NDI Rules amended to allow 74% foreign investment in Indian insurance companies | Liberalisation process now complete

Ø  

The budget announcement in February this year, which initiated the liberalisation process, had indicated that foreign ownership and control of Indian insurance companies would be permitted but with “safeguards”. See our Ergo of 4 February, for further details regarding the announcement.

Ø  

The next key milestone was the amendment of the Indian Insurance Companies (Foreign Investment) Rules, 2015 (Foreign Investment Rules) in May. This amendment introduced: (a) new requirements for having “resident” directors and KMPs and additional independent directors; and (b) additional “solvency control” requirements, where foreign investment exceeded 49%. February’s budget announcement had already indicated that these requirements should be expected. See our Ergo of 24 May, for further details regarding the amendment and the new requirements.

Ø  

In June, Press note 2 of 2021 was issued, containing the Indian exchange control framework for 74% foreign investment in Indian insurance companies. Thereafter, in July, the guidelines on Indian ownership and control dated 19 October 2015 (IOC Guidelines) were withdrawn. The IOC Guidelines contained a number of governance constraints for foreign investors, so their withdrawal was a critical part of the liberalisation process. For further details regarding the withdrawal of the IOC Guidelines, please see our Ergo of 3 August.

Ø  

Finally, in August, the NDI Rules were amended (see changes below) bringing about effective change in law permitting 74% foreign investment in Indian insurance companies.

Ø  

Increase in sectoral cap from 49% to 74%. The sectoral cap for Indian insurance companies now stands revised from 49% to 74%. All other references to sectoral cap under the NDI Rules have been accordingly updated as well.

Ø  

General foreign investment-linked condition. All Indian insurance companies with foreign investment need to ensure compliance with the Foreign Investment Rules and other applicable rules and regulations of the Insurance Regulatory and Development Authority of India (IRDAI). This will include the new resident directors/KMPs, additional independent directors and solvency requirements. The amendment also removes all references to “Indian ownership/control” and similar phrases from the NDI Rules.