Moneycontrol PRO

FDI hike in insurance likely to take 6-8 months to be finalised

It is likely that FDI cap in insurance companies will be hiked to 74 percent

July 11, 2019 / 07:52 PM IST

The hike in the foreign direct investment (FDI) in the insurance sector is likely to take six to eight months to be finalised. While the quantum of the increase has not yet been disclosed, it is likely that it could be raised to 74 percent matching the cap in the banking sector.

The FDI limit is presently 49 percent, but in Budget 2019 Finance Minister Nirmala Sitharaman proposed 100 percent FDI in insurance intermediaries.

Sitharaman also said that the government was looking into the possibility of hiking the FDI limit in the insurance sector which includes companies.

"The proposal will first be taken to the Cabinet for its approval. Post their nod, the Insurance Act will have to be amended in both houses of Parliament," an industry official said.

Apart from this, the views of the Insurance Regulatory and Development Authority of India (IRDAI) and Reserve Bank of India (RBI) will also be sought on this matter.

An amendment to the Insurance Act -- Insurance Act (Amendment) Act 2015 which increased the FDI cap in the insurance sector to 49 percent from 26 percent was carried out after several rounds of discussion between the ruling party and opposition.

Further to ensure that foreign companies do not hold control over Indian insurers, a provision of Indian management control was introduced in the law. This assured lawmakers that foreign joint venture partners could not take final decisions on crucial board matters such as strategy and appointments, which require support from a majority of the Indian shareholders.

Sources said that even if FDI is increased to 74 percent, Indian management control will remain.

An Assocham report had said that the Indian insurance industry is expected to grow to $280 billion by FY19-20. An increase in FDI limit would mean an inflow of funds from existing foreign JV partners and entry of new players.

Insurance is a capital-intensive sector. When the insurance FDI rose in 2015, there was an expectation that almost Rs 60,000 crore would flow into the sector. However, the actual flows were less than half of the number.

M Saraswathy
first published: Jul 11, 2019 07:52 pm