Clearing the decks for the Rs.3,000-crore Reliance Life-Nippon deal, the Union Government on Thursday relaxed norms for dilution of stake by Indian promoters of insurance companies even before completion of ten years of operations. “Under Sec. 6AA of the Insurance Act, 1938, an Indian promoter can scale down the equity up to a level of 26 per cent at any time after registration under the Act,” a Finance Ministry circular said. The Indian promoter would reduce its equity to a level of 26 per cent after ten years, if it is not done already, in a phased manner, for which rules are being issued separately, it said. The limit for foreign direct investment will remain at 26 per cent, it added. The circular has removed the ambiguity of Sec. 6AA of the Insurance Act. The ambiguity came to light when Reliance Life announced its plans to go for a public offer in 2009, but could not obtain regulatory approval as it had not completed ten years of operations.
Sec. 6AA stipulated that a promoter holding over 26 per cent in an insurance company, including re-insurance, will be required to divest its stake and bring it below this threshold limit in a phased manner “after ten years from the date of commencement of the said business by such Indian insurance company or as prescribed by the Central Government.'' This provision does not apply to foreign promoters of insurance firms, as per the explanation of the section. The clarification has come after consultation with the Ministry of Law and Justice and IRDA. — PTI
