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Insurance FDI may not be hiked to 49% so soon

The finance ministry is likely to have a relook at the Insurance Laws (Amendment) Bill, 2008, which has suggested hiking the FDI limit in insurance from 26 per cent to 49 per cent.

A.M. Jigeesh | July 20, 2011 | Updated 11:32 IST

The finance ministry is likely to have a relook at the Insurance Laws (Amendment) Bill, 2008 taking into account the discussions within the Parliament's standing committee on finance.

The Bill, introduced on December 22, 2008, envisages hiking the foreign direct investment (FDI) limit in insurance from 26 per cent to 49 per cent. The standing committee, in its draft report, is learnt to have asked the Centre not to proceed with the move for the "time being".

Sources in the government and the finance standing committee told MAIL TODAY that finance minister Pranab Mukherjee and finance committee chairman Yashwant Sinha held informal interactions over the issue. Sinha, also a former finance minister, supposedly conveyed to Mukherjee the committee's reservations in this regard.

The committee is learnt to have raised three issues in the draft report. The panel has reminded the government about a commitment it had made in Parliament that it will not raise the FDI limit from 26 per cent. The committee sought to know from the Centre the pressing reasons before it for deviating from the commitment to Parliament.

IPO rules for insurance cos soon

The Insurance Regulatory Development Authority (Irda) on Tuesday said the guidelines to allow life insurance firms to raise funds from the capital market will be out by this month-end.

"With regard to life companies, the work on IPO guidelines is more or less complete and we would be gazetting the same as regulation shortly, perhaps toward the end of this month," Irda chairman J. Hari Narayan said.

For life insurance companies, the clause mandating a three- year track record of profitability as a precondition for tapping the capital markets has been removed in the draft guidelines, he said.

As regards non-life companies, there is little more work to be done and that may take two to three months, he added. According to the draft guidelines only insurance companies that have completed 10 years of operations and have strong financials will be allowed to access the capital markets.

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Second, the committee said that adequate funds will be available in India to be invested in the insurance sector. If that is the case, the panel sought to know why the government should invite more foreign players to the field. The committee is learnt to have recommended to the Centre to ensure that domestic players get more help so that they can invest in the insurance sector.

Third, the committee is learnt to have observed that the insurance sector in the country is still not seen as an attractive sector for investment. It urged the Centre to take steps to ensure that the public will have confidence to invest in the insurance sector.

During the discussions on the Bill, certain members had raised apprehensions that foreign players in the insurance sector might use the opportunity to raise their value in the international market.

Certain members also pointed out that the insurance sector could be used as a channel to route black money into India. It is learnt that such discussions have also forced the Centre to have a second thought on the matter.

The committee had at least three rounds of discussions on the Bill. It is also learnt that the contents of the discussion and the draft report were made available to Mukherjee, who is also the leader of the Lok Sabha.

Sources indicated that the government is thinking of two options. The government is likely to come up with certain suggestions to amend the Bill and will make these amendments available to the committee. The committee will then incorporate these amendments into the Bill and table the report in the winter session of Parliament, and not in the monsoon session.

Another option before the government is to let the committee table its report in Parliament with the objections it had raised on the Bill. The government will take note of the suggestions and table an amended version of the Bill later. It is learnt that members in the finance committee have opposed the Bill in its present form. The tabling of the Bill was delayed for five years as the Left parties objected to it and UPAI was depending on its support.

In December 2008, when the Left parties unsuccessfully tried to pull down the government, the Centre tabled the Bill. Since then it was being considered by the finance standing committee.

A section of the Congress is also reportedly opposed to the Bill. They believe that India got over the economic slowdown because the banking and insurance sectors were protected by the government.

Courtesy: Mail Today

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