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FDI Rises to 49% in Insurance with Cap 26% on Voting Rights

Foreign direct investment in the insurance sector is likely to increase to 49%, as planned by the government. A term has been added in the plan which states that the voting right of overseas partner will remain restricted at 26%.

As proposed by the Insurance Laws (Amendment) Bill, 2008, there would be a rise in the foreign holding in insurance joint ventures from present 26% to 49% with corresponding voting right.

The sources informed that the Finance Ministry recommended an amendment to the Bill that was lying pending since 2008. Ministry has thereby capped the voting rights of foreign partner to 26% even as FDI has been elevated to 49%. This would help to meet the increasing capital requirement of insurance companies.

As mentioned in the proposal, foreign company’s equity shares should not exceed 49% of the insurance company’s total paid-up equity capital; provided that the voting rights are not exceed by 26% in aggregate for these foreign shareholders. Also, Indian shareholders are responsible for the selection of the CEO of the insurance joint venture subjected to regulatory approvals.  It also specifies that majority of company’s directors need to be of Indian nationality.

Sources have informed that the Department of Financial Services has drafted a Cabinet note that has been circulated.

UPA government had mooted the proposal of raising the FDI cap in the insurance sector which had left it in a pending state in the Rajya Sabha since 2008.