IRDAI to clarify on Indian promoter's FII Holdings for insurance JVs

Foreign equity investment cap of 49% is applicable to all Indian insurance companies

The Insurance Regulatory and Development Authority of India (Irdai) is to clarify whether an Indian entity (and promoter) would have to be fully owned and controlled by Indian investors to be eligible for the increase in foreign direct investment (FDI) limit to 49 per cent.

Sector officials said the current definition would mean that foreign institutional investments would also have to be below 51 per cent.

According to these rules, the foreign equity investment cap of 49 per cent is applicable to all Indian insurance companies and they cannot allow the aggregate holdings by way of total foreign investment in their equity shares by foreign investors, including portfolio investors, to exceed 49 per cent of their paid-up equity capital. They also have to ensure that ownership and control shall remain at all times in the hands of resident Indian entities, as referred to in these rules.

By rules, FDI proposals for up to 26 per cent of the total paid-up equity of the Indian insurance company will be allowed on the automatic route, and proposals which take the total foreign investment above 26 per cent and up to the cap of 49 per cent shall require Foreign Investment Promotion Board (FIPB) approval.

“We have sought clarification from the regulator on what these rules exactly mean. If these are implemented as it is, many companies with large FII (foreign institutional investor) holdings might not be able to raise the foreign partner’s stake to 49 per cent,” said the chief executive of a large private life insurer.

Edelweiss Tokio Life and Bharti AXA had filed applications with FIPB for increasing the stake of its joint venture (JV) partners from 26 per cent to 49 per cent. Bharti AXA has got the approval.

However, several others are waiting for Irdai to define these norms. Almost all life and general insurers have stated an intent from their foreign partner to raise stake in the JV but are waiting.

A chief financial officer of a mid-size general insurance company explained that while FIPB had given a broader framework, the sector regulator would have the final word on foreign holdings.

Regulatory officials said they were examining the FIPB norms and appropriate regulations were likely to be issued soon.

According to FDI norms, ‘control’ includes the right to appoint most of the directors or control the management or policy decisions, by virtue of shareholding, management rights, shareholder agreements or voting agreements.