RBI And IRDAI Will Vet FDI In Bank-promoted Insurance Companies In India

The Finance Ministry has amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and confirmed - applications for Foreign Direct Investment (FDI) in an insurance company promoted by a private bank will be cleared by the RBI and Insurance Regulatory and Development Authority (IRDAI) to guarantee the 74% limit of foreign investment is not breached. The RBI and IRDAI together will look into the matter closely and strictly to vet FDI in these insurance companies.

The ministry said in a gazette notification, "These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2021." In India, total 24 life insurance companies and 34 general insurance operating companies will be impacted by this amendment. Along with drawing new foreign investors, the hike in FDI limit also allowed foreign partners who are in joint ventures like - ICICI Prudential, HDFC Standard Life, Bajaj Allianz, Star Union Daiichi Life Insurance, to increase their stake and control Indian insurance companies better.

Previous amendments

Earlier this year, by another change, the government in the Parliament had passed a bill to increase the FDI limit in the insurance periphery from 49% to 74%. back then it helped the insurers who were struggling with liquidity pressure to boost solvency.

The sector was liberated for foreign investment in 2000 and 'The Insurance Act, 1938' was last amended in 2015, which raised the FDI limit to 49%. It resulted in a foreign capital efflux of Rs. 26,000 crore in the last 5 years - the ministry has informed. It added, "As many as 22 of 56 direct insurance companies in the country have received around 40% in FDI. Average FDI in private insurance companies (excluding re-insurers) is about 31%." Now as the government limits the FDI limit to 74%, it ensures better enforcement of the rule change. This aims to inflow adequate safeguards into the law.