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| | Cabinet clears 49% foreign investment cap for insurance | |
The additional foreign capital expected to flow in from this decision across life, health and general insurance is ₹ 20,00025,000 crore. Immediately, ₹ 6,000 crore could flow into the insurance sector once Parliament approved the Bill, experts said.
Higher foreign investment will provide capital to insurers struggling to expand, help increase insurance coverage in the country, create jobs, generate savings and pave the way for insurers to list on stock exchanges. Non- life insurance penetration in India is only 0.78 per cent of the population, marginally up from 0.67 per cent 10 years ago. Life insurance penetration is 3.2 per cent, against 4.1 per cent in Asia. All investment proposals beyond 26 per cent foreign investment in insurance companies will have to be routed through the Foreign Investment Promotion Board. Foreign investment up to 26 per cent will remain on the automatic route. The 49 per cent cap is composite, including foreign portfolio investment. "Companies that are able to attract and access capital will be better positioned to consolidate their market shares. It is likely to trigger consolidation, as players with strong capital base might have a war chest to acquire weaker players," said Monish Shah, senior director of consultancy firm Deloitte. The proposal to raise the foreign investment cap in insurance has been pending since 2008. The Manmohan Singh government had in its first term introduced the Insurance Laws (Amendment) Bill in Parliament to raise the foreign investment ceiling to 49 per cent, but it was blocked by the Bharatiya Janata Party, which had argued opening up the sector further could expose the economy to global financial shocks. Parliament's standing committee on finance, headed by senior BJP leader Yashwant Sinha, had recommended retaining the cap at 26 per cent. However, the Singh government, during its second term, tabled the revised Bill in the Rajya Sabha in 2013 to increase the ceiling to 49 per cent. Since the Bill was in the Rajya Sabha, it did not lapse with the dissolution of the previous Lok Sabha. The Cabinet on Thursday revised this Bill. Finance Minister Arun Jaitley had said in his Budget speech earlier this month the insurance sector was starved of investment and there was a need to increase the composite foreign investment cap in the sector to 49 per cent. "This should bring in domain capital, which is of critical importance in this phase of growth of the life insurance industry," said Rajesh Sud, CEO &managing director of Max Life Insurance. Scrips of listed insurance companies on Thursday surged as much as four per cent after the Cabinet decision. Along with the increase in the foreign investment cap in insurance, foreign investment in the pension sector will also go up automatically. At present, the FDI cap in the pension sector is 26 per cent, the same as insurance. >FROM PAGE 1 | | |
Bill cleared to empower Sebi to deal with Ponzi schemes BS REPORTER New Delhi, 24 July The Union Cabinet cleared the Securities Laws (Amendment) Bill on Thursday, to empower the Securities & Exchange Board of India ( Sebi) to effectively check illegal deposit taking and Ponzi schemes, with a corpus of at least ₹ 100 crore. "The Cabinet Committee on Economic Affairs has cleared the Bill," a finance ministry official said after the meeting. It will be introduced in Parliament and replace an earlier ordinance to this effect. In March, the President had repromulgated the ordinance. It had strengthened the enforcement powers of Sebi, while allowing it to conduct searches and seizures. Officials said Sebi wanted to introduce a concept of minimum penalty. " That has been incorporated. The rest is mainly the ordinance. But, for exact details, we will have to wait a bit." Sebi Chairman U K Sinha said it would send a strong signal to those defrauding gullible investors with illegal schemes. He expressed hope the Bill would get approved in the current session of Parliament. "I have not formally seen what has been approved by the cabinet or what was the proposal. But if it is on the lines approved in the earlier ordinance, then there are twothree most important things. The first is unauthorised deposit collecting investment schemes, the second relates to the area of Sebis ability to recover the penalties and the third would pertain to special courts where people can be prosecuted, if they have violated the regulators norms," Sinha told reporters in Chennai. The Bill seeks to give Sebi sweeping powers like attachment of properties, launch of recovery proceedings, seeking call data records to investigate cases and ordering search and seizure against manipulators and fraudsters. It has checks and balances to the powers of Sebi. It has also introduced some additional amendments based on the recommendations of Parliament's standing committee on finance and additional proposals from Sebi. The additional amendments provided that the Sebi chairman should record the reasons in writing while issuing an order for search and seizure, and that the authorised officer may requisition the services of a police officer or any officer of the central government to assist him in these. The Securities Laws (Amendment) Ordinance was first promulgated on July 18, 2013. It had to be promulgated thrice, as it could not be passed by Parliament. The move came after the chit fund scam of the Saradha group was exposed in Kolkata in 2013. "It will give a signal to the people who are in the habit of raising unauthorised money from gullible investors that Parliament does not approve of it," Sinha said. To tackle Ponzi schemes being floated as Collective Investment Schemes ( CIS), any money collection of ₹ 100 crore or more will be classified as a CIS and thus would fall under Sebi's domain. This will bring chit funds with acorpus of more than ₹ 100 crore under Sebi's ambit; these were earlier exempt. UK SINHA Sebi chief | | RBI asks promoters to choose between NBFC and bank | |
MANOJIT SAHA
Mumbai, 24 July Non- banking finance companies (NBFCs) eager to enter the banking space might have to wait for more time, since the banking regulator will not yet permit co- existence of both banks and NBFCs of the same promoter group. Following the recent issue of draft norms on licensing of small and payment banks, NBFCs were not sure if opening of such an entity would mean theyd have to give up their existing business. "We are sticking to our stance that an NBFC which is a subsidiary of a bank will not be permitted to undertake activities which the bank itself can do," a top central bank official told Business Standard. The large NBFCs are involved in lending activity. RBI had said it will only allow a bank to have an NBFC as a subsidiary if it undertakes certain activities like credit cards, factoring or primary dealership. "Existing NBFCs, micro finance institutions and local area banks ( LABs) can also opt for conversion into small banks after complying with all legal and regulatory requirements from various authorities if they conform to these guidelines," the draft norms for small banks said. In the guidelines on new licences for universal banks, issued last year, the regulator had clearly said a bank could not undertake any activity through an NBFC which could be done from within the bank. This was a major hurdle for NBFCs such as Mahindra Finance or Shriram Capital, which sought relaxation from RBI on this issue. While Shriram had applied for a bank licence, Mahindra Finance decided not to, due to the restriction. NBFCs do not have to be meet regulatory norms like the cash reserve ratio or statutory liquidity ratio, unlike banks. Banks are also subjected to stricter regulatory supervision. Since the draft guidelines on small banks restrict the area of operation, NBFCs are not enthusiastic about converting their existing business into a bank. The guidelines suggested small banks will operate in a few contiguous districts of a state or Union Territory, so that the bank has a local feel and culture. Since the large NBFCs have operations across several states, such a restriction would have them scale down their operations, if converted into abank. RBI had, however, said that after the initial stabilisation period of five years, the scope of activities could be liberalised. LABs, on the other hand, were looking at the option of converting into small banks. But they wanted the entity to be included in the second schedule of RBI, so that they become scheduled banks, a status that comes with certain benefits like small loans covered by credit guarantee schemes, refinance facility from Nabard and availing farm loan subsidy of both state and central governments. YOU CAN'T DO THAT |RBI says will only allow a bank to operate an NBFC as a subsidiary if it undertakes activities such as credit card, factoring or primary dealership |Since the guidelines on small banks restrict the area of operations, NBFCs are not enthusiastic about converting their existing business into a bank |The guidelines suggested small banks would operate in few contiguous districts |According to RBI sources, the central bank was open to the idea of giving LABs scheduled status, provided they met certain criteria | |
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