Govt to raise FDI limit in insurance to 74%, allow full foreign control with safeguards
05 February 2021
The government will amend the Insurance Act, 1938 to increase the permissible limit of foreign direct investment (FDI) from 49 per cent to 74 per cent and allow foreign ownership and control, with safeguards, finance minister Nirmala Sitharaman announced while presenting the Union Budget 2021-22 in Parliament.
Under the proposed 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 general reserve.
Government will also be privatising at least one general insurance con=manyalong with two public sector banks as part of its divestment and asset monetisation drive.
In 2021-22, government would also sell shares in Life Insurance Corporation of India (LIC) through an initial public offer, for which an amendment to the Insurance Act is proposed in the current session of Parliament.
The finance minister stated an asset reconstruction company and asset management company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realisation. The move will help the public sector banks to manage their stressed assets.
In order to consolidate the financial capacity of public sectors banks, the government has proposed further recapitalisation of Rs20,000 crore during fiscal 2021-22.
Further, the finance minister stated that the hovernment had, last year, approved an increase in the deposit insurance cover for bank customers from Rs1 lakh to Rs5 lakhs. In order to help depositors of banks that are currently under stress. The government will be moving an amendment to the DICGC Act, 1961 in the current session of Parliament to streamline the provisions, so that if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover.
To improve credit discipline while continuing to protect the interest of small borrowers, for NBFCs with minimum asset size of Rs100 crore, the minimum loan size eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002 is proposed to be reduced from the existing level of Rs50 lakh to Rs20 lakh, the minister added.