The Central Government has notified the Indian Insurance Companies (Foreign Investment) Amendment Rules 2016 (Amendment).
The Amendment, which has come into force from 16 March 2016, has introduced the following changes to the Indian Insurance Companies (Foreign Investment) Amendment Rules 2015 (Insurance FDI Rules):
- Rule 5 of the Insurance FDI Rules has been substituted with the following “The Foreign Investment proposals up to 49 per cent of the total paid up equity of the Indian Insurance Company shall be allowed on the automatic route subject to verification by the Insurance Regulatory and Development Authority of India.”
- Rule 6, which provided that “Foreign Direct Investment proposals which take the total Foreign Investment in the Indian Insurance Company above 26 per cent and upto the cap of 49 per cent shall be on the FIPB route, and shall require FIPB approval subject to compliance of the provisions of the Act.” [sic] has been deleted.
The notification of the Amendment is a step towards operationalising the Finance Minister’s statement in his Budget Speech (2016) on allowing up to 49 per cent FDI in the insurance sector under the automatic route. However, for this Amendment to become effective: (i) the Department of Industrial Policy and Promotion will need to publish a press release amending the Consolidated FDI Policy and (ii) the relevant foreign exchange regulations will need to be amended. We expect these to occur in due course.
While this is a move towards liberalising FDI in the insurance sector, it may be noted that approval of the Insurance Regulatory and Development Authority of India will continue to be required for a transfer of shares of an Indian insurance company exceeding 1 per cent of the paid up equity capital of the insurance company.