Despite the Union Budget 2021 raising FDI limit up to 74 per cent, insurance companies with foreign ownerships won’t be allowed to take money outside India, said Tarun Bajaj, Secretary, Department of Economic Affairs.
In an exclusive interview to Moneycontrol, Bajaj said as per the provision under insurance act, companies are not allowed to send money outside India.
This will be after the Insurance Laws (Amendment) Act 2015 and Insurance Act 1938 are amended in the Parliament. When the insurance sector was privatised in 2000, the FDI limit was fixed at 26 per cent, which was then raised to 49 per cent in 2015.
“The FDI limit hike in insurance will allow foreign ownership and control with safeguards. Under the new structure, the majority of directors on the boards and key management persons will be resident Indians with at least 50 percent directors as independent directors. A specified percentage of profit will be retained as general reserve," said the Finance Minister on Monday.
When the 49 per cent insurance FDI limit was implemented in 2015, the ‘Indian management control’ clause was inserted into the Act. This clause said that all major board decisions, strategies and appointments could be done in Indian insurance companies only if a majority of the Indian shareholders give their nod.
After the BJP government came into power in 2019, the first proposal was to increase the FDI cap in the insurance sector to 74 per cent. This was to ensure that the insurance sector, which is currently capital starved, gets additional investment.
Even the regulator, the Insurance Regulatory and Development Authority of India (IRDAI), has recommended that FDI in insurance be brought on par with the banking sector.
However, after the 2015 FDI hike, while the expectation was that the insurance sector would get fresh capital of Rs 25,000 crore, the actual infusion into the business was just around Rs 5,400 crore. The rest was local firms selling their stakes to foreign joint venture partners. Such stake sales did nothing to increase the capital position of the insurance companies.