With Parliament approving the hike in the foreign direct investment (FDI) limit in the insurance sector to 49 per cent from 26 per cent, top financial sector players have hailed the move as a “highly positive development” that can bring in immediate inflows to the tune of Rs 20,000 crore.
In fact, most of the top insurance players have been waiting for the passage of the Bill for fresh initiatives to hike the FDI limits. “With financial inclusion proceedings in full force, the timing of increase in limit for FDI in insurance sector could be a game changer. In our estimate, the FDI limit hike in insurance could result in immediate inflow of around Rs 20,000 crore. Furthermore, FDI hike in insurance is dejure increase in FDI limits for pension sector also as so much of retirement products come from this sector,” said Arundhati Bhattacharya, chairperson, State Bank of India.
Currently, the total capital deployed in the life insurance sector is close to Rs 35,000 crore. There are 24 life insurers, 28 general insurance companies and one reinsurance company (GIC) in the country.
The current FDI in the sector, assuming 26 per cent FDI, is close to Rs 8,700 crore. “The industry at this stage does need long-term capital for growth and expansion which FDI can bring in. FDI not only brings in capital and foreign exchange but also enables firms to invest in managerial ability, technical knowledge, administrative organisation, and innovations in products and production techniques,” said Tarun Chugh, MD & CEO, PNB MetLife.
Bharti Enterprises said its foreign partner AXA will step up equity investment to 49 per cent in the joint venture. Bharti Enterprises and AXA have a 74:26 JV with Bharti holding the majority stake. The entity offers life and general insurance. “We can confirm that AXA will step up their equity investment to 49 per cent. Bharti will soon move the application to FIPB as per the new FDI guidelines,” Bharti Enterprises chairman Sunil Bharti Mittal said in a statement.
ICICI Bank MD and CEO Chanda Kochhar said, “It signals the commitment of the government to implementing reforms and attracting global capital to support growth.”
The investments and separate business classification will promote customer-centric product and service innovations with an enhancement to technology, deepening market penetration besides improving distribution efficiencies, insurance officials said. “This is a huge positive and is expected to bring in $8-10 billion capital in the industry,” Sam Ghosh, CEO, Reliance Capital, said.
Sandeep Patel, MD and CEO of Cigna TTK health Insurance, said, “(It) will further support enhancement of the health insurance industry.”