cin December. The Bill, if passed, will allow insurance companies to have foreign direct investment (FDI) of 49 per cent compared with 26 per cent, at present. It will also remove ‘anarchic’ and ‘redundant provisions’ in the legislations and vest more powers with the regulator.

“The Union cabinet gave its approval for introduction of the Insurance (Amendment) Bill, 2008 for amendment to Insurance Act 1938, General Insurance Business Act, 1972, and Insurance Regulatory and Development Act, 1999, in Parliament on the basis of recommendations made by GoM,” said finance minister P Chidambaram. Even if the Bills are not passed in Parliament before elections, they will not lapse since they will be introduced in the Rajya Sabha.

At present, the total capital base of the insurance industry, that includes both life and non-life companies, is Rs 8,500 crore. Of this, Rs 2,000 crore is contributed by foreign players and the rest by the domestic players. An increase in the FDI limit will ease off some pressure on the domestic insurance firms and open ways for the inflow of funds from the foreign partners.

“The move will have a greater impact on the life insurance industry. Life insurance is growing at a compounded growth rate of more than 30 per cent and is capital intensive. More expansion means more expenditure. Therefore, domestic insurers were feeling a lot strained for capital. This change would allow foreign players to inject more funds,” said consulting firm Watson Wyatt managing director R Krishnamurthy.

Besides, the bill will give public sector non-life insurance companies the freedom to raise capital by selling a minority stake and relax norms that mandates Indian partners to sell part of their holding, either through a public issue, or other means to broadbase the ownership of such firms after ten years of operation. It will also give more teeth to the regulator.

... contd.