With the Cabinet approval for 49 per cent foreign direct investment (FDI) in insurance and FDI in pension sector, market participants are expecting that the much-awaited foreign fund inflow into the country would be faster.
“It is a capital intensive industry and, hence, the insurance players would be able to tap capital from India and overseas,” said Vibha Padalkar, Executive Director and Chief Financial Officer, HDFC Life. “Also, if the fine print shows that FII participation is also allowed, then it could open up possibilities of companies going in for an IPO or M&A transaction,” she added. “It has been a long pending step to boost the confidence of the global investors. The insurance industry has been struggling for a while on capital, which will now be forthcoming. There should also be more product and channel innovation with increase in competition expected,” said Shashwat Sharma, Partner, KPMG India
A welcome step
“The Cabinet's approval to allow FDI up to 49 per cent in the insurance sector is a welcome step. This will bring in domain capital to the industry. The Insurance Bill has several other important elements, whichwill have a long-term impact on the development of the sector,” said Rajesh Sud, CEO and Managing Director, Max Life Insurance.
This would have been an opportunity to allow FIIs to also participate in life insurance, since they are also a source of long-term capital, particularly in view of potential IPOs from life insurance companies, according to Mr. Sud.
“More capital is always welcome and the industry can leverage financial and technical capital through the FDI route” said P. Nandagopal, MD & CEO of IndiaFirst Life Insurance.
Industry associations have welcomed the Cabinet approval for amendments to the Pensions Bill, Companies Bill and Competition Bill.
“The industry in India and the global investor community are taking due note and sentiment would only be northbound from here on,” Chandrajit Banerjee, Director General, CII, said.
CII said that the Companies Bill had been through various iterations and the industry anxiously awaits a new corporate law that would lay stress on responsible self-regulation.
“The new law would strengthen the concept of shareholders democracy and offer protection of the rights of minority stakeholders.”
CII is, however, concerned about the mandatory 2 per cent spend on CSR activities, considering India would be the first country in the world to do so.
“We welcome the Cabinet approval to the changes in the Companies Bill 2011 which has been prepared after considering recommendations of the Standing Committee and comments from the finance and law ministries , FICCI President R. V. Kanoria said in a statement.