Nearly two months after promulgating an ordinance to usher in long-stalled reforms in the insurance sector, the government on Friday notified the Indian Insurance Companies (Foreign Investment) Rules, 2015, to raise the composite foreign investment ceiling in the sector from 26% to 49%.
The rules also will ensure that ownership and control shall remain at all times in the hands of resident Indian entities, a finance ministry statement said.
The 49% cap will also apply to insurance brokers, third party administrators, surveyors and loss assessors and other insurance intermediaries, it added.
The ministry said though FDI proposals up to 26% of the total paid-up equity of the Indian insurance company shall be allowed on the automatic route, proposals which take the total foreign investment above 26% and up to 49% shall require FIPB approval.
These rules will come into force from the date of their publication in the Official Gazette. Raising the foreign investment limit is expected
to generate inflows of $6-8 billion in the insurance sector that is looking for growth capital. The capital requirement of the Indian insurance industry is estimated at $12 billion by 2020.
Foreign portfolio investment in Indian insurance companies will be governed by the FEMA Regulations, 2000 and the SEBI (Foreign Portfolio Investors) Regulations. Any increase of foreign investment of an Indian insurance company shall be in accordance with the pricing guidelines specified by RBI under the FEMA.
British health insurance company Bupa had recently announced plans to hike its holding in its Indian joint
venture to 49%, making it the first foreign company to go for the 49% limit after the change in norms.
Lamenting the Opposition’s obstructionist stance in Parliament, finance minister Arun Jaitley had earlier hinted at the government’s intent to convene a joint session of Parliament to raise the foreign investment limit in insurance companies to 49% from 26% if Parliament fails to pass the Insurance Laws (Amendment) Bill, 2013, even in the Budget session.
The Modi government, which accepted all recommendations of the House’s select panel on the insurance Bill, hanging fire since 2008, could not introduce it in the 245-member Upper House.
According to the House panel, the domestic insurance sector needs Rs 55,000 crore over the next five years.
Foreign insurance companies having operations in India through joint ventures with domestic firms include Netherlands-based Aegon, Canada’s Sun Life Financial, Italy’s Generali, Prudential of the UK and Nippon Life Insurance.
All are believed to have expansion plans in the country and others are planning to set up shop.