Govt proposes 49% FDI in insurance, caps voting rights to 26%

Proposal stipulates that the majority of company's directors should be Indian nationals

The government plans to increase foreign direct investment in the insurance sector to 49% with a rider that voting right of overseas partner will remain capped at 26%.

The Insurance Laws (Amendment) Bill, 2008 proposes an increase in foreign holding in insurance joint ventures to 49% from the existing 26% with corresponding voting rights.

The Finance Ministry now proposes an amendment to the the Bill, pending since 2008, by capping voting rights of the foreign partner to 26% even as FDI is raised to 49%, sources said.

This is being done in the interest of meeting the growing capital requirement of insurance companies which are highly capital intensive.

Sources said the proposal says that equity shares of foreign company should not exceed 49% of total paid-up equity capital of an insurance company provided voting rights of such foreign shareholders are not exceeding 26% in aggregate.

Besides, the CEO of the insurance joint venture should be appointed by Indian shareholders subject to regulatory approvals, according to the proposal.

The proposal also stipulates that the majority of company's directors should be Indian nationals.

Sources said a draft Cabinet note by the Department of Financial Services to this effect has been circulated.

A proposal to hike the FDI cap in the sector was first mooted by the previous UPA government. The is been pending in the Rajya Sabha since 2008.