No exit clause for promoters in insurance ordinance

The Insurance Laws (Amendment) Ordinance, 2014, promulgated last week, raised the foreign investment limit in the sector to 49 per cent from 26 per cent. However, it is silent on how will the limit can be raised — through equity dilution by promoters or raising of fresh equity.

Business Standard has learnt from sources that such an exit clause for the promoters will be in the regulatory rules being formulated by the government. The clause is likely to provide these options for Indian promoters. Officials said there was no timeline on when the new rules would be out. The rules might allow a company's board of directors to  take this decision, subject to some conditions, officials said.

Dissent notes to Parliament’s select committee on the issue had apprehended that promoters would dilute their equity, instead of raising fresh capital.

The panel’s recommendations are the basis for the ordinance.

The government took the ordinance route after the Opposition repeatedly stalled proceedings in the Rajya Sabha in the just-concluded session.

The ordinance says the new 49 per cent limit applies to the aggregate holdings of equity shares by foreign investors, including portfolio investors, of the paid-up equity capital. It has to be Indian-owned and controlled.

Finance Minister Arun Jaitley expressed hope recently that raising of the limit to 49 per cent, a measure pending since 2008, would result in capital inflow of $6-8 billion.