Lok Sabha passes Insurance Amendment Bill 2021 and raises FDI to 74%
The Lok Sabha has passed the Insurance Amendment Bill 2021, leading to a hike in foreign direct investment (FDI) limit in the sector to 74 percent. Rajya Sabha passed the Bill on March 18. The Bill had earlier been cleared by the Rajya Sabha and now requires Presidential assent to become law.
The previous FDI hike took seven years to be passed in 2015, hiking the limit from 26 percent to 49 percent.
Finance minister Nirmala Sitharaman, who piloted the Bill in both Houses, said the move was aimed at solving some of the long-term capital availability issues in the insurance sector, which was a capital-intensive industry. She added that stakeholders had been consulted by the insurance regulator, Insurance Regulatory and Development Authority of India (IRDAI), before going ahead with the move.
"We are not rushing through this legislation. Adequate discussions and due diligence has been done, and the insurance regulator IRDAI has done proper consultations with insurers on this matter," she added.
The FM had announced this proposal in the Union Budget 2021-22 on February 1. She then said that India's insurance sector's FDI limit would be hiked to 74 percent from 49 percent.
'Indian management control’ was a clause inserted when the insurance FDI cap was hiked to 49 percent in 2015. This clause meant that all board-level matters related to appointments, company strategy, and business expansion would have to be approved by a majority of Indian shareholders.
While in her 2021 Budget speech, the finance minister did not explicitly use the words ‘Indian management control’, it was clear that would be the case even if the FDI limit was hiked to 74 percent.
When the FDI limit hike to 49 percent law was passed, several foreign players had hiked their stake in the Indian insurance ventures. They include Nippon Life (JV partner in Reliance Life Insurance), Tokio Marine (JV partner in Edelweiss Tokio Life), and Japan's Dai-ichi (JV partner in Star Union Dai-ichi Life with a 45.94 percent stake).
Among the recent deals is Belgian multinational insurer Ageas acquiring a 23 percent additional stake from IDBI Bank in IDBI Federal Life Insurance for Rs 460 crore. This bought Ageas’ stake in the insurer to 49 percent.
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.