FDI Cap for Insurance Increased To 74%; IPO for LIC; 2 PSBs & 1 GIC To See Disinvestment FDI Cap for Insurance Increased To 74%; IPO for LIC; 2 PSBs & 1 GIC To See Disinvestment

By Shipra Singh

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.


In a move that is expected to boost capital from foreign markets in the insurance sector, the Budget 2021 presented by finance minister Nirmala Sitharaman on Monday increased the foreign direct investment (FDI) limit in the insurance sector to 74 per cent.

The current limit stands at 49 per cent of the paid-up equity capital, which was last changed in 2015.

In February last year, the government had tweaked the FDI policy to allow 100 per cent foreign investment for insurance intermediaries such as brokers, Web-aggregators, third-party administrators, surveyors, and loss assessors.

Adding to the announcement, the FM said major management control will rest with resident Indian stakeholders in the company.

"Under the new structure, the majority of directors on the board and key management persons would be resident Indians with at least 50 per cent of directors being independent directors and specified percentage of profits being retained as a general reserve," she said while delivering the first-ever paperless Union Budget.

The industry has welcomed the move, however, there's not much surprise as the announcement is in line with the industry's expectations. Discussions between the industry stakeholders and the government to increase the FDI limit were underway for a long time, several news reports recently suggested.

Experts say an increase in the FDI limit will not only provide an impetus to the insurance industry's efforts towards deepening insurance penetration in the country but also help companies innovate and expand.

"Companies will be able to raise fresh capital that will help some of the insurers to increase their solvency positions who are very close to the regulatory level of 150 per cent. Apart from providing long-term growth capital, the insurance companies could invest in newer technologies which would not only help in curtailing their losses but also in customer acquisition," said Parimal Heda, chief investment officer, Digit Insurance in an interaction with Entrepreneur India.

"Insurance companies have to adapt to the evolving customer needs like responsive service through digital platforms, being available on social media, etc. Further, digital platforms could have a considerable impact on an insurance company's ability to not only reach a larger customer base and assess their behavioral and demographic data but also in better pricing of the risks it underwrites."

Divam Sharma, co-founder, Green Portfolio, a SEBI-registered portfolio management services, said "Incremental foreign capital will enhance the penetration of insurance in India and will also gradually help in reducing the insurance cost with higher volumes."

The increased limit of 74 per cent is on par with the private banks.

Apart from helping insurers attract more capital to expand the business, capital inflow can also potentially boost the government's divestment programme, which FM Sitharaman announced in the Union Budget.

Two PSBs, One Insurer to be Disinvested, LIC to go Public

The FM during her speech announced strategic divestment in two public sector banks and one insurance company in the fiscal year 2021-22. This will be separate from the disinvestment of the IDBI bank.

FM Sitharaman said the strategic sale of the BPCL, the IDBI Bank, the Air India, Shipping Corp, Container Corp, and other disinvestments would be completed in the coming fiscal year despite COVID-19.

"I have estimated receipts of INR 1.75 lakh crore from disinvestment in 2021-22," she said.

Meanwhile, the policy think tank Niti Aayog will work on the next list of central public sector companies for disinvestment, the FM added.

The coming fiscal year will also see the initial public offering (IPO) of state-owned insurance behemoth LIC, as per FM Sithraman, which was announced during the Budget speech. The government aims to garner INR 90,000 crore from the listing of the LIC and stake dilution in the IDBI Bank, in which it holds a stake of about 46.5 per cent.

Shipra Singh

Entrepreneur Staff

Freelance Journalist

Now a freelance journalist, ealier steered the Wealth section on the Entrepreneur website, covering everything finance. Previously a personal finance reporter at The Economic Times and Outlook Money.

Related Topics

Business News

Black Mirror's 'Joan Is Awful' Sparks Real-Life Worry Over Netflix's Terms and Conditions

Google searches for Netflix's terms and conditions spiked following the release of Black Mirror season 6.

Business Plans

12 Reasons You Need a Business Plan

In the new book "Write Your Own Business Plan," business expert Eric Butow breaks down how a solid business plan can save your startup during those tough early days.

Growing a Business

A 5-Time Founder Shares His Best Success Tips

Godard Abel's sold businesses to Oracle and Salesforce, and these are the three biggest secrets to his success.


10 Products Entrepreneurs Can Built On Top of CBDC

114 countries (over 95 per cent of global GDP) are exploring a CBDC. While the current CBDC industry is a small one, the scope for innovation and offerings is vast.


5 Ways to Be a Better Listener

Evolved listening skills are key for business leaders to process feedback and build a loyal following. Here within are five steps for a more effective exchange.

News and Trends

Leverage Edu Secures Investment From Lohiya Family Office

The company plans utilize the fund to double down on efforts to roll out the offering to more students from emerging economies in the region