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IRA back with caps & props

RITU SARIN

NEW DELHI, March 4: The Parliament's Standing Committee on Finance, whichconcluded its meetings on the controversial Insurance Regulatory Authority(IRA) Bill today, has proposed to cap the total foreign equity in any formin this sector to 26 per cent, from the proposed 40 per cent in the billintroduced in the last session of Parliament. In addition, it has beendecided that the minimum equity required to set up an insurance company willbe Rs 200 crore for the life insurance segment.

Today's final meeting was attended by only half of the committee's 45 MPsand was expectedly polarised with Left and Samajwadi MPs alleging that theBJP and the Congress were attempting to rush through the crucial amendments.While Committee Chairman, Murli Deora of the Congress, said after themeeting that there was a ``near unanimity'' during the hearings, some MPswere clearly dissatisfied. CPM member Rupchand Pal submitted a nine-pagedissent note arguing that foreign participation would lead to ``unethicalpractices'' and CPI's Gurudas Dasgupta said he would submit his dissentingnote by Friday.

Deora later told The Indian Express that the MPs would be given about aweek's time to file their dissenting views. He said this final report wouldbe submitted to Parliament before the recess on March 18. With Deoracommitting that the final report will be submitted before March 18, thestage is set for the bill being passed in the current session itself.Deora's formula, interestingly, is much the same proposed by the governmentearlier, as a face-saving formula to win support of the Swadeshi factionwithin the BJP which wished to lower foreign equity. Under that formula, itwas decided that the 14 per cent equity stake reserved for Non-ResidentIndians (NRIs) and their financial institutions (called Overseas CorporateBodies, or OCBs) would be subsumed within the 26 per cent cap for foreignequity. In other words, while the government had earlier proposed thatforeigners be allowed to hold 40 per cent equity -- 26 per cent directly and14 per cent for NRI/OCBs -- the new formula would have restricted the totalforeign equity to 26 per cent. This was, however, rejected by the PrimeMinister who felt that it would be incorrect to bow down to the Swadeshilobby. In the event, when the Bill was introduced in the last session ofParliament, it kept the total foreign equity at 40 per cent. The newproposal by the Standing Committee, to keep the total foreign equity at 26per cent, willensure that even after ten years, foreigners be allowed tohold 40 per cent equity 26 per cent directly and 14 per cent for NRI/OCBs the new formula would have restricted the total foreign equity to 26 percent. This was, however, rejected by the Prime Minister who felt that itwould be incorrect to bow down to the Swadeshi lobby. In the event, when theBill was introduced in the last session of Parliament, it kept the totalforeign equity at 40 per cent.

The new proposal by the Standing Committee, to keep the total foreign equityat 26 pc, will now ensure that even after ten years, when the insurancepartners have to divest some part of their initial stake to the public, boththe Indian and foreign partners will have an equal share, or 26 pc each.The committee has also sharply hiked the net worth requirement of insurancecompanies this was a mere Rs 50,000 under the original Insurance Act of1938. This minimum floor has been hiked to Rs 200 crore for life insurancecompanies, and Rs 100 crore for others. Hiking the minimum limit was a majordemand of the Congress which felt that only large and solvent players shouldbe allowed to get into the business since it involved the savings ofmillions of people. Solvency margins, previously low, have also been hikedsignificantly for the same reason.

Another concern of the Congress, which insisted that the original bill bereferred to a Standing Committee, was that the government had the power toover-rule the Insurance Regulatory Authority, and could undermine itsauthority at will. This provision has now been reworked to ensure autonomyto the IRA.

Sharp hike in solvency margins

Total foreign equity cap of 26%. This includes 14% which can be held by NRIsor OCBs. Eventually foreign and Indian partners will hold equal equity of 26% each.