Plan panel for higher FDI in insurance

Suggests government cut stake in state-run banks to 33%.

A Planning Commission panel has suggested allowing foreign investors to own a larger share in domestic insurance companies. The group, chaired by Planning Commission member Anwarul Hoda, has also said that foreign direct investment (FDI) restrictions on reinsurance companies should be removed.

Present regulations allow a 26 per cent FDI in insurance and reinsurance companies. There has been a demand from insurance companies to raise the limit to 49 per cent.

"In order to ensure efficient utilisation of capital on a system-wide basis, general insurance companies may be permitted to take on risks originated by other players. As recommended for other insurance companies, FDI restrictions on reinsurance companies be removed," it said.

Holding that the insurance sector in India is in a high-growth phase with substantial investment requirements, the group said, "permitting foreign investors to own a larger share may be considered".

For the banking sector, the group recommended a gradual reduction in the statutory liquidity ratio (SLR) from the current level of 25 per cent in line with other markets.

"Similarly, the cash reserve ratio (CRR), which has been increased several times recently as a monetary measure, may be aligned over time with an appropriate globally benchmarked level," the group added. At present, the central bank has pegged CRR at 7.5 per cent.

The group also asked the government to reduce its stake in the public sector banks to 33 per cent, a PTI report said.

At present, the government has a policy to keep at least 51 per cent stake in public sector banks. "In the medium term, the ability of these banks (public sector) to raise capital for growth without reducing the government shareholding to less than 51 per cent will be severely constrained," a report of Planning Commission's High Level Group on service sector said.

The Hoda group has also advocated consolidation in the banking sector to "leverage the synergistic benefits". "The issue of consolidation is particularly relevant for mid-sized public sector banks that are currently duplicating investments in technology and other infrastructure and not benefiting from economies of scale," it held.

The group has also called for a level playing field for private sector banks and insurance companies vis-a-vis public sector banks for managing pension funds.

It has also recommended that all categories of pension and provident funds should be permitted to diversify their investment portfolios from the current excessive share of government securities to various categories of corporate debt, securitised paper and an appropriate proportion of equity investments.

The committee, chaired by Planning Commission member Anwarul Hoda, includes ICICI Bank Managing Director K V Kamath, Wipro Chairman Azim Premji, Infosys Chief Executive Nandan Nilekani, Trent Managing Director Noel Tata and Future Group Chairman Kishore Biyani, among others.