Good News For FDI In Insurance!

Welcome to The Firm audiocast, I’m Menaka Doshi. Last week FIPB cleared Kotak Mahindra Bank’s proposal to hike FPI stake from 49% to 55%. In giving Kotak approval the FIPB also offered a resolution to the ongoing confusion in the insurance business. It indicated that even if foreign portfolio investment in the parent company exceeds 49%...the parent will not be  considered as foreign owned and controlled and hence its investment in the downstream insurance business will not be considered as foreign investment. This was good news for the insurance business, especially for HDFC’s and ICICI Bank’s insurance subsidiaries. Soon thereafter the a government notification proposed an amendment to the February 2015 Foreign Investment Rules for insurance. Does this notification finally put the insurance ownership and control controversy to rest? Anuj Sah, Partner, Khaitan joins me to talk about this…Background…As per the 19 Feb 2015 notification issued by Ministry of Finance (MOF), a requirement was imposed that the promoter of an Insurance company should also be Indian owned and controlled. This requirement came as a surprise to industry and such condition didn’t exist before;A Ministry of Finance notification dated 3 July 2015 (which is yet to be published in official gazette to become effective) has clarified that the computation of foreign ownership of Indian promoter shall be as per IRDA (Registration of Companies ), Regulations 2000 (IRDA Regulations).The notification amends Rule 2 clause (l) …FOREIGN INVESTMENT RULES, 2015(l) “Indian Ownership” of an Indian Insurance Company means more than 50 per cent. of the equity capital in it is beneficially owned by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens;AMENDMENT: Provided that the manner of computation of foreign holding of such Indian promoter or Indian investors company shall be in accordance with clause (p) of rule 2Rule 2 (p) “Total Foreign Investment” in an Indian Insurance Company would be the sum total of direct and indirect foreign investment by Foreign Investors in such company, calculated in accordance with the Insurance Regulatory and Development Authority (Registration of Companies) Regulations 2000 read with Para 4.1.4 of the Consolidated FDI policy of the Government of India.IRDA, 2000Manner of calculation of 26% equity capital  held by a foreign company Explanation: …account need not be taken of the holdings of equity in an Indian promoter company, held by foreign institutional investors, other than the foreign promoters of the applicant and their subsidiaries and nominees…