The insurance industry is expecting a hike in foreign direct investment (FDI) in the sector to 74 per cent from 49 per cent in the forthcoming Budget, as indicated by Finance Minister Nirmala Sitharaman last year. However, the success of a hike in FDI will hinge, to a large extent, on sorting out the ownership and management control which is currently under Indian promoters and investors, experts said.
Allowing 100 per cent FDI in the intermediaries sector while presenting the Budget for 2019-20, the Finance Minister had said the government would hold discussions with stakeholders to relax FDI rules in the aviation, media, animation and insurance sectors and ease rules for single-brand retailers.
Capital-starved insurance players are keen on a hike in the FDI to 100 per cent. The industry, which was liberalised in 2000, has now over 60 players but many of them are low on profitability and high on expenses.
When asked about his view on raising foreign investment in insurance sector from the current 49 per cent, Insurance Regulatory and Development Authority of India (Irdai) Chairman Subhash Khuntia had last week said Irdai had sought opinions of stakeholders on raising foreign holding to 74 per cent and comments received have been forwarded to the government. “Now, according to the Insurance Act, 49 per cent is the maximum limit for foreign direct investment. If it goes to 74 per cent, naturally the Act has to be amended,” he said.
However, he was non-committal on ownership and control. No decision has been taken, he said. Currently, the majority of board of directors, excluding independent directors, will have to be nominated by Indian promoters or investors. The chief executive will have to be appointed by the board or by Indian promoters and investors. Foreign investors can appoint a key management person but he/she will have to be approved by the board controlled by Indian promoters.
According to insurance sources, foreign players are unlikely to raise stake to 74 per cent and pump in money without getting more say in management. “Why would they invest more when the company is controlled by Indian investors and promoters,” noted a senior official of a company.
Experts said the Centre’s decision to review FDI cap needs to be made along with a revisiting of the Indian ownership regulations, to enable a fair playing ground with board control.
Many foreign insurers increased their stake in their joint ventures when FDI went up from 26 per cent to 49 per cent few years ago. Some of them have exited the Indian market as well. “If the FDI goes beyond 49 per cent, the most important question to answer is how we will balance ownership with control. Anyone investing beyond 49 per cent would want to have control, so the key question to be answered will be who owns control,” said the CEO of an insurance company.
“74 per cent FDI in insurance companies makes more sense than 100 per cent FDI in insurance intermediaries. The inflow will be substantial compared to the insignificant inflow in intermediaries. The other expectation is the BoB-Dena-Vijaya Bank type merger of the three PSU non-life insurers. Doubtful if government will infuse capital but allow the company to raise subordinated debt for solvency requirements,” said former Irdai Member KK Srinivasan.
Atul Sahai, CMD, New India Assurance, said the hike in FDI will bring in more technology and efficiency in the segment and boost insurance penetration. “This potential would surely attract many more players in the industry especially after the government’s move to raise FDI for insurance intermediaries and to review FDI cap of 49 per cent for the India Insurance Sector,” he said.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines