Finance ministry mulls higher FDI cap of 49% in insurance

The finance ministry is considering a hike in the foreign direct investment limit in the insurance sector to 49 per cent, from the current 26 per cent, although with some riders and restrictions in voting rights.

The government is readying a host of reform measures in the financial sector, which also includes an elaborate plan to infuse capital in state-owned banks as part of a broad initiative to bring in dollars and instill confidence among investors.

The union cabinet on Thursday also approved a move to use part of the money it raises through disinvestment to bolster the capital base of public sector banks and state-run insurance companies.

The government is also likely to draw up plans to infuse more capital to ensure the banks' capital reserves do not remain too close to the minimum stipulated levels over the long term.

The finance minister is reported to have held a couple of meetings on this issue and the understanding is that voting rights will be capped at 26 per cent, and then go in for hiking the foreign direct investment (FDI) cap.

''We might increase the FDI cap in insurance without commensurate increase in voting rights. We talked with stakeholders and also held high level meeting in the ministry,'' finance ministry officials said on Monday.

Sources also said the government may opt for a phased increase in investment limits, beginning with non-life and health followed by the life insurance segment.

A proposal to hike the FDI cap in the insurance sector, introduced by the earlier UPA-2 government has been pending in Parliament since 2008.

Even though the earlier bill, which was in the Rajya Sabha, has not lapsed, moving such important amendments will need cabinet approval. So, the new bill is likely to be structured altogether.

The Bharatiya Janata Party had opposed raising the FDI cap in the insurance sector from 26 per cent to 49 per cent.