The insurance regulator is developing an operational framework that will allow insurers to undertake repo and government securities lending transactions, according to reports from The Economic Times. This initiative follows recent amendments to the Insurance Act that explicitly permit encumbrance of assets for such activities, providing insurers with greater flexibility in liquidity management. The enabling provision was introduced through the Sabka Bima Sabki Raksha amendments to insurance laws earlier this year. The amended law creates an exception to the long-standing requirement that assets backing policyholder liabilities remain free of encumbrances, charges, hypothecation or liens, permitting insurers to participate in repo, reverse repo and government securities lending transactions undertaken in accordance with the Reserve Bank of India (RBI) Act and related directions.
The proposed framework is expected to establish comprehensive guidelines for insurer participation in these markets. As reported by The Economic Times, the framework will detail settlement mechanisms, eligible trading platforms, collateral management standards, exposure limits, counterparty eligibility criteria and risk-management safeguards before insurers are allowed such transactions. The regulator is working on issuing a draft operational framework followed by a final one after feedback from industry. According to people familiar with the matter, the law now permits repo and securities lending transactions, and therefore the regulator is actively developing this framework to provide operational clarity for insurers.
Insurers maintain a significant position in India's government securities market, according to the latest RBI annual report cited by The Economic Times. Insurance companies held 24% of the country's outstanding government securities stock as of March, making them the second-largest holders after commercial banks, which accounted for 34.6%. Provident funds and the RBI each held 10.9% of the securities, demonstrating the substantial role of insurance companies in India's government debt market.
The insurance sector's substantial asset base provides context for these regulatory developments. According to The Economic Times, the insurance sector manages assets exceeding ₹74 lakh crore, with regulatory rules requiring more than half of the investments to be deployed in approved securities, particularly government bonds. The RBI reports that nearly 59% of their investments are held in government securities, with another 30% parked in approved investments, highlighting the sector's significant exposure to government debt instruments.
