Irda On Fdi Cap In Insurance

Insurance Regulatory and Development Authority chairman N Rangachary has clarified that he has not opposed an increase in the foreign investment limit in the insurance sector.

Rangachary's statement is in response to newspaper reports yesterday quoting him as saying that he was opposed to an increase in foreign equity in the insurance sector.

He has now clarified that what he had stated was that the mandatory dilution of equity by Indian promoters to 26 per cent in 10 years would come in the way of any increase in foreign equity. The foreign equity cap in the insurance sector is now pegged at 26 per cent.

 

Rangachary had stated that "if the foreign equity holder would have 49 per cent, the Indian equity holder would also like to have an equal percentage to ensure that his voice in the management of the company was heard and if that were to happen, the plan to have new insurance companies quoted on the stock exchanges would not be feasible since the percentage of holding available to the public would be only 2 per cent."

He had further stated that it was this issue which should be considered before a final decision was taken by the government on the question of hiking foreign equity in the insurance sector.

Rangachary had stated that the prescription of 26 per cent foreign equity as the maximum equity in an insurance company for a foreign company was in the Insurance Act and any modification had to be endorsed by Parliament by way of an amendment to the Act. He said that he had referred to section 6 (AA) of the Insurance Act which stated that in a period of 10 years, from the start of business, the Indian promoter had to divest its holding to bring it to 26 per cent that would be the same as the foreign holding.

The IRDA chairman also said that he had referred to the fact that the maximum of 26 per cent for the foreign partner, 10 years after the commencement of business, was made with a view to make the insurance companies publicly held.