FII cap on insurance may be removed

FII cap on insurance may be removed
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First Published: Thu, Feb 08 2007. 12 05 PM IST
Updated: Thu, Feb 08 2007. 12 05 PM IST
New Delhi: The government is considering lifting restrictions on foreign institutional investors in domestic insurance companies, removing the current ceiling of up to 10%. This comes on the heels of another proposal to raise overall foreign shareholding to 49% from the current 26%.
If the proposal is approved, there will no longer be separate limits for foreign direct investment and foreign portfolio investment, said an official at the ministry of finance who did not want to be identified.
Instead, the government will let the sector’s regulator, the Insurance Regulatory and Development Authority (Irda), decide on the composition of foreign investment.
Current laws set the ceiling for an individual foreign portfolio investor at 5% and for a consortium of investors at 10%. “There is a view that this distinction should be done away with,” said the official.
A group of cabinet ministers is to meet on 13 February to approve these changes. The government then plans to introduce the legislative amendments required in the budget session of Parliament which begins on 23 February.
Insurance is a heavily regulated sector in India and the changes being considered by the government will require amendments to three laws: the Insurance Act of 1938, the Life Insurance Corporation Act of 1956, and the Insurance Regulatory and Development Authority Act of 1999.
As part of its efforts to reduce regulations on the sector, which is starting to attract significant interest among both domestic and foreign investors, the government also plans to allow Irda to decide how insurance companies can invest their funds, said this official.
Such investments are currently guided by the Insurance Act and, according to another government official, out of touch with the current market situation. For instance, one section of the Act allows insurance firms to only invest in the shares of a company that has declared a dividend of at least 4% for the preceding seven years. Another prohibits them from investing in divisions of companies that have been spun off into independent entities. Irda will also decide on the amount insurance companies invest in government securities. Currently, 55% of their corpus has to be invested in government paper.
Any move to make it easier for foreign investors—be it insurance companies or portfolio investors—to start joint ventures or acquire stakes in existing companies is likely to run into opposition from Left parties, which have already said that they will not support the move to raise foreign shareholding to 49%.
sanjiv.s@livemint.com
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First Published: Thu, Feb 08 2007. 12 05 PM IST
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