Cabinet defers decision on insurance bill changes

MUMBAI | NEW DELHI: The union cabinet on Thursday deferred a decision on modifications to the insurance amendment bill as did not see great hurry in moving changes to the law if it could not increase the foreign direct investment in the sector to 49% from 26%.

The cabinet approved the micro finance bill that will make the Reserve Bank of India sector regulator with powers to set interest rates and fee.

"The consideration of the item has been postponed because 26% foreign investment is already permitted," Finance Minister Pranab Mukherjee told reporters after the meeting of the Union Cabinet on Thursday.

He said the bill will be taken up later suggesting that the government may try to build a consensus to increase the FDI limit in the sector to 49%.

The microfinance bill requires that all micro-finance institutions (MFIs) with minimum net worth of over Rs 5 lakh have to be registered with the RBI. The sector is currently regulated by the respective states.

The bill also proposes to set up a micro finance development council to ensure prudent development of the sector.

MFIs have been finding it difficult to function after the Andhra Pradesh government passed a law imposing stringent regulations on the sector.

The insurance bill delay is a setback to the Manmohan Singh government that is keen to get key financial bills passed to assuage concerns that reforms are dead.

The government had introduced the Insurance Laws (amendment) bill, 2008 in the Rajya Sabha in December 2008 to update the sector law and increase the foreign participation in the sector by lifting the FDI limit.

The finance ministry had argued that an increase in the FDI limit will help step up investment. The former finance minister and BJP leader Yashwant Sinha headed standing committee on finance had in its recommendation on the bill said there was no need to increase the FDI limit in the sector.