FDI cap hike gets insurance industry’s thumbs up

OUR BUREAU Mumbai | Updated on July 24, 2014 Published on July 24, 2014

The increase in FDI cap will be an enabling factor for insurance companies to go for listing on the stock exchanges, said IRDA chief TS Vijayan.

The capital-starved insurance industry is set to receive a major boost as the Cabinet has given its nod to the Insurance Laws (Amendment) Bill, which will raise the foreign direct investment limit from the current 26 per cent to 49 per cent with full Indian management control, say industry leaders.

TS Vijayan, Chairman of Insurance Regulatory and Development Authority (IRDA), said the increase in FDI will be an enabling factor for insurance companies to go for listing on the stock exchanges.

The listing will bring in more scrutiny and better corporate governance to the insurance industry, said the IRDA chief at New India Assurance 96th Foundation Day Lecture.

According to estimates by the Life Insurance Council, once the FDI cap is raised to 49 per cent, the sector will see foreign exchange inflows of $10 billion in the near term.

Kshitij Jain, MD and CEO of Exide Life Insurance, said, “The industry over the last 12 years has attracted over ₹34,000 crore of capital across all the private life insurance companies and over the next five to ten years the industry requires as much if not more in terms of fresh capital to be able to fund its growth and its expansion. The industry at this stage does need long-term capital for continued growth and expansion which FDI will bring in.” V Jaganathan, Chairman-cum-Managing Director, Star Health and Allied Insurance, said the proposal will help the insurance companies to maintain their solvency margins.

However, insurers are still awaiting clarity regarding full Indian management control.

At present, foreign partners can pick up 26 per cent stake through the automatic route with IRDA’s nod. However, the Government has said that to raise their stake to 49 per cent from 26 per cent, insurers will have to go through the Foreign Investment Promotion Board.

Anup Rau, MD and CEO of Reliance Life Insurance, said the industry was still awaiting clarity on some of the provisions. He said if FDI comes in with riders and cap on voting rights, it may act as a dampener for foreign shareholders.

The Bill is expected to be tabled in Parliament shortly.

Published on July 24, 2014
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