FDI in Indian industry may rise

After the recent Budget announcement in India, the insurance industry is expecting a hike in foreign direct investment (FDI) in the sector from 49 percent to 74 percent. However, the success of a hike in FDI will hinge, to a large extent, on sorting out the ownership and management control which is currently under Indian promoters and investors, experts said to The Indian Express.

Owing to the lack of capital, many players within the Indian insurance market are keen on a hike in the FDI to 100 percent. The industry has now over 60 players that are running high on operating expenses and low on profitability.

When asked about his view on raising foreign investment in insurance sector from the current 49 percent, Insurance Regulatory and Development Authority of India (Irdai) chairman Subhash Khuntia said Irdai had sought opinions of stakeholders on raising foreign holding to 74 percent and comments received have been forwarded to the government.

Currently, the majority of board of directors, excluding independent directors, will have to be nominated by Indian promoters or investors. The chief executive will have to be appointed by the board or by Indian promoters and investors. Foreign investors can appoint a key management person but he/she will have to be approved by the board controlled by Indian promoters.

According to insurance sources, foreign players are unlikely to raise stake to 74 percent and pump in money without getting more say in management.

“74 percent FDI in insurance companies makes more sense than 100 percent FDI in insurance intermediaries. The inflow will be substantial compared to the insignificant inflow in intermediaries. The other expectation is the BoB-Dena-Vijaya Bank type merger of the three PSU non-life insurers. Doubtful if government will infuse capital but allow the company to raise subordinated debt for solvency requirements,” said former Irdai member KK Srinivasan.