Govt relaxes stake sale curb on insurance companies
India has freed Indian promoters of insurance companies to cut equity stakes to 26% within less than the decade previously required, a senior finance ministry official said on Thursday, marking a step set to hasten industry consolidation.india Updated: Aug 25, 2011 21:13 IST
India has freed Indian promoters of insurance companies to cut equity stakes to 26% within less than the decade previously required, a senior finance ministry official said on Thursday, marking a step set to hasten industry consolidation.
“An Indian promoter can scale down its equity up to a level of 26% at any time after registration under the Act,” SK Mohanty, an official of the finance ministry’s department of financial services, said.
When contacted, Mohanty confirmed the letter, but declined further comment.
The move, long sought by industry, could clear the way for a deal by Reliance Life Insurance, a unit of Reliance Capital, to sell a stake of 26% to Japan’s Nippon Life Insurance Company for $680 million.
The deal had hit a hurdle as Reliance Life had not yet completed the 10 years necessary for its promoters to dilute their stake. The proposed order will help remove the ambiguity of Section 6AA of the Insurance Act.
Section 6AA of the Insurance Act, 1938, stipulates that a promoter holding over 26% in an insurance company, including re-insurance, will be required to divest their stake and bring it below this threshold limit in a phased manner “after a period of 10 years from the date of the commencement of the said business by such Indian insurance company or as prescribed by the central government”.
This provision does not apply to the foreign promoters of insurance firms, as per the explanation of the section.
Sources said even the Law Ministry is of the view that there are no regulatory hurdles if promoters of life and general companies and re-insurance firms dilute their stake before the 10-year period stipulated in the clause.
With the enabling provision, insurance firms can dilute their stake anytime, sources said.
Reuters and PTI