Following shortly after the issuance of the Insurance Companies (Foreign Investment) Rules 2015 (Rules) on February 19 2015, the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry notified Press Note No 3 of 2015 (Press Note) on 2nd March 2015 to amend the Consolidated Foreign Direct Investment Policy (FDI Policy) and, effectively, make it consistent with the Rules and the Insurance Laws (Amendment) Ordinance 2014.
The main features of the amendments carried out to the FDI Policy are as follows:
Foreign investment of up to 26% of the total paid-up equity of an Insurer is allowed through the automatic route, or without the need for prior government approval.Foreign direct investment proposals which take total foreign investment above 26% will need approval of the Foreign Investment Promotion Board.
Foreign portfolio investments in an Insurer are to be governed by the provisions contained in R5 of FEMA Regulations 2000 and by the extant Securities Exchange Board of India (Foreign Portfolio Investors) Regulations.
The Press Note reiterates the Rules in specifying that increase of foreign investment in an Insurer must be in accordance with the pricing guidelines specified by RBI under the FEMA, and that the foreign equity investment cap of 49% shall also apply to insurance brokers, third-party administrators, surveyors and loss assessors and other insurance intermediaries appointed under the provisions of the Insurance Regulatory and Development Authority Act 1999.
The Rules and the Press Note when read together are a step forward as they seek to remove the discrepancies in applicable laws and regulations in relation to foreign investment in the insurance sector. However, in order to effectively implement the recent changes in the maximum permissible limit of foreign direct investment in the insurance sector, further clarification in the form of regulations is required, including, amendments to R11 of the IRDA (Registration of Indian Insurance Companies) Regulations 2000 which provides the exact mechanism for calculation of the foreign direct investment in entities operating in the insurance sector.