Parliamentary panel favours composite FDI cap of 49% in insurance sector

A parliamentary select committee, tasked to review the long-standing Insurance Amendment Bill, has recommended a composite limit of 49 per cent on foreign investment, that include foreign direct investment, foreign institutional investment and non-resident Indian investment, in the insurance sector compared with the current limit of 26 per cent.

The panel, which includes members from all major political parties, accepted suggestions to the Draft Insurance Bill made by Opposition Congress and tabled the report in the Rajya Sabha on Wednesday. Subsequently, the government will now bring the Bill for the consideration of Upper House of the Parliament as early as next week.

The panel, headed by Chandan Mitra, has agreed to reduce the paid-up equity capital in the health insurance sector against the life and general insurance sector, and has also suggested capital requirements to be retained at the Rs 100-crore level.

Among other changes, the draft report has suggested changes in definition of reinsurance, sought to define the term ‘control’ in Insurance Act and proposed power to IRDA in formulating norms subject to acts and rules. The panel also suggested inclusion of a person from the insurance industry in the Securities Appellate Tribunal as an expert.

In August, the Rajya Sabha had appointed a 15-member committee to review the 

long-pending Insurance Laws (Amendment) Bill.

The UPA government had proposed to increase the FDI ceiling in 2008 when the Bill was introduced. However, the Bill could not be taken up in the Rajya Sabha due to opposition from political parties.

The 26 per cent ceiling has been in effect since 2000 when the insurance sector was opened up to foreign investors.

In July this year, Finance Minister Arun Jaitley had said in his maiden budget speech that the ‘composite cap’ in the insurance sector should be raised to 49 per cent from the current level of 26 per cent, while insisting that full management control would remain with Indian investors.

"In certain cases, for the insurance companies, the cost of base capital has become a drag on the business. If the insurance FDI cap is increased to 49 per cent, many foreign insurance companies are expected to up their equity stakes in their existing insurance joint ventures and bring down the expensive cap table structures. It will certainly stabilise the capital base for the insurance companies to spur steady growth. Also, it would facilitate IPO process to instil the most permanent capital structure in the insurance companies for the next level of growth," said Nishant Singh, partner, Induslaw.

(Edited by Joby Puthuparampil Johnson)

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