HDFC Standard flays different FDI regulations

HDFC Standard Life Insurance managing director and CEO Deepak Satwalekar today flayed the different foreign direct investment (FDI) and capital requirement norms for various segments within the financial sector.

According to Satwalekar, FDI norms for banking, insurance, mutual fund and that proposed for pension funds vary widely, which will lead to 'chaos' in the financial sector. Satwalekar was speaking about the issue at the Confederation of Indian Industry's CFO Summit 2005.

Though the tax benefits for investments across various investment options are the same the capital adequacy norms vary for different segments. Also, the tax benefits for investments in short-term instruments and in a longer term paper of 20 years are the same.

The life insurance sector has the most stringent capital adequacy norms. The capital adequacy for life insurance industry in India is 150 per cent of the same norms in the western world.

Satwalekar said the cost of equity is very high and somebody has to pay for it. Ultimately the policy holders end up paying a price for the higher capital requirements.

The special purpose vehicle (SPV) proposed by the government for development of infrastructure will further distort the financial sector as investments in SPV will be guaranteed by the government, he said.

Satwalekar was also critical of India adopting the multiple regulatory mechanism for the financial sector. Insurance companies also offer pension services and will end up being regulated by both Insurance Regulatory Development Authority (Irda) and the proposed pension regulatory authority.

Life insurance industry in India has a huge potential and the compounded growth is expected to be 14 per cent per annum by 2010. Insurance premium has grown to 2.2 per cent of the GDP from 1.3 per cent five years ago. This growth is significant considering that the GDP has grown at a faster rate during the same period.