Former Irda official questions regulator’s move to increase FDI cap in intermediaries

Aatur Thakkar, director, Alliance Insurance Brokers said allowing FDI stake beyond 49 per cent for next two years would put local broking industry at a disadvantage.

The Insurance Regulatory and Development Authority’s (Irda) proposal to look at the possibility of raising the limit of foreign direct investment (FDI) in insurance intermediaries and third-party administrators (TPA) has come under fire with a former top official of Irda accusing the regulator of using back-door methods for enhancing FDI limits.

“The recent notification by Irda appointing a committee for allowing 100 per cent FDI in insurance intermediaries arouses some serious doubts. Irda’s new found rationale seems to be that the 26 per cent FDI cap specified in the Insurance Act is applicable only to insurance companies and not to intermediaries and hence there is no need to await the proposed amendments to the Act for enhancing the cap on FDI in intermediaries,” former Irda Member KK Srinivasan said.

“As it is, enhancing the FDI limits in insurance sector is no big deal… other critical sectors like banking already permit FDI/FII up to 74 per cent. But what is odd is trying to do it back-door, particularly when Parliament is still debating the amendments to the Insurance Act. Perhaps the immediate beneficiaries of the move could be insurance intermediaries who can offload their stakes for whopping valuations,” he said.

There was a report, last year, of an insurance broking company selling a 12 per cent stake for Rs 64 crore giving it a valuation of almost ten times its top line, he said.

According to Srinivasan, Irda has been specifying the 26 per cent FDI cap in its regulations dealing with various intermediaries like insurance brokers, TPA, etc.

In fact just around a year ago it extended the 26 per cent FDI cap to corporate insurance surveyors as well. Perhaps the 26 per cent FDI cap was applied by the Irda to the entire insurance sector uniformly after seeking and obtaining government guidance and approval. FIPB and RBI in their guidelines and FAQs also talk about “sectoral cap” implying that the FDI cap is applicable to the entire insurance sector, he said.

Irda recently formed a committee to consider the possibility of raising the limit of FDI in insurance intermediaries and TPA. The committee would also examine to what extent the FDI limit can be increased and study the international practices in this regard.

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Aatur Thakkar, director, Alliance Insurance Brokers said allowing FDI stake beyond 49 per cent for next two years would put local broking industry at a disadvantage.