Government Allows 49% FDI Under Automatic Route In Insurance Sector

The Department of Industrial Policy and Promotion (“DIPP”) has vide a notification dated 23rd March, 2016 liberalized its Foreign Direct Investment Policy (“FDI”) for the insurance sector by raising the foreign investment equity cap to 49% thus permitting overseas companies to buy 49% stake in domestic insurers without prior approval from the Foreign Investment Promotion Board (“FIPB”). Until now, FDI up to 26% was allowed through the automatic approval route in the insurance sector, while any investment between 26 and 49% required the FIPB approval.

Separately, the other conditions under the notification state –

  1. No Indian insurance company shall allow the aggregate holding by way of total foreign investment in its equity shares by foreign investors, including portfolio investors, to exceed 49% of the paid up equity capital of such Indian insurance company;
  2. Proposals up to 49% of the total paid up equity of the Indian insurance company shall be allowed under automatic route subject to verification of the Insurance Regulatory & Development Authority of India (“IRDA”);
  3. Foreign Investment is subject to compliance of the provisions of the Insurance Act, 1938 & the condition that companies bringing in FDI shall obtain the necessary license from the IRDA for undertaking insurance activities ;
  4. An Indian Insurance Company shall ensure that its ownership & control remains at all times in the hands of resident Indian entities;
  5. The equity investment cap of 49% shall apply on the same terms to Insurance Brokers, Third Party Administrators, Surveyors & Loss Assessors and Other Insurance Intermediaries appointed under the IRDA Act. Provided where an entity like a bank is allowed by the IRDA to function as an Insurance intermediary, the foreign equity investment caps applicable in that sector shall continue to apply, subject to the condition that the revenues of such entities from their non-insurance related business must remain above 50% of the total revenue in any financial year.
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