RBI, IRDAI to assess FDI in deposit insurers

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This is to ensure the 74 per cent foreign direct investment limit is not exceeded, the finance ministry announced in a gazette notification.

For insurers struggling with liquidity, the FDI cap was raised from 49 per cent to 74 per cent in March with a 1938 insurance act amendment. The latest notification is aimed at ensuring that the rule change is enforced more consistently.

This is to ensure the 74 per cent foreign direct investment limit is not surpassed, the finance ministry announced in a gazette notification.

For insurers struggling with liquidity, the FDI cap was raised from 49 per cent to 74 per cent in March with a 1938 insurance act amendment. The latest alert is aimed at ensuring that the rule change is enforced more consistently.

Around 40% of the country’s 56 direct insurance companies have received foreign direct investment. The average foreign direct investment (FDI) in private insurance companies (excluding reinsurers) is around 31%.

It went on to say that an Indian insurer with foreign investment must follow the provisions of the Indian Insurance Companies (Foreign Investment) Rules, 2015, as amended from time to time, as well as any applicable rules and regulations notified by the finance ministry’s department of financial services or the Irdai from time to time.

Analysts expect the proposal to raise the FDI limit to 74 per cent to offer up fresh funding options at a time when several insurers are suffering from solvency concerns.

The increase in the FDI ceiling will not only attract new foreign investors but will also allow foreign partners in joint ventures to increase their interest and gain control of Indian insurance companies. ICICI Prudential, HDFC Standard Life, Bajaj Allianz, and Star Union Daiichi Life Insurance are among the almost two dozen insurance companies in India founded through joint ventures between domestic and international partners.

Finance Minister Nirmala Sitharaman said in March that enough safeguards were included in the law, assuaging MPs’ concerns about possible abuse.

A majority of the board of directors and key management personnel must be resident Indians, with at least half of the directors being independent, and a certain percentage of revenues must be set aside as a general reserve.

In 2000, the Indian government liberalized the life insurance business by allowing foreign companies to control up to 26% of domestic insurers. The sector was further liberalized in 2014 when the foreign direct investment restriction was raised to 49 per cent.

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