NEW DELHI: The Lok Sabha on Monday passed the Insurance Amendment Bill, which seeks to hike the foreign direct investment (FDI) limit from 49 per cent to 74 per cent, with Union Minister for Finance Nirmala Sitharaman saying that the measure was necessary to allow the insurance companies to access growth capital.
The Bill has already been passed by the Rajya Sabha. Sitharaman, speaking in the Parliament, pointed out that there is significant stress in the insurance sector, with three out of the seven public sector insurers below the solvency margin. Many of the insurance companies are hard pressed to maintain solvency ratio of 150 per cent as per the norms, she said. Solvency margin is the ratio of assets to liabilities.
The minister also pointed out that the government will provide funds to public sector insurance companies but private players will have to raise capital on their own. The Bill provides them headroom to raise capital, she said.
“If growth capital is hard to come by, there will be a stress situation. In order that the stress situation is not left unattended, we need to raise the FDI limit,” Sitharaman pointed out, adding that the pandemic has worsened the woes of insurance companies.
“There is definitely a financial stress for raising money, especially for private sector insurance companies, which needs to maintain that solvency ratio,” she said. The minister also observed that the FDI limit was being raised on the recommendation ofsector regulator Insurance Regulatory and Development Authority of India after extensive consultations.FDI will not only bring in capital, but will also bring in greater competition, efficiency, better technology and enhance job opportunity, she said.