The government may increase the limit of overseas investment in insurance from 49 % of present limit to 74% in the February budget. The experts of the industry see the move as making the way for foreign control of the insurance companies.
The Insurance Regulatory and Development Authority of India (IRDAI) sought the views of various stakeholders on raising the foreign direct investment limit in a December 2 letter to insurance companies and others at the direction of the government.
“The government is seriously contemplating opening up the sector as it wants long-term stable money to be invested in the country. IRDAI is seeking inputs from industry people on government instructions and a report is expected to be submitted soon,” says source. It’s been proposed that the stake limit could be raised to 74% over time. However, foreign insurers want it to be set at 74% without delay, added the sources.
If everything goes well, the government may introduce this as part of the budget announcement and can take a shortcut so to get the nod of parliament as part of the Finance Bill.
The government increased the limit on FDI in insurance intermediaries to 100% on September 2.
The government raised FDI in insurance under the automatic route to 49% from 26% in 2015. Prior to this relaxation, approval for investment up to 49% required approval by the Foreign Investment Promotion Board (FIPB), which was disbanded two years ago.
The ownership and control had to remain with Indian residents as per the 2015 Insurance Act amendment that raised the overseas limit to 49%. Until then, the Insurance Act did not provide for this, so it was possible for offshore strategic partners to have substantial control rights, including reserved matters or veto rights on operational and financial policy decisions of the joint venture.
The government will have to amend the Insurance Act, alter provisions pertaining to Indian ownership, monitor the solvency of foreign firms to facilitate the higher investment limit.
Several overseas investors increased their stakes in Indian insurance joint ventures after the limit was raised in 2015. Higher FDI enabled companies to go in for initial public offerings. Listed life insurance companies include HDFC Life, SBI Life and ICICI Prudential. Listed general insurance firms are ICICI Lombard, GIC Re and New India Assurance.
In the July budget, finance minister Nirmala Sitharaman had announced that the government will examine suggestions from various stakeholders to further open up FDI in the insurance sector.