'Insurers must ensure majority local holding'

KOLKATA: The Insurance Regulatory & Development Authority (IRDA) will allow insurance companies to decide on the quantum of stake their promoters intend to divest as part of the mandatory divestment clause, once 49% FDI in the sector is permitted. However, insurers will have to ensure that total Indian shareholding is not less than foreign holding in these ventures.

“Indians will have to hold more than the foreigners in any private insurance venture even after local promoters have divested their stake as part of the mandatory divestment requirement. Whether the Indian promoter as well as the general Indian shareholder will hold more than the foreigner or just the Indian promoter should hold more than the foreigner should be left to the companies to decide,” IRDA chairman CS Rao told ET.

Currently, foreign companies can acquire a maximum 26% stake in an Indian insurance venture. Local promoters will have to mandatorily divest their stake in tranches to bring down their holding in the insurance venture to 26% from their present level, according to present guidelines. This they are required to achieve within 10 years of commencement of business.

Thus, under IRA Act of 1999 and Insurance Act of 2000, Indian promoters currently holding 74% in an insurance venture will, therefore, be required to divest 48% to the general public in a phased manner to bring down their holding to 26%.

The issue acquires importance as a large number of insurers are in their sixth and seventh year of operations and their promoters will be soon required to offload portions of their stake by the tenth year of business.

Mr Rao said: “The present set of guidelines and rules have been framed with a 26% FDI in mind. The Acts made sure that the holding of Indian promoters post-divestment is not be less than the foreign promoter. Thus, the 26% stake for Indian promoters post-divestment was arrived at. If the FDI limit is raised to 49%, the relevant portion of the IRDA Act and the Insurance Act needs to be fine-tuned accordingly.”

IRDA has decided to issue a ‘scheme of divestment’ — a set of guidelines — on the basis of which promoters of private insurance companies will now be required to offload a portion of their stake to the general public.