Vibha Padalkar, HDFC Life Insurance

Vibha Padalkar, MD & CEO, HDFC Life Insurance, talks about the budget and the benefit of the proposed increase in the FDI cap in the insurance sector to 74% among others during an interview with Anil Singhvi, Managing Editor, Zee Business. Edited Excerpts: 

Q: Finance Minister has proposed to open the FDI limit from 49% to 74% in the insurance sector. How should we understand it for the insurance sector?

A: This is very welcome because since a long time as an industry there was a need to have parity as 74% FDI is allowed in many sectors. This will help the mid-tier companies, who are quite young and need capital as with this relaxation the foreign direct investment can come in up to 74%. However, there are certain conditions in terms of 50% of the board being independent among others but such an owner risk is not visible and will have to see the fine prints. But it will be good both as I said, mid-tier and smaller companies. Secondly, the long-term infrastructure spending and investment for the government also insurance is very suited because our policies are 20-30-year-old policies due to which the funds are locked-in on that front, which can also help in nation-building. 

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Q: To rationalize the tax, the finance minister has said the annual premium on ULIP is exempted till Rs 2.50 lakhs and it will be taxed beyond that. What is your view on it?

A: Fine prints are yet to be seen, but if it is true, the way it sounds now, then this is a little bit detrimental because an average person does not see it in a way that we will unbundle it and buy term insurance for investment purpose. A one-stop-shop, the Unit Linked policies optionality is provided, especially to those who are not financially savvy and want to make a quick investment. So, it is a bit negative but will have to see the fine prints. But, I would like to say that Rs 2.50 lakh limit is quite a big limit, if it is an annual limit but will have a look on the fine print and then will comment on that. 

Q: Do you think that the money that insurance companies get from ULIPs will reduce a lot of it will work? 

A: If I will have to say about our company, HDFC Life Insurance, then ULIPs are less than one-fourth of our business. And in that Rs 2.50 lakh premium, I don’t expect real impact but there is a disconnect with your speaker that the capital requirement is quite onerous even on the unit link and that is the difference with a mutual fund. And, if you will compare it with mutual fund than we should compare it in its entirety. Another aspect is exit charges is also next to nothing because the surrender charges have been brought down. Besides, in the Unit Link, the insurance company has to give a guarantee and if someone surrenders, which is not present in the mutual fund, then we have to give 4.50% guarantee and that becomes very onerous. So, comparison cannot be selective, it has to be in its entirety. The product is different, and its requirements are also different, so, just saying it as an investment and putting into equity will do a disservice to the two contours of the product.