13.4        ndian    onom
     allowed under the automatic route while beyond       Reinsurance Group of America and UK-based XL
     it the approval of the Ministry of Finance.          Catlin) are waiting for the initial approval. These
                                                          companies will start their operation once they get
         reinsurance                                      the final approval (known as R2).
     Insurance is a very risky business. While the
                                                             Deposit insurance anD creDit
     insurance companies offer insurance to its clients,
                                                             Guarantee corporation (DicGc)
     they themselves get exposed to very high financial
     risks. Re-insurance business emerged out of          DICGC was set up by merging the Deposit
     this reality. When an insurance company buys         Insurance Corporation (1962) and the Credit
     insurance cover for its insurance business, a new    Guarantee Corporation (1971) in 1978. While
     segment comes into being i.e., re-insurance.         Deposit Insurance had been introduced in India out
          Experts believe that in absence of re-          of concerns to protect depositors, ensure financial
     insurance, insurance industry in a country will      stability, instill confidence in the banking system
     not grow to the level of the social requirement—     and help mobilise deposits, the establishment of
     as insurance companies will either not provide       the Credit Guarantee Corporation was essentially
     insurance cover in several areas or they will charge in the realm of affirmative action to ensure that
     very high premiums on the policies they offer (to    the credit needs of the hitherto neglected sectors
     neutralise the risk). Keeping this thing in mind,    and weaker sections were met. The essential
                                                          concern was to persuade banks to make available
     the Government of India took initiative to convert
                                                          credit to not so creditworthy clients. After the
     the existing public sector general insurer, the GIC,
                                                          merger, the focus of the DICGC had shifted onto
     into a re-insurance company (in 2000). Known
                                                          credit guarantees. This owed in part to the fact
     as the GIC Re, it remained the only reinsurance
                                                          that most large banks were nationalised. With the
     company in the country till now. Over the time,
                                                          financial sector reforms undertaken in the 1990s,
     this emerged as a major player in the global
                                                          credit guarantees have been gradually phased out
     reinsurance industry. Reinsurance industry is
                                                          and the focus of the Corporation is veering back
     regulated by the IRDA in the country.                to its core function of Deposit Insurance with the
          Reinsurance industry has a very low             objective of averting panics, reducing systemic
     penetration in India. Lack of competition has        risk and ensuring financial stability.
     been cited as a major factor behind it—it has             In 2017-18, the Government proposed
     only one player by now. To promote competition       the Financial Resolution and Deposit Insurance
     and vibrancy the IRDA announced (late 2015)          (FRDI) Bill which aims to reform the existing
     to open up the industry for the entry of foreign     provisions related to deposit insurance and credit
     companies. In March 2016 , the IRDA gave initial     guarantee. After it was criticised by the experts for
     approval (known as R1, in regulatory parlance) to    its provision of ‘cancelling the liability owed by a
     four foreign reinsurance companies. Among them,      failed bank’, it was sent to a Joint Parliamentary
     two belong to Germany (Munich Re, Hannover),         Committee (JPC)— its views are awaited.
     one each to Switzerland (Swiss Re) and France        Basically, the proposed Bill has a provision (Section
     (SCOR). Munich Re is the largest reinsurance         52) under which the Resolution Corporation
     player in the world while Swiss Re is the second     (to be set up under the Bill) is empowered to
     largest and Hannover comes third in global           ‘write down failed banks’ liabilities’. This clause
     size. Two other foreign companies (US-based          was inferred by analysts as the ‘bail-in’ clause