yield of 12.16 per cent, Srivastava said.
The net non-performing assets percentage reduced from 1.12 per cent to 0.63 per cent.
"The world is today in the grip of a pandemic which has been unprecedented. This has led to the global economy witnessing a downturn. However, for us in the reinsurance space, where a large part of our book is domestic, the property rates have shown a good trend commensurate with the burn cost," he said.