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The Lok Sabha today passed the Insurance Amendment Bill 2021 which will lead to an increase in FDI limit in the sector to 74 percent.

Finance Minister Nirmala Sitharaman fulfilled the promise of increasing the FDI limit from 49 percent to 74 percent, which she had announced in her 2021-22 Union Budget speech on February 1.

Under the new structure, the majority of directors on the boards and key management positions will be resident Indians.

A specified percentage of profit will be retained as general reserve.

Sitharaman said the insurance companies are facing solvency related issues and therefore there is a need for raising the FDI limit.

“If growth capital is hard to come by, there will be a stress situation. In order that the stress situation is not left unattended, we need to raise the FDI limit,” she added.

The COVID-19 pandemic has also added to the woes of the insurance companies, she said.

Sitharaman said the FDI limit was being raised on the recommendations of the regulator IRDAI.

The FDI inflow in the insurance sector, she said, had increased significantly after the government decided to raise the cap from 26 per cent to 49 per cent in 2015.

As much as Rs 26,000 crore has come as FDI in the insurance sector since 2015, she said, adding the asset under management (AUM) in this sector too have grown by 76 per cent during the last five years.

She also said the ‘Indian management control’ was a clause inserted when the insurance FDI cap was hiked to 49 percent in 2015. This clause meant that all board-level matters related to appointments, company strategy and business expansion would have to be approved by a majority of Indian shareholders.

In her budget speech, Sitharaman did not explicitly use the words ‘Indian management control’.

Source

 

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