Govt allows up to 26 per cent FDI in insurance via automatic route

The government on Friday said up to 26 per cent FDI in insurance companies will be allowed through automatic route, as it notified rules to increase foreign direct investment ceiling in the sector to 49 per cent.

The rules have been prepared based on extensive consultations with all the relevant departments and organisations, the Finance Ministry said in a statement.

"... foreign direct investment (FDI) proposals up to 26 per cent of the total paid-up equity of Indian insurance company shall be allowed via automatic route, and FDI proposals which take the total foreign investment above 26 per cent and up to the cap of 49 per cent shall require FIPB approval," it said.

In December last year, the government had issued ordinance to increase the FDI ceiling in the insurance sector to 49 per cent from earlier 26 per cent.

According to the rules, foreign equity investment cap of 49 per cent is applicable to all Indian insurance companies.

The companies, the Ministry said, should not allow the aggregate holdings by way of total foreign investment in their equity shares by foreign investors, including portfolio investors, to exceed 49 cent of their paid-up equity capital.

They should also ensure that "ownership and control" shall remain at all times in the hands of resident Indian entities as referred to in these rules.

The cap of 49 per cent would also apply to insurance brokers, third party administrators, surveyors and loss assessors and other intermediaries.

The rules incorporate recent amendments to the law into the standing/prevalent practices being followed hitherto with respect to the treatment of foreign investment in Indian Insurance Companies, the Ministry added.

The Insurance Laws Amendment Bill, 2008 could not be taken up for discussion despite being approved by the Select Committee of the Upper House due to disruption in Parliament.

Foreign Portfolio Investment in a company would be governed by the relevant provisions under FEMA Regulations, 2000 and provisions of the Securities Exchange Board of India (Foreign Portfolio Investors) Regulations.

Any increase of foreign investment of an Indian insurance company shall be in accordance with the pricing guidelines specified by Reserve Bank of India under the FEMA.