Mumbai:
Expecting that the government may raise foreign direct investment (FDI) from 49 per cent to 74 per cent in the forthcoming Budget, shares of many insurance companies and GIC Re have gone up on Tuesday.
In the morning trade on Tuesday, HDFC Life Insurance Company, SBI Life Insurance Company and ICICI Prudential Life Insurance Company gained more than 2 percent each, while General Insurance Corporation of India climbed 4 percent and New India Assurance Company rose 7.8 percent.
The government has asked the insurance regulator IRDAI to seek suggestions of the stakeholders on the issue of hiking FDI in the sector.
A letter from the IRDAI, on Dec 2, to insurance companies and others has called for suggestions on raising the FDI limit.
The government has already increased the limit on FDI in insurance intermediaries to 100 per cent on September 2.
Finance minister Nirmala Sitharaman, while presenting her maiden Budget 2019-20,allowing 100 per ent FDI in the insurance intermediaries sector, had hinted that the government will consider hiking the FDI in the insurance sector from 49 per cent at an appropriate time.
Later, responding to questions from major insurance companies in the US, who urged her to remove the cap on investment in this sector, she had said the government needs to understand what the expectations of the sector are other than removing of the cap.
Sitharaman had said she would be quite open to it and they could send her the details.
The Union finance minister, however, said she will not be able to give them an assurance at this point of time, but will work on the matter.
Earlier, in 2015, the government had raised FDI in insurance via automatic route to 49 per cent from 26 per cent.
Earlier,for the insurance sector, a government document, not made public yet, had proposed that investment of up to 74 per cent should be allowed with necessary government approvals, above the current 49 per cent limit that is allowed without approval under a so-called automatic route.
Explaining the rationale, the government document said the private banking sector was “financially more sensitive” but allowed up to 74 per cent foreign investment, and so the limits for the insurance sector should be relaxed to provide parity.
The move would come as a boost to two dozens of foreign firms such as Germany’s Allianz , Italy’s Generali Group, France’s AXA and U.S. insurer MetLife Inc,which already operate joint ventures in India.
According to Prashant Tripathy, Managing Director & Chief Executive Officer of Max Life Insurance, the insurance industry in India is now mature with private players being in existence for 20 years. As manufacturers, the private life insurers now possess enough technical know-how both on people expertise and technology capabilities, thereby reducing the need to cap foreign participation.
The FDI limit could be made 100%, encouraging international players to set up in India and expand their foot print, with their own long-term strategies and best practices. However, adequate provisions will need to be made to safeguard the Indian customers against the adverse effects, if any, of the FII’s international businesses,said RM Vishakaha, MD & CEO, IndiaFirst Life Insurance.
The decision of the Government to review FDI cap needs to be made along with a revisiting of the Indian ownership regulations, to enable a fair playing ground, with board control, she said.,
Mahesh Balasubramanian, MD & CEO, Kotak General Insurance said,“If the FDI goes up beyond 49 per cent, the most important question to answer is how do we balance ownership with control. Anyone investing beyond 49 per cent would want to have control, so the key question to be answered will be who owns control.’’
“The life insurance sector has not seen any new player emerge in the last few years as many existing players have spent substantial capital but have not been able to scale up or even break even. The gap between the top six or seven players and the rest is widening. I am not so sure if raising limit will usher new players in,’’ he said.