Sucheta Dalal :HDFC Bank misleads customers claims that ULIPs issue is ‘settled’
Sucheta Dalal

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HDFC Bank misleads customers, claims that ULIPs issue is ‘settled’  

April 22, 2010

Even before any hearing has started over whether the capital market regulator or the insurance regulator would regulate unit-linked insurance plans (ULIPs), HDFC Bank has decided that the issue has already been resolved and that all is well with ULIPs.

An HDFC Bank official has shot off an email to high networth clients (serviced under the brand name ‘Imperia’) which quotes a Times of India report saying that “Life insurance companies can do business in equity and bond-linked products, such as unit-linked insurance policies (ULIPs), as per rules laid out by the insurance regulator IRDA, government clarified in Parliament on Tuesday.” HDFC Bank has interpreted this news report as meaning “The statement will put the controversy between SEBI and IRDA on the issue of which agency would regulate the unit-linked products of insurance companies, at rest.”

HDFC Bank’s motivation is understandable. The recent spat between the Insurance Regulatory and Development Authority (IRDA) and market regulator Securities and Exchange Board of India (SEBI) over who would regulate ULIPs has affected the business of large private banks with a nationwide distribution network because they are among the most aggressive sellers of ULIPs.

But the issue is far from settled. The finance minister suggested two weeks ago that the battle over ULIP regulation be fought out in a court between SEBI and IRDA. The court has not even starting hearing the arguments. Indeed, the Times report is quite wrong. The paper wrote: ‘In a written reply to Rajya Sabha, minister of state for finance, Namo Narain Meena said, "The Insurance Regulatory and Development Authority has reported that every life insurance company registered under the IRDA Regulations, 2000, can transact life insurance business, which includes unit-linked business."

Moneylife has a copy of the unstarred question and answer about ULIPs in the Rajya Sabha. This is how it went:

Unstarred Question No. 2618
Launching of Unit linked insurance policies


Will the minister of finance be pleased to state:

(a)   Whether Government has any information regarding launching of unit linked (Stock market linked ) insurance policies by the private insurance companies; and

(b)   If so, the details thereof?

Minister of State in the Ministry of Finance

(Shri Namo Narain Meena)

(a)   & (b): “The Insurance Regulatory and Development Authority (IRDA) has reported that every life insurance company registered under the IRDA (Registration of Indian Insurance Companies) Regulations, 2000, can transact life insurance business which includes 'linked business'. After clearance from IRDA, the insurance companies must launch the products within three months from the date of clearance. The number of new products cleared by IRDA during the financial year 2009-10 in respect of private insurance companies was 236.”

Nowhere in the answer does the minister mention that ULIPs will be regulated by IRDA.

When contacted for clarification, finance ministry and SEBI sources told Moneylife that the claim made in the newspaper article was “completely shocking and preposterous.” After finance minister Pranab Mukherjee asked the two regulators to move court in order to expeditiously resolve the issue, SEBI and IRDA are likely to file a joint appeal before a High Court by 29 April 2010. An email query sent to HDFC Bank remained unanswered till the time of writing this article.
Moneylife Digital Team

-- Sucheta Dalal