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Insurance FDI bill in House

business Updated: Dec 22, 2008 20:34 IST
HT Correspondent
HT Correspondent
Hindustan Times
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A long-awaited insurance Bill aimed at raising the foreign direct investment (FDI) limit was introduced in Rajya Sabha on Monday – but under difficult and altered global conditions in which raising overseas capital is not what it used to be.

Left parties were quick to protest against the Insurance Laws (Amendment) Bill which aims to raise the FDI limit to 49 per cent from 26 per cent.

If and when the bill becomes law, insurers would be able to raise finances to expand business in the capital-intensive industry.

The move ensures that the bill would be valid even if the UPA government fails to get it passed in the next two sessions before dissolving Parliament in view of the general elections due next year.

The bill also aims at allowing insurance companies to raise capital through newer and hybrid instruments like “perpetual debt.” At present, only banks are allowed to tap such instruments to raise funds.

Once the bill is approved by Parliament, foreign re-insurance majors, which provide insurers a cover against the risk of losses arising from insurance, will be permitted to open branches in India for local work.

The bill also aims at removing the restrictions of divestment of equity by Indian promoters of insurance companies.
As per the existing provisions, the Indian promoters (founders) are required to divest 26 per cent or such other (equity), prescribed percentage in the manner and period prescribed by the Centre.

The bill also seeks to make a life insurance policy unchallengeable after five years of its issue, to give stability to the system.

That apart, specified health insurance companies with a minimum paid-up capital of Rs 50 crore can be set up once the bill is passed. There is no separate definition at present as capital norms for health insurance.

There will be regulations regarding opening and closing of foreign and domestic branches, payment of commission and control of management expenses.