FDI cap increase may bring in Rs 7,000 cr to insurance sector

The Union Government’s recent approval to the insurance Bill, which proposes, among other things, to raise the cap on foreign direct investment (FDI) to 49 per cent from 26 per cent for private sector insurance companies, is expected to bring around Rs 7,000 crore into the industry, according to industry representatives. However, the Bill is yet to be introduced in Parliament.

Currently, the insurance industry has a total FDI of around Rs 2,500 crore.

The expected inflow is likely to create 3 lakh jobs in the sector as more companies are planning to use the additional funds mainly to execute their expansion plans.

According to industry representatives, a hike in FDI limit is necessary to allow foreign partners to infuse more capital into their Indian joint ventures to sustain growth. It will also give confidence to foreign investors to do business on a scale that is not restrictive.

Given that life insurance is a capital intensive industry, this move will help insurers access larger international capital over a period of time, said N S Kannan, executive director, ICICI Prudential Life Insurance.

Another private life insurer, Max New York Life Insurance, which recently infused an additional Rs 350 crore capital, said that the approval to hike the FDI ceiling limit is a welcome move for the insurance industry. “Our shareholders will mutually decide on the issue after the Insurance Bill is passed in Parliament,” said Rajesh Sud, CEO & Managing Director, Max New York Life.

The company ramped up its investment plans and infused Rs 350 crore last week, taking its total paid-up capital to Rs 1,782 crore. The capital infusion is part of Max New York Life’s plan to raise the paid-up capital to Rs 3,600 crore by financial year 2011-12.

Max New York currently has over 61,500 agent distributors and plans to increase it to around 3.5 lakh by FY 2011-12.

Another industry representative said that the feeling was that insurers would be required to recapitalise to comply with solvency requirements of 150 per cent prescribed by the Insurance Regulatory and Development Authority (Irda).