ARTICLE
9 October 2015

Change In Policy For Foreign Direct Investment In The Indian Insurance Sector

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Solomon & Co.

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An Indian insurance company should ensure that its ownership and control remains at all times in the hands of resident Indian entities.
India Government, Public Sector

The Reserve Bank of India by a circular dated 7 April 2015 notified the government's decision to raise the foreign direct investment limit in the insurance sector from 26 per cent to 49 per cent of the paid up equity capital.

Foreign direct investment up to 26 per cent will continue to be under the "Automatic route" (without prior government approval) while investment above 26 per cent and up to 49 per cent will need to follow the government approval route.

The Reserve Bank of India has also included a new term 'Other Insurance Intermediaries appointed under the provisions of Insurance Regulatory and Development Authority Act, 1999' under the definition of 'Insurance'.

Foreign investment in the insurance sector will be subject to compliance of the Insurance Act, 1938 and the condition that companies bringing in foreign direct investment shall obtain the necessary license to undertake insurance activities from the Insurance Regulatory & Development Authority of India. Foreign portfolio investment in an Indian insurance company will also continue to be governed by the provisions of the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 and the Securities Exchange Board of India (Foreign Portfolio Investors) Regulations and any increase in foreign investment in an Indian insurance company shall be in accordance with pricing guidelines specified by Reserve Bank of India under the Foreign Exchange Management Act, 1999.

An Indian insurance company should ensure that its ownership and control remains at all times in the hands of resident Indian entities.

Originally published June 2015

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