Rajya Sabha approved a bill to increase the foreign direct investment limit in insurance sector to 74 per cent by voice vote on Thursday.
Responding to the debate on Insurance (Amendment) Bill, 2021, Finance Minister Nirmala Sitharaman asserted that higher foreign investment in insurance industry will supplement domestic long-term resources as well as facilitate insurance penetration in the country.
The Bill aims to amend FDI provisions on Insurance Act, 1938. As per the document, the purpose of the amendment is "to achieve the objective of Foreign Direct Investment Policy of supplementing domestic long-term capital, technology and skills for the growth of the economy and the insurance sector, and thereby enhance insurance penetration and social protection, it has been decided to raise the limit of foreign investment in Indian insurance companies from the existing 49 per cent to 74 per cent".
ALSO READ: 1600% jump in LIC's ULIP premium in a year
The Insurance (Amendment) Bill, 2021 seeks to provide for substitution of sub-clause (b) in the definition of "Indian insurance company" in clause (7A) of section 2 of the Insurance Act, 1938, so as to raise the limit of foreign investment in an Indian insurance company from the existing 49 per cent to 74 per cent and to allow foreign ownership and control with safeguards, the report further said.
The amendments to Insurance Act propose to appoint resident Indians on majority of directors on the board and key management persons, with at least 50 per cent of directors being independent directors, and specified percentage of profits being retained as a general reserve. For investor protection, an investor charter would be introduced as a right of all financial investors across all financial products.
This would be the second revision in FDI limit for the insurance sector. In 2015, the government had hiked the cap on foreign investment in Indian insurers from then 26 per cent to 49 per cent.
During the debate on the bill, Sitharaman said government is proposing to increase the FDI limit in Indian insurance sector considering the liquidity pressure bothering companies. She added that the hike in foreign investment limit to 74 per cent will help meet the growing capital requirement of insurance companies.
Majority of directors and other key personnel will be resident Indians, the Finance Minister assured while talking about the safeguards in the bill, adding that a percentage of profits will be retained in India.