The Insurance Regulatory and Development Authority's (Irda) proposal to cap foreign investment at 26 per cent for third-party administrators (TPAs) will go against the approval granted by the Foreign Investment Promotion Board (FIPB) and the Reserve Bank of India (RBI) to some prospective TPAs.
This points to the revisiting of the Mid-day initial public offering where the RBI differentiated portfolio investment from foreign direct investment (FDI), but the government shot down such an argument.
This resulted in foreign institutional investors not being allowed to invest in the media company's public issue.
The Irda chairman, N Rangachary, indicated at a meeting of TPAs last Monday that the TPA regulations would look into the equity structure.
Sources at Irda said that foreign investment would be capped at 26 per cent in line with the foreign investment cap on insurance companies and brokers.
Prospective TPAs having tied up with or in the process of entertaining foreign joint partners could face the wrath of the insurance regulator and not be granted a licence unless the foreign partner's holding is brought down to 26 per cent.
The Irda is not accepting the argument that TPAs would be a service industry. As brokers and TPAs are intermediaries, there cannot be separate rules for the two.
Paramount Healthcare Management has been granted FIPB-approval to take foreign investment up to 55 per cent.
Munich Re has a 33.33 per cent stake in Paramount with the option to take its stake up to 51 per cent. In addition, a number of non-resident Indians have a four per cent holding in the company.
Sedgewick Parekh also has the FIPB approval for 80 per cent foreign holding, while International SOS Services has been granted RBI permission for 100 per cent foreign holding.
Paramount managing director Nayan Shah said as TPAs are in the service industry where 100 per cent foreign direct investment is allowed, there should not be an issue of having to reduce foreign investment in the company.
"We have already sent our FIPB papers to the Irda as requested," he said.
Ican Medicare has approached the Irda prior to tying up with a US-based partner, which wants to take majority holding in order to control activities.
On clarification, the Irda told Ican managing director George Matthew M that foreign direct investment would be capped at 26 per cent.
"Overseas companies will not wish to bring in their experience in cost control and managed healthcare unless they are given management control," said Shah.
