Finmin to Explore Options of Raising Funds in Insurance
Increasing FDI in the sector is one among the many options for raising funds
The finance ministry will look at options other than a higher limit for foreign direct investment (FDI) to allow insurance companies to raise funds, indicating that increasing the FDI limit for the sector may not be the new government’s top priority. The previous government had unsuccessfully tried to build consensus on increasing the FDI limit in insurance to 49% from 26%. “We have to look afresh at this issue whether 49% (FDI) or there could be some other instruments without raising it to 49%. All these issues we have to address and then will come back to government,” financial services secretary GS Sandhu said on Thursday after making presentations to finance minister Arun Jaitley. The Insurance Bill has been with the Rajya Sabha since 2008. In October 2012, the Cabinet had cleared 49% foreign investment in the insurance sector. However, Parliament’s standing committee on finance headed by former finance minister and BJP leader Yashwant Sinha had suggested that the cap be kept at 26%. If the government decides to keep the FDI cap at 26% in insurance, the limit will be applicable to the pension sector as well. Responding to a specific question on whether FDI increase in insurance sector was completely ruled out, Sandhu said the government was examining the other options. “Other options are whether we need to have this in all kinds of in- surance or we can restrict it to certain category of insurance to start with,” Sandhu clarified, adding, “We are not ruling out (raising FDI cap), neither are we saying ‘yes’.” “First we will see whether we need to take up this whole hog in all categories of insurance or we can start in some particular (category). Then we have to talk to major players and see what could be the other option apart from this,” he said. Sandhu said the Insurance Bill, which seeks to raise FDI in insurance from 26% to 49%, may be tabled in the budget session of Parliament if the government managed to address these issues. Sandhu also said that the Reserve Bank of India would issue fresh norms for differentiated licences in the next four months. “Hopefully, in next few months, RBI will start inviting applications... RBI will take four-five months for preparing the new set of guidelines for on-tap and for differentiated banks,” financial services secretary GS Sandhu told the media. RBI had last month given two full bank licences to IDFC and Bandhan Financial Services out of 25 applications. “RBI will take four months to draft new guidelines and then invite applications,” Sandhu said.
HOLDING CO & NPA RESOLUTION
Sandhu also said the financial services division presented the suggestions on holding company for state-run banks, resolution of non-performing assets and allowing bank finance to domestic companies for taking over sick companies to the new finance minister. The banking division has been considering a holding company of all state-run banks to have a single mechanism to enable the government to better manage bank’s capital needs.