In what may change the foreign direct investment scenario in the insurance sector, the government on Friday allowed ICICI Bank to divest a 24 per cent stake in its insurance holding company to a foreign investor. This, in effect, will push up the foreign investment in ICICI Bank’s insurance ventures to 43.76 per cent from the present 26 per cent.
comared the proposal of ICICI Bank in which it has asked to be allowed to divest 24 per cent in its subsidiary ICICI Financial Service Company, in which ICICI Bank has transferred the entire 76 per cent ownership of its two insurance ventures. Prudential holds 26 per cent in the life insurance venture and Lombard 26 per cent in the general insurance company.
Under existing laws, foreign investment is restricted to 26 per cent, directly or indirectly, in insurance ventures. In HDFC Standard Life Insurance Company, the foreign partner was allowed to take only 18.6 per cent stake as it held 10 per cent in HDFC Ltd, which owned the remaining 74 per cent stake. Therefore, 7.4 per cent was counted as indirect foreign holding.
Going forward, industry experts feel other insurance players are expected to use this route to cash out and mop up funds from the overseas markets. “The majority of the insurance companies have achieved minimum critical mass and the their profitability has also become more predictable. The new window will help the Indian promoters to mop up resources to fund their expansion plans,” said an executive with an insurance company on condition of anonymity.
In Match this year ICICI Bank transferred its investments in ICICI Prudential Life Insurance, ICICI Lombard General Insurance Company, Prudential ICICI Asset Management Company and Prudential ICICI Trust Limited (ICICI Trust) to ICICI Financial Service Company. ICICI Bank was holding 74 per cent in ICICI Life and ICICI General and 51 per cent in ICICI AMC and ICICI Trust. On conservative estimates, the market value of this holding company is around $11 billion (Rs 45,000 crore).