Budget 2014: Insurance FDI raised to 49%; $3 bn could flow into India

MUMBAI: As much as $3 billion could flow into India in the form of FDI in insurance, thanks to the increase in foreign ownership in companies in the sector to 49% from 26%.

Scotland’s Standard Life, France’s AXA Group, UK’s Lombard, Allianz of France and Italy’s Generali could be among those looking to cash in.

“We would expect foreign partners bringing money within six months,” said Amitabh Chaudhry, MD & CEO, HDFC Life, which has a joint venture with Standard Life. Most foreign companies already have an enabling provision in their agreement with Indian partners to raise their stake to 49%.

State-run banks, which have a wide distribution network, would benefit from the move as international companies may pay a premium to exploit their franchise. SBI, which has a tie-up with Cardiff for life insurance and IAG for general insurance, and ICICI Bank, which partners Lombard and Prudential, may be the gainers. It also opens up doors for L&T General Insurance and Reliance General to sell stakes to overseas companies.

But there could be a dampener in the form of voting rights. “Voting right limited to 26% could be a dampener,” said Girish Kulkarni, MD & CEO of Star Union Dai-ichi Life Insurance.

FDI will enable insurance to reach rural markets. It is estimated that less than 5% Indians have insurance cover. “This move will facilitate insurers’ move to the hinterland,” said Rakesh Jain, CEO of Reliance General Insurance.