Finance Ministry amends FEMA norms to raise FDI limit in insurance – Check latest details

The Finance Ministry has notified amendments to the Foreign Exchange Management Rules to increase in limit on foreign direct investment (FDI) in the insurance sector to 74 per cent.

Currently, the cap on FDI in the insurance sector is 49 per cent.

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As per the Foreign Exchange Management (non-debt instruments) (second amendment) Rules, 2021 notified by the government on Thursday, applications for FDI in private banks having a joint venture or subsidiary in the insurance sector may be addressed to the Reserve Bank of India for consideration in consultation with the Insurance Regulatory and Development Authority of India to ensure that the limit of foreign investment of 74 per cent for the insurance sector is not breached.

In May, the government had notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021 that makes appointment of resident Indian citizen mandatory, at least one amongst the Chairperson, Managing Director, or Chief Executive Officer.

In the Budget session earlier this year, the Parliament approved the raising of FDI limit in insurance from present 49 per cent to 74 per cent.

To be able to enhance FDI to 74 per cent level, companies would be required to have minimum 50 per cent independent directors on the board. An exception is given where the chairperson is an independent director. In such case, one-third of directors would be independent.

Moreover, such companies would be required to retain net profits for dividend declaration, where prescribed solvency margins are not met for a financial year.