The government, on Friday, notified the new rules for foreign direct investment in the insurance sector, namely allowing 49% FDI in the cash-strapped sector from 26% allowed earlier.
“FDI proposals up to 26% of the total paid-up equity of the Indian insurance company lowed on the automatic route, and FDI proposals which take the total foreign investment above 26% and up to the cap of 49% shall require FIPB approval,” the official press release on the announcement said.
The new rules have been notified just ahead of the Budget session, when the Modi government will try to convert the insurance ordinance and a host of other executive decrees into law. The ordinance itself was promulgated in late December, after parliament proceedings were disrupted regularly for various reasons.
Amitabh Chaudhry, MD & CEO of HDFC Life said that this shows that the government is giving the signal that it has set a deadline for this reform and is sticking to it.
In December itself, three ordinances were pushed through. Since coming to power, the government has pushed through eight decrees.
Deepak Mittal, MD and CEO of Edelweiss Tokio Life Insurance said that the government's notification has operationalised the FDI hike and industry players could formally begin the process of applying to the appropriate authorities for this.
As per the new rules, insurance companies shall not allow the aggregate holdings by way of total foreign investment in their equity shares by foreign investors, including portfolio investors, to exceed forty-nine% of their paid-up equity capital and also shall ensure that ownership and control shall remain at all times in the hands of resident Indian entities.
The rules shall also apply to Insurance Brokers, Third Party Administrators, Surveyors and Loss Assessors and other insurance intermediaries appointed under the provisions of the IRDA Act, 1999.
It was being anticipated that insurance brokers would be allowed to have 100% foreign direct investment. The chief executive of a global insurance brokerage firm with an India presence said that they would have preferred complete freedom in FDI in this segment.
In spite of the ordinance coming into force, many insurers have said they would rather wait and watch till it is converted into law. The ordinance will be tabled in the Budget Session of Parliament which begins on Monday.
If fresh capital is brought in, insurers can get additional funds from their foreign joint venture partners as well as newer entities. Estimates said that the sector would gain an additional Rs 7,500 crores- Rs 8,000 crores if FDI is raised.
