The Ministry of Finance (MOF) has come out with a notification dated July 3, 2015 making an amendment to Indian Insurance Companies (Foreign Investment) Rules, 2015 (‘Rules’).

Earlier, as per notification dated February 19, 2015 issued by MOF, a requirement was imposed that the promoter of an Insurance company should also be Indian owned and controlled.

Rule 2 (l) of the Rules defines the term India Ownership. It states, “Indian Ownership” of an Indian Insurance Company means more than 50 per cent of the equity capital in it is beneficially owned by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens;

Now by the above notification, a proviso to Rule 2 (l)of the Rules has been added, which states:

Provided that the manner of computation of foreign holding of such Indian promoter or Indian Investor Company shall be in accordance with clause (p) of rule 2.

Rule 2 (p) states that total foreign investment in an Indian insurance company would be the sum total of direct and indirect foreign investment by foreign investors in such company, calculated in accordance with Insurance Regulatory and Development Authority (IRDA) regulations read with Para 4.1.4 of the Consolidated FDI policy of the Government of India.

Regulation 11 of Insurance Regulatory and Development Authority (Registration of Indian Insurance Companies) Regulations, 2000 provides that for the purpose of calculation of equity capital held by foreign company, account need not be taken of the equity holdings in an Indian promoter company held by Foreign Institutional Investors.

Thus, even if foreign portfolio investment in the parent company exceeds 50%, the parent company investment in the Indian insurance company will not be considered as foreign owned and controlled.


VA View

The clarification from the MOF comes after many firms complained about the confusion created by the earlier government view that the parent companies of the Indian insurers have to be managed and controlled by Indian firms even though foreigners were permitted to raise their stakes to 49% from 26% in such Indian companies. With this amendment, international insurers, having stakes in Indian insurance companies can brush aside their worries about the prospects of not being able to raise their holdings in the Indian joint ventures.