Parliament panel raises issue of rural reach on FDI cap bill

Insurers must divulge rural biz details, among other things, before FDI limit hike.

Parliament’s Standing Committee on Finance has raised several issues, including rural penetration of insurance companies, on the bill seeking to raise the cap on foreign direct investment (FDI) in the sector to 49 per cent.

“The standing committee wants to know about the industry’s contribution to financial inclusion,” said an executive of a large insurance company.

Despite the concerns raised, the industry is hopeful of the bill, tabled in Parliament in end-2008, going through.

“We have done a decent job on the rural side. We contribute to the long-term development of infrastructure. The industry has also contributed a counter-balance to FIIs (foreign institutional investors). This sector has benefited the economy in multiple ways,” said Max New York Life’s MD and CEO, Rajesh Sud.

The standing committee also wants to know about the sector’s contribution to infrastructure development.

“The standing committee has only raised concerns and not said FDI will not be hiked. The Bill should go through and I am hopeful of getting clarity within the next six months,” said HDFC Life’s managing director and chief executive officer, Amitabh Chaudhary.

Standard Life will raise its stake in the joint venture after the amendment. Chaudhary said its decision would depend on the circumstances, performance of the company and knowing whether FII was counted as part of the FDI.

M N Rao, MD and CEO of SBI Life, said a rise in the cap would give them flexibility. “There are a few issues like what should be the public holding and the percentage of it, how much would be the majority stake. Once the guideline on this comes in place, we will have a serious talk with our foreign partner.”

At present, foreign promoters can hold up to 26 per cent stake in any insurance company. The proposal of raising the limit to 49 per cent has been pending for quite some time.

“The standing committee wants to know how many offices we have opened in rural areas. They are concerned that we may invest capital (only) in urban areas,” said another executive.

Industry experts expect the rise in cap to 49 per cent to increase the total FDI in the life insurance sector by almost 2.5 times, from the current level of around Rs 2,500 crore.