Insurance: FDI cap increase to allow investment by FIIs, NRIs

Sector will be able to raise Rs 8,000 cr if Insurance Bill passed

The Budget proposes to raise the composite cap on foreign direct investment (FDI) in the insurance sector to 49 per cent from the current 26 per cent, with full Indian management and control, through the Foreign Investment Promotion Board route.

"The sector is investment-starved,” said Finance Minister Arun Jaitley. However, this will only be implemented if the pending Insurance Bill that proposes a rise in the FDI cap is also passed.

Composite FDI covers all flows, apart from foreign institutional investors and non-resident Indians. Earlier this year, the department of industrial policy and promotion had said the latter two categories could invest in the sector within the overall 26 per cent cap.

Pankaj Razdan, managing director and chief executive officer (MD & CEO), Birla Sun Life Insurance, said composite FDI would enable more access to capital and help sectoral growth. K K Mishra, MD & CEO of Tata AIG General Insurance, said if approved, the move would encourage foreign investment and benefit the sector as a whole, from product innovation and distribution to robust customer service mechanisms.

As a first step, experts said, if the Bill was passed, insurers can get additional funds from their foreign joint venture partners, as well as newer entities. The estimate is an additional Rs 7,500-8,000 crore.

Also, the exemption presently available for specified micro insurance schemes is to be expanded to cover all life micro-insurance schemes where the sum assured does not exceed Rs 50,000. Insurers say this would give a fillip to policies of low-ticket sizes.  

Deepak Mittal, MD & CEO of Edelweiss Tokio Life Insurance, said introduction of uniform Know Your Customer  norms and inter-usability of these records across the financial sector would make it easier for customers to have multiple products. He added the FDI rise should be without caveats.

To boost insurance penetration and density, the minister has also talked about incentives, using banking correspondents and strengthening micro offices opened by public sector insurance companies.

WELCOME STEP

• Composite FDI cap in insurance will include FDI, FII and NRI investments
• Current insurance FDI cap stands at 26%. Insurance Bill proposes cap hike to 49%
• Existing foreign partners in joint ventures and new players both can infuse further capital
• Companies that have prior agreements to increase stake once Insurance Bill comes in action will see immediate capital infusion after passage of the Bill
• Insurers will have full Indian management and control even after increase in FDI limit
• United Progressive Alliance-led former government had also tried to hike FDI in insurance to 49%, without any increase in voting rights