Lack of norms may trip Bonsai funding

Lack of norms may trip Bonsai funding

In the absence of any specific guidelines for foreign direct investment (FDI) in India-based insurance broking firms,Bonsai Insurance Broking Pvt. Ltd, which is based in Mumbai, and has a US business, Bonsai International Group (BIG), fears that it will lose its potential investors.

A senior official of the company, who did not want to be named because the matter is still under consideration of the Foreign Investment Promotion Board (FIPB) and the Insurance Regulatory and Development Authority (Irda), said, “The FIPB deferment is not good news and Bonsai might end up losing investors because?of ?bureaucratic?hurdles."

The insurance broking firm is hoping to tap an investment of $3 million (Rs11.8 crore) by SBI Holdings Inc., a Japanese venture capital firm, and SBI Capital Markets Ltd, a wholly-owned subsidiary of State Bank of India, which is the largest commercial lender in India.

BIG applied to FIPB in mid-October for the FDI approval. But the board deferred taking a decision because the instance was the first time FDI is being sought by an Indian insurance broking firm. Currently, there are many foreign-based insurance brokers, such as Aon Global Insurance Services Pvt. Ltd and Marsh India Pvt. Ltd, which applied for 26% stake in their Indian partners at the time of licensing. FIPB has asked its financial services department to get Irda’s views on the proposal. Irda chairman C.S. Rao couldn’t be reached for comment because he was out of the country.

This year, Bonsai Insurance launched a new website,—a compare-and-buy insurance portal. The company official said the funding would be used for making the website a global company through the use of better infrastructure, technology and products.

Other insurance brokers have not shown too much interest in obtaining FDI approval for their firms yet. “After the tariff regime on products expire, the enterprise value of insurance broking firms will multiply many times," said Rahul Aggarwal of Optima Risk Management Services Pvt. Ltd, a New Delhi-based firm. “We don’t consider this to be the right time just yet to go for an FDI approval."