Budget 2014: Nearly $3 billion FDI inflows estimated in insurance

MUMBAI: As much as $3 billion could flow into India in the form of foreign direct investment in insurance sector after the government announced higher foreign ownership in companies at 49% from 26%.

Scotland’s Standard Life, France’s Axa, Lombard, a joint venture partner with ICICI Bank, Allianz of France and Italy’s Generali may be among the global insurers which will exploit the opportunity thrown open by the liberal investment regime.

"We would expect foreign partners bringing money by 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 shareholders’ agreement with Indian partners to raise their stake to 49% when government opened up.

State-run banks which have wide distribution network would benefit from the move as international companies may pay a premium to exploit their franchise. State Bank of India 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 a stake in their firms to overseas companies which seek Indian exposure.

But there could be a dampener in the form of voting rights.

"If voting right is limited 26% could be a dampener,’’ said Girish Kulkarni, MD & CEO of Star Union Dai-ichi Life Insurance. ``In life insurance business, along with economic ownership, proverbial functional ownership, is equally important,"

FDI will enable insurance to reach rural markets. It is estimated that less than 5% of Indians have insurance cover.

"Penetration of insurance is so low that capital will be required for growth and thus this move will facilitate insurers to move to hinterland," said Rakesh Jain, CEO of Reliance General Insurance.

According to Sanjiv Bajaj, MD of Bajaj Finserv, "FDI may come in companies that are in need for capital, in companies where the foreign partners have desire to raise stake and in companies where foreign partners have entered into an agreement to this effect." Bajaj Finserv is a holding company with majority stake in life and non-life insurance venture with Allianz of Germany.