The Parliament on Monday approved a Bill to increase Foreign Direct Investment (FDI) limit in the insurance sector from 49 per cent to 74 per cent with the Lok Sabha passing the proposed law by a voice vote.
The Insurance (Amendment) Bill, 2021 was passed by Rajya Sabha last week.
Piloting the Bill, Finance Minister Nirmala Sitharaman on Monday said hiking the FDI limit in the insurance sector will help insurers raise additional funds and tide over the financial problems.
The minister said the government will provide funds to the public sector insurance companies but private players will have to raise capital on their own.
Observing that insurance companies are facing solvency related issues, she said, "if growth capital is hard to come by, there will be a stress situation. In order that the stress situation is not left unattended, we need to raise the FDI limit."
The COVID-19 pandemic, Sitharaman said, has further added to the woes of insurance companies.
She further said the FDI limit was being raised on the recommendations of insurance regulator IRDAI which has done extensive consultations with the stakeholders.
The FDI limit in the insurance sector, the minister said, has increased significantly after the government decided to raise the cap from 26 per cent to 49 per cent in 2015.
As much as Rs 26,000 crore has come as FDI in the sector since 2015, she said, adding the asset under management (AUM) in this sector has grown by 76 per cent during the last five years.
"With the passing of the Bill, the insurance sector will benefit from this as Insurance being capital intensive business , this move will attract larger foreign investment and will boost insurance penetration in the country which is currently very low in comparison to global average. It will also help the sector on product innovation and gaining technical expertise,” said Rakesh Jain, ED & CEO, Reliance General Insurance.