Cabinet Approves 49% FDI in Insurance

The Cabinet has cleared the Insurance Laws (Amendment) Bill and it will be subsequently introduced in the current session of Parliament. The Bill aims to raise the foreign direct investment in insurance sector to 49 per cent, from the current level of 26 per cent.

If the higher foreign direct investment limit is raised in insurance sector, it could result in inflows of Rs 40,000 crore to Rs 60,000 crore over time, says Ajay Bagga, chairman of OPC Asset Solutions. Amitabh Chaudhry, MD & CEO of HDFC Standard Life Insurance Company, says that in the immediate turn the inflows could be around Rs 20,000 crore.

The Bill says that management control of insurance companies will be with the Indian companies only. For up to 26 per cent FDI in insurance, the Foreign Investment Promotion Board (FIPB) nod would not be needed but for the 49 per cent limit, the board's approval would be needed.

Shares of companies related to insurance business surged today with Reliance Capital and Max India rising nearly 4 per cent today.

Barring the public sector insurance companies, all other insurance companies would benefit from higher FDI cap. Finance Minister Arun Jaitley in his budget speech earlier this month had proposed to raise the cap to 49 per cent.

"The insurance sector is investment starved. Several segments of insurance sector need expansion. The composite cap of the insurance sector is proposed to be increased to 49 per cent from the current level of 26 per cent with full management and control through the FIPB (Foreign Investment Promotion Board) route," he had said.

The proposal to raise FDI cap has been pending since 2008 when the previous Congress-led UPA (United Progressive Alliance) government came up with Insurance Laws (Amendment) Bill to hike foreign holding in insurance joint ventures to 49 per cent.

The insurance sector was opened up to the private sector in 2000 after the enactment of the Insurance Regulatory and Development Authority (IRDA) Act, 1999.

Since its opening up in 2000, the number of players in the insurance sector has gone up from seven to 53 as on March 31, 2014, operating in the life, non-life, and re-insurance segments. (With Agency Inputs)