The insurance industry has given a thumbs-up to the government’s proposal to raise the foreign direct investment (FDI) limit in the sector to 49%, as it would bring more capital and strengthen the sector.
The cap on FDI via the FIPB (foreign investment promotion board) route has been hiked to 49% from the present 26%.
“This has been one of the most-awaited developments for the insurance industry. Life insurance penetration in India is low and this hike is likely to supply the much-needed capital to grow the insurance business here,” said Sunil Sharma, chief actuary at Kotak Life Insurance, which has a life insurance joint venture with Old Mutual.
Sharma said many global insurance companies may now find it lucrative to enter India following this measure, which will lead to more competition and greater growth in the sector.
Vibha Padalkar, CFO and executive director of HDFC Life Insurance, agreed that it was a positive move.
“There was no rationale for not opening up the sector for more FDI... In many instances, especially where companies are not making profit yet, it would be difficult beyond a point for the Indian promoter to keep on pumping money in the company. Now the overseas partner will be able to bring in more capital,” Padalkar said.
Munish Sharda, MD and CEO of Future Generali India Life Insurance said since insurance is a capital-intensive industry, increasing the cap would enable further product innovation, enhanced customer engagement and service delivery.
HDFC Life Insurance has a joint venture with Britain’s Standard Life. Padalkar said Standard Life has always expressed keenness to raise its stake and invest more in India. Kotak’s Sharma said Old Mutual may also be interested in bringing in more capital.