FDI hike may queer pitch for local insurance promoters

Extant rules force local promoter to dilute stake via IPO in 10th year

The Insurance Regulatory Development Authority (Irda) may have to scrap a clause in the Irda Act pertaining to Indian promoters reducing their holding through an initial public offer (IPO) in their 10th year of operations in the event of a hike in foreign direct investment to 49 per cent.

"Either both shareholders should bring down their stake to 26 per cent, or that section will have to go," C S Rao, chairman of Irda, told Business Standard.

If the amendment is made to the FDI cap, the choice will be left to the company whether it wants to take the company public. Else a clause could be inserted making it mandatory on the part of both promoters to reduce their shareholding, said Rao.

The initial objective of asking insurance companies to go for public listing was that they could attract more capital as their business grows, he added. Today with Indian promoters having a 74 per cent stake the onus on bringing in funds to grow the capital business lies with the Indian shareholders.

Some private insurance players in the country had been skeptical of a hike in FDI in view of the current norms stipulating that Indian promoters have to reduce their holding to 26 per cent in the 10th year by way of an IPO.

The financially strong Indian promoters are apprehensive about divesting additional stake to their respective foreign partners. At least two Indian companies, SBI Life and ICICI Prudential have voiced their opposition in this regard.